I. INTRODUCTION ................................................................................................. 2

A. WHY JUDGMENTS MUST BE BINDING ............................................................................ 2 B. REFINING THE BINDING FORCE OF A JUDGMENT .......................................................... 5 C. RES JUDICATA AND ESTOPPEL .................................................................................... 7 D. TWO RESULTING PROBLEMS: WHO ARE BOUND BY A JUDGMENT? WHO MAY BENEFIT FROM A JUDGMENT? ....................................................................................................... 9 E. STATEMENT OF THE PROBLEM .................................................................................. 12 F. OBJECTIVE OF THE STUDY ........................................................................................ 13 G. METHODOLOGY ...................................................................................................... 13 H. SCOPE AND LIMITATIONS ......................................................................................... 14

II. RES JUDICATA AND THE MUTUALITY RULE ....................................... 14

A. THE DOCTRINE OF FORMER ADJUDICATION .............................................................. 14 B. BAR BY FORMER JUDGMENT VS. ESTOPPEL BY JUDGMENT .......................................... 20 A. HISTORICAL ANTECEDENTS ........................................................................................ 20 B. THE MODERN DISTINCTION ....................................................................................... 22 C. DISTINGUISHED FROM STARE DECISIS, DOUBLE JEOPARDY, LAW OF THE CASE AND LITIS PENDENTIA. .................................................................................................................. 23 C. THE PRIVITY EXCEPTION ......................................................................................... 27 D. THE MUTUALITY RULE IN THE PHILIPPINES .............................................................. 31

III. THE ABANDONMENT OF MUTUALITY .................................................. 46

IV. CONCLUSIONS AND RECOMMENDATIONS ......................................... 59

I. Introduction

A. Why Judgments must be binding

Civil procedure is a compilation of many rules. Rules such as those

governing jurisdiction, pleadings, motions and trial have been meticulously crafted

so as to facilitate the fair processing of adjudication of issues coursed through the

courts of justice. All this efforts of providing a fair judgment to a party however,

would be of no use to him if such a judgment does not bind the opposing party.

Thus ultimately, the final settlement of disputes is the desire of every litigant. All

the rules comprising civil procedure would all be for naught, if this were not the

effect when a court renders a judgment. Therefore res judicata, or in layman’s terms

“a matter adjudged”, is important and central to the whole purpose of resorting to

the courts in “the enforcement or protection of a right, or the prevention or redress

of a wrong.”1

The impact of such binding effect however is underscored when one

considers the question as to who can invoke it and against whom. Thus consider the

following permutations of this question: can a prior party use res judicata as against

another prior party; a prior party as against a nonparty; a nonparty as against a prior

party; and finally, a nonparty as against a nonparty? The current rule recognized by

1 Rules of Court Rule 1 sec. 3 par. (a) (1997).

2

Philippine jurisprudence is to allow only the first combination. The second and the

last combinations are not allowable because it is a person’s constitutional right to be

heard before he is deprived of life, liberty and property. The third combination

however is disallowed because of the supposed imbalance of remedies created

because of the existence of the second combination. Considering what has just been

said however of the value of res judicata in civil procedure, the writer submits that

such prohibition does not necessarily equalize the playing field nor promote

fairness and therefore such a policy requires a second look.

The interest of the judicial system in preventing relitigation of the same

dispute recognizes that judicial resources are finite and the number of cases that can

be heard by the court is limited. Every dispute that is reheard means that another

will be delayed. In modern times when court dockets are filled to overflowing, this

concern is of critical importance. Res judicata thus conserves scarce judicial

resources and promotes efficiency in the interest of the public at large.

Once a final judgment has been rendered, the prevailing party also has an

interest in the stability of that judgment. Parties come to the courts in order to

resolve controversies; a judgment would be of little use in resolving disputes if the

parties were free to ignore it and to litigate the claims again and again. Although

judicial determinations are not infallible, judicial error should be corrected through

appeals procedure. Not through repeated suits on the same claim. Further to allow

3

relitigation creates the risk of inconsistent results and presents the embarrassing

problem of determining which of the two conflicting decisions is to be preferred.

Since there is no reason to suppose that the second or third determination of a claim

necessarily is more accurate than the first, the first should be left undisturbed.

In some cases the public at large also has an interest in seeing that rights and

liabilities once established remain fixed. If a court quiets title to land, for example,

everyone should be able to rely on the finality of that determination. Otherwise,

many business transactions would be clouded by uncertainty. Thus, the most

important purpose of res judicata is to provide repose for both the party litigants and

the public. Res judicata thus encourages reliance on judicial decision, bars

vexatious litigation, and frees the courts to resolve other disputes.

As is true for res judicata, the law of collateral estoppel is grounded on

notions that the finality of judgments must be preserved and that judicial economy

demands that cases not be retried continually. When an issue has been litigated fully

between the parties, spending additional time and money repeating this process

would be extremely wasteful. This is particularly important in an era when the

courts are overcrowded and the judicial system no longer can afford the luxury – if

it ever could – of allowing people to relitigate matters already decided. Thus issue

preclusion operates to simplify dispute resolution by considering the original courts

determination on specific issues to be binding.; any subsequent litigation between

4

the parties, even on different claims, will be limited to only those issues being

presented for the first time.

It has been held that res judicata is a general rule common to all civilized

system of jurisprudence, that “the solemn and deliberate sentence of the law,

pronounced by its appointed organs, upon a disputed fact or a state of facts, should

be regarded as a final and conclusive determination of the question litigated, and

should forever set the controversy at rest.2 Indeed, it has been well said that this

maxim is more than a mere rule of law; more even than an important principle of

public policy; and that it is not too much to say that it is a fundamental concept in

the organization of every jural system.”3 It was said by the civilians res judicata

facit ex albo nigrum, ex nigru album, ex curvo rectum, ex recto curvum – a decision

makes white black; black, white, the crooked, straight; the straight, crooked.4

Indeed, the very object of instituting courts of justice is that litigation should be

decided, and decided finally, for human life is not long enough to allow of matters

once disposed of being brought under discussion again.5

B. Refining the Binding Force of a Judgment

Mutuality of estoppel is a requirement long held to be one of the essential

elements for a party to raise a plea or defense of res judicata. The rule is an offshoot 2 Penalosa v. Tuazon, 22 Phil 303 (1912); People v. Macadaeg, et al., l-4316, May 28, 1952.3 Id.4 JOSE FERIA, CIVIL PROCEDURE 802 (1967).5 Fernandez v. Sebido, et al., 70 Phil. 151.

5

of the requirement on identity of parties under the rules regarding the binding

effects of judgments. Briefly stated, it is a rule requiring a person invoking res

judicata to have been a part of a prior litigation involving the same subject matter,

cause of action and against the same parties. It is a rule of fair play because

judgments only bind parties and those in privity with them, therefore those who are

not bound by such should not be able to use it against someone who is limited by

the binding effects of judgment. Fair play is one of the basic pillars of a justice

system finding its roots in natural law. Thus at first glance, mutuality as a

requirement makes sense. However, it cannot be denied that there are situations

where fairness also demands the invocation of res judicata and yet the one invoking

it may not have been a prior party. By failing to recognize the obvious difference in

position between a party who has never litigated an issue and one who has fully

litigated and lost, the mutuality requirement was criticized almost from its

inception.6

In the Philippines, the rules of res judicata are established in the Rules of

Court under section 47 Rule 39 under the heading on “Effect of judgments or final

orders7 and paragraph (f) of section 1 Rule 16 being one of the grounds that can be

invoked as basis for a dismissal of a case.8 Nowhere in both sections also, is the

phrase res judicata to be found. However, to be sure, both sections do not reflect the

6 Blonder-Tongue Laboratories Inc. v. University of Illinois Foundation, 402 U.S. 313, 649 (1971).7 Rules of Court, Revised Rules of Civil Procedure (1997).8 Ibid.

6

broadness of the subject. Precise terminologies, especially in the U.S., have evolved

to apply in certain contexts. Thus it is necessary to become familiar with the

nomenclature although these are by no means universally used nor necessarily

followed by Philippine courts. The principles of res judicata however are

recognized to be the same in many legal systems all over the world and it is not

uncommon to find Latin maxims emphasizing the point of res judicata both in local

and foreign jurisprudence.

C. Res Judicata and Estoppel

As a binding effect of judgment, it would be worth noting that some authors

refer to the general principle of res judicata as former adjudication. This is because

res judicata is only one of two basic concepts of former adjudication. The other one

is “estoppel by judgment.” The two terms refer to two ways that a judgment may

preclude a future action. Res judicata prevents a plaintiff from suing on a claim that

already has been decided and also prevents a defendant from raising any new

defense to defeat the enforcement of an earlier judgment. Estoppel by judgment

precludes relitigation of any issue regardless of whether the second action is on the

same claim as the first one, if that particular issue actually was contested and

decided in the first action.9

9 J. FRIEDENTHAL, M. KANE & A. MILLER, CIVIL PROCEDURE 607 (1985) [hereinafter Friedenthal, et al,. Civil Procedure].

7

Estoppel by judgment also may be divided into two categories: “direct

estoppel” and “collateral estoppel.” When an issue is estopped by a judgment on a

different claim, the estoppel is collateral. An issue is precluded by direct estoppel

when the prior judgment invoked as an estoppel and the present suit are both on the

same cause of action. Since subsequent suits on claims that already have been

decided usually are extinguished entirely by res judicata, very few instances of

direct estoppel can be found.

Direct estoppel is used most often when the first action results in a judgment

that is not on the merits. When that occurs, the determinations made on those issues

actually litigated and necessarily determined in the course of handing down the

judgment will be binding in all subsequent suits on the same cause of action. For

example, if in the course of a lawsuit the parties litigate the issue of the court’s

jurisdiction, and the court makes a determination on it, the doctrine of direct

estoppel will preclude reconsideration of that issue in a subsequent suit brought in

the same court between the same parties on the same cause of action.

Having set out these definitions, a cautionary note must be added. The

terminology is by no means uniform. As mentioned earlier, some writers use res

judicata as a general term, the equivalent of former adjudication. Res judicata is

then divided into “claim preclusion” (traditional res judicata) and “issue preclusion”

(estoppel by judgment).10 In this jurisdiction, res judicata is usually used in this 10 Ibid at 608.

8

way. It is then divided into res judicata, or bar by former judgment, or direct

estoppel by judgment and conclusiveness of judgment, or estoppel by verdict, or

estoppel by record, or collateral estoppel by judgment.11

To understand res judicata or claim preclusion, it is necessary to understand

why it is desirable that once a judgment is reached on one claim, no further action

on the same controversy should be allowed. Two maxims best summarize the

general policies underlying this doctrine. They are: first, nemo debet bix vexari pro

una et eadem causa –no one ought to be twice vexed for one and the same

offense12; and second, republicae ut sit finis litum – it concerns the state that there

be a limit to litigation.13 Thus principles of res judicata serve both private and public

interests.

D. Two resulting problems: Who are bound by a judgment?

Who may benefit from a judgment?

An important question therefore is, who can be bound by res judicata and

collateral estoppel? A corollary question, which is just as important and the subject

matter of this study is, who may invoke res judicata and collateral estoppel? The

decision as to who will be bound by a judgment rests on a very straightforward rule:

11 1 FLORENZ D. REGALADO, REMEDIAL LAW COMPENDIUM 471-472 (1999) [hereinafter 1 Regalado].12 Okol v. Tayug Rural Bank, Inc., No. l-28115, October 30, 1970; PNB v. Barreto, 52 Phil 818 (1929); Oberiano v. Sobremesana, 91 Phil 921 (1952).13 Perkins v. Benguet Consolidated Mining Co., 93 Phil 1035 (1953).

9

only persons who were parties in the first action and their successors in interest may

be bound. Our notions of due process require this result because anyone who finds

himself tied to a judgment in a suit in which he had no opportunity to be heard

rightly could complain that he had been denied due process. Indeed, in order to

ensure that each person has a full opportunity to be heard on issues in which he has

an interest, it is also held that issue preclusion may be asserted only against

someone who was an adverse party in the prior action. Coparties in the first suit are

not prevented from litigating the same issues between themselves in a second

lawsuit if they remained in a nonadversarial position toward one another throughout

the first action. By requiring that an adversarial relationship be found between

parties before issue preclusion may be used, the courts ensure that the parties

specifically and knowingly litigated the issue in controversy.

Although requirements of due process govern the determination of who may

be bound by a judgment, the question whether a nonparty may take advantage of a

prior decree raises other concerns. Nonetheless, history and tradition have induced

courts to treat these two matters as the same: only parties and their privies maybe

bound or may take advantage of a judgment.

Whether a nonparty may be benefited by a decree arises only in the context

of collateral estoppel. When new parties are involved, the courts generally have

ruled that the two actions do not constitute a single cause of action or claim and

10

thus are not barred by traditional res judicata. However, identical issues can be

presented in separate actions involving different parties and it may be clearly

established that those issues were actually and necessarily litigated and determined

in the first proceeding, thereby meeting the basic requirements for issue preclusion.

What prevents the use of collateral estoppel is the doctrine of mutuality.

As the term suggests, mutuality is premised on the notion that all litigants

should be treated equally, that no person should benefit from a judgment when he

stood to lose nothing by it. Since someone who was a party to the first proceeding

could not assert any judgment that was entered against a nonparty because that

person had no opportunity to present evidence or argument at the first trial, the

nonparty likewise should not be able to use the judgment against the party. Thus

mutuality operates in favor of prior parties for it affords them the opportunity to

litigate a second time in the hope that a different determination will be reached. At

the same time, it sacrifices judicial economy, renders the entire proceedings naught,

and raises the possibility of inconsistent results, all in an attempt to treat litigants

equally. Hence this study suggests that the Mutuality rule, which has already been

abandoned in some U.S. courts in the early 40’s, should likewise now be abandoned

in this jurisdiction.

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E. Statement of the Problem

In a suit, A and B are litigating for the ownership of some shares of stock of

Company Z and the dividends declared. A loses the case and subsequently proceeds

against Company Z demanding payment of the dividends to him. Not being a party

to the case between A and B, Company Z would not be allowed to invoke res

judicata against A, although clearly, A already had an opportunity to ventilate his

cause in the previous case.

This requirement for invoking collateral estoppel is an unquestioned policy

in Philippine procedural law that has governed the preclusion of nonparties from

enjoying the binding effect of decided issues. The Rules of Court Provision on res

judicata while enumerating the binding effects of res judicata on parties is silent as

to who may invoke it. Equity is the unmentioned basis for the rule. This policy to

treat parties and nonparties equally has to be reexamined first, in the light of the fact

that a party to a prior action may have already had a full and fair opportunity to

litigate the issue in the first action and second, by the need by the public to declog

the courts dockets. There is good reason not to require mutuality in collateral

estoppel cases especially for defensive uses and even for offensive uses if done

observing a set of standards that see to it that no injustice is done. Therefore, there

is a need for our courts to recognize these cases and for them not to deny nonparties

invoking collateral estoppel on the ground of nonmutuality.

12

F. Objective of the Study

The status of the mutuality rule in the Philippines has to be reviewed in the

light of the growing concern on the congestion of many of our court’s dockets. It is

to be noted that such congestion especially in civil actions has resulted in cases that

go way back to the 1960’s being decided only towards the end of the last

millennium. If we are to put any dent against this problem, a second look on our

country’s policy for settling and putting an end to disputes is needed. The mutuality

rule is one such policy that if reconsidered, might result in efficiency and avoidance

of the misallocation of judicial resources.

G. Methodology

A survey of the cases decided on mutuality since 1901 was conducted as the

rules pertaining to res judicata has remained basically the same in these cases with

only slight modifications having been made which were only for mere clarification.

Books on procedure especially by U.S. authors proved helpful in tracing the

development of the res judicata rule to the eventual abandonment mutuality in some

of those jurisdictions.

13

H. Scope and Limitations

The study focuses on the mutuality rule as used in Philippine and U.S.

decisions. Other issues related to res judicata such as tests for identity of causes of

action and lack of identity in subject matter as well as the different permutations on

the privity requirement will not be discussed although they may be mentioned in

passing.

II. Res Judicata and the Mutuality Rule

A. The Doctrine of Former Adjudication

The Rules of Court provide:

Sec. 47. Effect of judgments or final orders. – The effect of a judgment or final order rendered by a court of the Philippines, having jurisdiction to pronounce the judgment or final order, may be as follows:

(a) In case of a judgment or final order against a specific thing, or in respect to the probate of a will, or the administration of the estate of a deceased person, or in respect to the personal, political, or legal condition or status of a particular person or his relationship to another, the judgment or final order is conclusive upon the title to the thing, the will or administration, or the condition, status or relationship of the person; however, the probate of a will or granting of letters of administration shall only be prima facie evidence of the death of the testator or intestate;

(b) In other cases, the judgment or final order is, with respect to the matter directly adjudged or as to any other matter that could have been raised in relation thereto, conclusive between the

14

parties and their successors in interest by title subsequent to the commencement of the action or special proceeding, litigating for the same thing and under the same title and in the same capacity; and

(c) In any other litigation between the same parties or their successors in interest, that only is deemed to have been adjudged in a former judgment or final order which appears upon its face to have been so adjudged, or which was actually and necessarily included therein or necessary thereto. (49a)

This section of our Rules of Court enunciates the rules on res judicata and

conclusiveness of judgment as known in Anglo-American Jurisprudence.14 Taken

from section 49 of the former Rule 39 with amendments intended for more

clarification which were likewise taken from sections 44 and 45 of then former

Rule 39. The former provisions were taken from sections 306 and 307 of Act No.

190.15 Paragraph (a) is the rule on res judicata in judgments in rem; paragraph (b) is

the rule on res judicata in judgments in personam; and paragraph (c) is the rule on

conclusiveness of judgment.16 In elucidating the rule of res judicata as stated in

these rules, the Supreme Court had occasion to say that:

Although there are some cases that confine the term 'res judicata' to that aspect of the doctrine which precludes the relitigation of the same cause of action, the term, in its literal meaning of a 'matter adjudged', is broad enough to include, in addition, the other aspect of the doctrine, which precludes the relitigation of the same facts or issues in a subsequent action on a different cause of action, and the term 'res judicata' is, indeed, so used in numerous cases. In this respect, it

14 2 RUPERTO G. MARTIN, RULES OF COURT IN THE PHILIPPINES WITH NOTES AND COMMENTS 415 (1973).15 2 MANUEL V. MORAN, COMMENTS ON THE RULES OF COURT 320 (1963).16 1 Regalado at 472.

15

has been declared that if a party is barred from relitigating a matter, it can make little difference to him by what name the legal doctrine is called. On the other hand, the confusion and looseness of thought resulting from the absence of distinctive terms to describe each aspect of the doctrine has been well pointed out.17

The term 'estoppel' has frequently been used in connection with the doctrine of res judicata, not only with respect to the relitigation of particular issues in a subsequent action on a different cause of action, but also with respect to the relitigation of the same cause of action. In some cases, the term 'estoppel by judgment' has been used to described the effect of a judgment to preclude relitigation of the same cause of action, and the phrase, 'estoppel by verdict', to describe the effect of the former proceeding to preclude further litigation of the particular facts on which the jury necessarily made findings in the former action. The decisions have not, however, been uniform in this respect, and in some opinions the term 'estoppel by judgment' has been used to describe the rule precluding the litigation of particular issues in a subsequent action on a different cause of action. Sometimes, the term 'estoppel by record' is so used. The more recent tendency is to describe the latter aspect of the doctrine of res judicata as a 'collateral estoppel' or a 'collateral estoppel by judgment', as distinguished from the 'direct estoppel by judgment' where the earlier and later causes of action are identical.18

Subdivision (a) refers to judgments in rem. Thus, a judgment in a land

registration case is a judgment in rem binding upon the whole world. A judgment

17 Manila Electric Co. v. CA, et al., l-33794, May 31, 1982.18 Id.

16

rendered on a petition for the probate of a will is binding upon the whole world.19 A

judgment concerning personal, political, or legal condition or status or relationship

of a particular person, as, for instance, a judgment in intestate or testate

proceedings, declaring who the heirs of the deceased person are, or a judgment in

an application for citizenship, or a judgment adjudging a person to be a spendthrift,

may be considered as a judgment in rem binding on the whole world.20 Subdivision

(b) refers to judgments in personam, which are binding upon the parties and their

successors in interest but not upon strangers.21

The requisites for res judicata are: (a) The former judgment or order must be

final; (b) It must be a judgment or order on the merits, that is, it was rendered after a

consideration of the evidence or stipulations submitted by the parties at the trial of

the case; (c) It must have been rendered by a court having jurisdiction over the

matter and the parties; (d) there must be, between the first and second actions,

identity of parties, of subject matter and of cause of action. This requisite is

satisfied if the two actions are substantially between the same parties.22 To be more

accurate, the first requirement should properly state that the former judgment or

final order must be final and executory.23

19 Manalo v. Paredes, 47 Phil 938 (1925); In re Estate of Johnson, 39 Phil 156 (1918).20 Salunga v. Evangelista, 20 Phil 273, 280-283 (1911).21 Omana, et al v. Gatulayao, 73 Phil 66 (1942); Gozon v. De la Rosa, 77 Phil 919 (1947); Santiago v. Sheriff of Manila, et al., 77 Phil 740.22 Nator v. CIR, L-16671, March 30, 1962; Malvar v. Palingayan, L-24136, September 27, 1966; Yusinco, et al. v. Ong Hing Lian, L-26523, December 24, 1971; Aroc v. PHHC, L-39674, January 31, 1978; Gitgano v. Borromeo, et al., L-40429, November 29, 1984.23 1 Regalado 472-473.

17

The last requirement on identity of parties is the root of the mutuality rule.

As mentioned before, due process requires identity of parties because only a party

to a suit would have had the opportunity to be heard in a prior suit and thus only a

party can be bound by a judgment. There is identity of parties, not only where the

parties in both actions are the same, but also between those in privity with them, as

between their successors in interest by title subsequent to the commencement of the

action, litigating for the same thing and under the same title and in the same

capacity or where there is substantial identity even if there are additional parties,24

especially so where the additional party was not a proper party in the first or second

action,25 or is a mere nominal party.26 Where, however, in a prior case the parties

were co-defendants without any hostile or conflicting claims raised in issue or

adjudicated as between them, and the second action is between them as plaintiff and

defendant, the judgment in the first action does not constitute res judicata to bar the

second action as there is no identity of parties in both actions.27

The doctrine of res judicata does not apply where the second action is

precisely to annul the judgment in the first action, as one of the requisites of res

judicata is that there must be a former valid judgment.28 Thus even if the parties in

24 Hanopol v. Pilapil, L-19248, February 28, 1963; Aquino v. Sanvictores, 89 Phil 532; Cantillana v. Heirs of Frank Scott, L-39450, August 29, 1980.25 Mallari, et al v. CA, et al., L-26467, July 15, 1981.26 Medija v. Patcho, et al., L-30310, October 23, 1984.27 Valdez v. Mendoza, 89 Phil 83; Carandang, et al. v. Venturanza, et al. L-41940, November 21, 1984.28 Almeda v. Cruz, 84 Phil 636.

18

both actions remain the same, there can be no identity in the subject matter since

that in the judgment sought to be annulled is the thing, contract, property or

wrongful act involved in the action, while in the case for annulment the subject

matter is the judgment rendered in that action. Neither can there be identity in the

causes of action as the cause of action in the first is the delict or wrong committed

by the defendant in violation of the primary rights of the plaintiff, while that in the

action for annulment of judgment is the wrongful obtention thereof through

extrinsic fraud o despite lack of jurisdiction over the case.29

The rule of res judicata applies to final decisions of quasi-judicial

agencies.30 It also applies to judgments made in probate proceedings.31 In a land

registration proceeding, filed by the plaintiff after he had been declared the owner

of the land involved in a civil case, the opposition thereto, filed by the defendant

who lost in said civil case, is barred in said land registration proceeding under the

doctrine of res judicata. All the elements are present and it is of no moment that the

court in the civil case was in the exercise of general jurisdiction and in the land

registration case, in the exercise of special or limited jurisdiction.32

29 1 Regalado 474-475.30 Amistoso v. Ong, et al., G.R. No. 60219, June 29, 1984.31 Sy Kao, et al. v. CA, et al., G.R. No. 61752, September 28, 1984.32 Valsino, et al. v. Plan, et al., G.R. No. 55152, August 19, 1986.

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B. Bar by Former Judgment vs. Estoppel by Judgment

A. Historical Antecedents

Although claim and issue preclusion are similar in many respects and are

treated today as closely related doctrines, they have very different historical origins.

Res Judicata came into English Law from Roman Law; estoppel has its origin in

Germanic law. In general, estoppel prohibits a person from contradicting what he

affirmed earlier.33 For example, estoppel in pais prevents one from denying one’s

own earlier assertion that another has relied upon to her detriment. Originally,

estoppel by judgment also connoted that a party was bound by his own admissions.

In the ancient Germanic trials, the emphasis was placed on the proceedings, which

were controlled largely by the litigants themselves, and not upon the judgment to

which they submitted. Trials were concluded not by the findings of the court but by

the litigants’ own public and solemn declarations, which they could not later

retract.34

In contrast, res judicata stressed from its Roman beginnings the importance

of the court’s judgment; it was always the fact of judgment that foreclosed later

actions.35 The influence of the Roman law concepts on the English common law

was pervasive, although indirect. The principle of res judicata entered England both 33 Friedenthal et al., Civil Procedure 612 citing Caulfield v. Noonan, 229 Iowa 955, 295 N.W. 466, 471 (1940), quoting Coke, Litt. 352a.34 Id.35 Id. citing Modestinus, Pandects, BK VII, XLII(1).

20

through the Norman law and through borrowings from the Canon law, so that by

the early 1100’s the Roman law principle of res judicata was established in

England.36

Although both principles, Roman and Germanic, appear to have coexisted in

the English Law, the principle of estoppel underwent considerable modification.

Transformed, it became “estoppel by record”; an incontestable presumption of the

truth of the records made by the King’s Court. In its new role, it supported the

preeminence of the King’s courts, which were “of record,” over lower courts, which

did not keep formal transcripts. “Estoppel by record” thus was shorn of the

characteristic that identified it as estoppel: it no longer relied on a persons own

statement for its preclusive effect. Instead, like res judicata, it was enlisted to

protect the sanctity of the court’s pronouncements. Still, a distinction persisted

between matters precluded by the judgment of a court and matters precluded by the

court’s record. When the second action was no more than a repetition of the first,

the existing judgment precluded the subsequent action; if the second action differed

substantially from the preceding one, the parties still were forbidden to contradict

directly what the court by its record had established earlier.37

36 Id.37 Id citing Millar, The Historical Relation of Estoppel by Record to Res Judicata, 35 Ill.L. Rev. 41 (1940).

21

B. The Modern Distinction

Today, res judicata and estoppel have combined to become two arms of a

single doctrine. The court’s records no longer are considered to be unimpeachable

as the word of the King. Outside evidence may be introduced to show what was

considered and what issues were decided in an earlier trial. Both estoppel and res

judicata guard the finality of the court’s judgment.38

The difference between the effect of a judgment as a bar or estoppel against

the prosecution of a second action upon the same claim or demand, and its effect as

an estoppel in another action between the same parties upon a different claim or

cause of action, is that in the former case the judgment, if rendered upon the merits,

constitutes an absolute bar to a subsequent action, and is a finality as to the claim or

demand in controversy, concluding parties and those in privity with them, not only

as to every matter which was offered and received to sustain or defeat the claim or

demand, but as to any other admissible matter which might have been offered for

that purpose. While in the latter case the judgment in the prior action operates as an

estoppel only as to those matters in issue or points controverted upon the

determination of which the finding or judgment was rendered.39 The distinction

between the two cases are found chiefly in two regards, viz: as respects the identity

38 Id at 613.39 Peñalosa v. Tuazon et al., 22 Phil 303 (1912).

22

of the subject matter in the successive suits, and as respects the scope of the

estoppel, as to the matters determined by it.40

Friedenthal outlined three characteristic differences between the two

doctrines. First, res judicata prevents relitigation of claims; collateral estoppel ends

controversy over issues. Second, res judicata applies regardless of whether there has

been an adversary contest on a particular matter; collateral estoppel operates only

when an issue has been litigated fully. Lastly, res judicata precludes only

subsequent suits on the same cause of action; collateral estoppel may preclude

relitigation of issues in later suits on any cause of action.41

C. Distinguished from Stare Decisis, Double Jeopardy, Law of

the Case and Litis Pendentia.

Stare decisis describes the effect of previous judicial decisions on present

litigation. Stare decisis principles, also referred to as the doctrine of precedent,

dictate that like cases should be decided alike by courts in a single jurisdiction. To

adhere to precedent is a fundamental doctrine of Anglo-American law.42 Like

former adjudication, stare decisis has the task of ensuring stability and consistency

in judicial decisions, allowing people to plan their conduct. The law must appear to

be rationally consistent if it is to be accepted as an impersonal arbiter of disputes.

40 Id.41 Friedenthal et al., Civil Procedure at 613.42 Id at 609 citing In re Herle’s Estate, 165 Misc. 46, 300 N.Y.S. 103 (1937).

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Despite the superficial similarity to former adjudication, stare decisis may

be distinguished both with regard to the persons that it binds and the issues to which

it applies. Former adjudication precludes only later litigation between parties to a

previous lawsuit and, in some instances, others who are in privity with the others.

Stare decisis, on the other hand, applies equally to all litigants, even those having

no connection with the precedent-setting lawsuit. A doctrine established by stare

decisis thus outlives the litigants in the original suit.

A second distinction is that stare decisis applies only to questions of law;

former adjudication precludes litigation on questions both of law and fact. Former

adjudication protects the judgment, which is the result of rules of law applied to a

specific factual situation. Title to a particular piece of land or the interpretation of a

particular contract are examples of what former adjudication determines. Stare

decisis, however, is unconcerned with the facts of a given case except insofar as

they illustrate the legal doctrine that the case enunciates. In essence, then, former

adjudication establishes a judgment as final between specific litigants in a particular

dispute, whereas stare decisis perpetuates the general principle by which a

particular case is decided and incorporates it into the body of the law.

Stare decisis, although wider in scope than former adjudication, is far less

strict in its application. A judgment between specific litigants, once final, almost

never is tampered with. As a precedent, however, a case may be overruled directly.

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As noted by one court, a departure from stare decisis may be “necessary in order to

vindicate plain and obvious principles of law, and to remedy a continued

injustice.”43 Although subordinate courts in particular are bound by precedents

proclaimed by appellate courts, courts of last resort are at liberty to revise their own

precedents.44 However, courts do not consider themselves free to interfere with their

own judgments in contravention of former adjudication. The res judicata or

collateral estoppel effect of a judgment will be avoided only in truly extraordinary

circumstances. Even when a judgment is recognized to be in error, it will not be

reconsidered once it comes within the ambit of former adjudication.

Double jeopardy is very similar to res judicata, and the two doctrines serve

closely analogous functions. One prohibits repeated prosecution of criminal

charges, the other of civil claims. Both double jeopardy and former adjudication are

founded on the maxim that one ought not to be twice vexed by the same cause.45

Despite these similarities, the doctrines work in different ways.

Res judicata effect is given to any valid judgment, civil or criminal, that is

final and on the merits. Double jeopardy depends on the concept of “jeopardy,”

which is unique to criminal cases. Jeopardy attaches to a criminal proceeding when

43 Id at 610 citing McGregor v. Provident Trust Co. of Philadelphia, 119 Fla. 718, 162 So. 323 (1935). 44 PHILIPPINE CONSTITUTION, art. VIII, § 4, par. 3. “…no doctrine or principle of law laid down by the Court in a decision rendered en banc or in division may be modified or reversed except by the Court sitting en banc.”45 Id citing Commonwealth v. Moon, 151 Pa. Super. 555, 30 A.2d 704 (1943).

25

the accused is in imminent danger of conviction. Once this occurs, double jeopardy

forbids the prosecution from renewing the same charges in a second proceeding no

matter how the case is dealt with in the original court. Ordinarily, jeopardy is

deemed to have attached when the defendant has been duly arraigned before a court

of competent jurisdiction and has pleaded not guilty to a complaint or information

which is sufficient to sustain a conviction.46 Since res judicata and double jeopardy

rely on different standards, one can imagine criminal cases in which one doctrine

would apply but not the other. For example, if a criminal prosecution is dismissed

before a plea is entered on a finding that the relevant statute of limitations has

expired, the defendant has not yet been placed in jeopardy. Nevertheless, he might

avoid later prosecution for the same offense by invoking res judicata.

Another doctrine to be distinguished from former adjudication is “law of the

case.” Stated most simply, law of the case refers to the principle that issues once

decided in a case that recur in later stages of the same case are not to be

redetermined.47 Thus, just as notions of collateral estoppel prevent the relitigation of

the same issues in successive suits, this doctrine limits relitigation in successive

stages of a single suit. For example, law of the case will apply when an issue in the

case is decided by the trial court and appealed. If the appellate court reverses and

rules on the law to be applied and how it affects certain issues of the case, those

46 RICARDO J. FRANCISCO, CRIMINAL PROCEDURE 363 (1996). 47 Id citing Vestal, Law of the Case: Single Suit Preclusion, 1967 Utah L.Rev 1 (1967).

26

findings will be binding on the trial court when the action is remanded for a new

trial. In practice, the doctrine is not enforced with the rigor that attends the rules of

res judicata and collateral estoppel.48

Litis pendentia like res judicata is one of the grounds enumerated in sec. 1,

Rule 16 of the Rules of Court that can be used in a motion to dismiss. Similarly, it

requires that the parties to the action are the same, that there is substantial identity

in the cause of action and reliefs sought and that the result of the first action is

determinative of the second in any event49 and regardless of which party is

successful,50 would amount to res judicata on the other case.51 Thus just like res

judicata, the policy here is to avoid conflicting decisions rendered by the courts on

the same subject matter in order to augment the finality of decisions and put an end

to litigation as well as discourage the multiplicity of suits. The difference lies in the

fact that in res judicata there is a prior judgment while in litis pendentia there is no

prior suit but a pending judgment to be rendered.

C. The Privity Exception

Under Rule 39 sec. 47 par. (b) and (c), a judgment is “conclusive between

the parties and their successors in interest by title subsequent to the commencement

48 Id at 611 citing Messinger v. Anderson, 225 U.S. 436, 444, 32 S.Ct. 739, 740, 56 L.Ed. 1152 (1912).49 Northcostt and Co. v. Villa-Abrille, 41 Phil 462 (1921).50 Arceo v. Oliveros, et al., L-38251, January 31, 1985.51 Marina Properties Corp. v. CA. L-125447, August 14, 1998.

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of the action or special proceeding, litigating for the same thing and under the same

title and in the same capacity.”52 This codifies the “privity exception”, the rule that

extends the binding effects of judgments to nonparties. It basically requires a

finding that a nonparty is in privity with a party. Justice Traynor differentiated a

party and a privy in this wise:

“A party in this connection is one who is "directly interested in the subject matter, and had a right to make defense, or to control the proceeding, and to appeal from the judgment." (1 Greenleaf, Evidence (15th ed.), sec. 523. See cases cited in 2 Black, Judgments (2d ed.), sec. 534; 15 R. C. L. 1009; 9 Va. L. Reg. (N.S.) 241, 242; 15 Cal.Jur. 190; 34 C.J. 992.) A privy is one who, after rendition of the judgment, has acquired an interest in the subject matter affected by the judgment through or under one of the parties, as by inheritance, succession, or purchase.”53

Persons in privity relationships are deemed to have interests so closely

intertwined that a decision involving one necessarily should control the other.

Further, it is expected that the person who was the named party adequately

represented the interests of the other when litigating the first action since it was in

his own selfish interest to do so.54

The difficulty comes in defining what constitutes privity for preclusion

purposes. It has been suggested that privity is merely a conclusory label applied by

52 Rules of court, Revised Rules of Civil Procedure (1997).53 Bernhard v. Bank of America, 19 Cal.2d 807, 811 (1942).54 Friedenthal, et al,. Civil Procedure at 683.

28

the courts when they determine that there is a sufficient identity of interest between

the party and nonparty to allow the judgment to bind both. Privity states no reason

for including or excluding one from the estoppel of a judgment. It is merely a word

used to say that the relationships between the one who is a party on the record and

another is close enough to include that other within res judicata.55 Thus rather than

focusing on who is in privity, more profitable analysis of when nonparties may be

bound requires an inquiry into whether the facts and circumstances in the first

action raise the presumption that the nonparty’s interest was fully and adequately

presented.56 Notwithstanding the merits of this approach, several variations of the

principle have evolved in this jurisdiction namely, successors in interest,57

representative parties,58 and substantial identity of parties.59

Successors in interest is the historic and most common situation in which

privity is upheld. It arises when a person acquires an interest in the subject matter of

a suit after it was filed or decided. This is necessary in order to preserve the finality

of judgments. A contrary view would subject the winning litigant to prospects of

continual litigation by the mere expedience of the losing party transferring his

interest in the subject matter to someone else who could relitigate the case.

55 Id citing Bruszewski v. U.S., 181 F.2d 419, 423 (3d Cir.1950).56 Id.57 Rules of Court, Revised Rules of Civil Procedure Rule 39 sec. 47 par. (b) and (c) (1997).58 Imperial v. Court of Appeals, 316 SCRA 393 (1999).59 Firestone Ceramics, Inc. v. CA, 313 SCRA 522 (1999); Republic v. CA, G.R. No. 103412, February 3, 2000; Cruz v. CA, G.R. No. 135101, May 31, 2000; DBP v. CA, G.R. No. 110203, May 9,2001; Sendon v. Ruiz, G.R. No. 136834, August 15, 2001.

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A second well-defined privity relationship arises when legally appointed

representative parties, such as trustees and executors, are involved. Such individuals

are deemed in privity with those whom they represent. Since they sue or are sued on

behalf of another or a beneficiary, any judgment entered will bind not only them,

but also the beneficiaries whom they serve.

Substantial identity of parties is of local flavor. Traditionally, it was used in

this jurisdiction to address the scheme of adding new parties to a subsequent

litigation to avoid identity of parties in order to prevent res judicata, thus the

proverbial statement that for res judicata to apply, absolute identity of parties is not

required, only substantial identity of parties.60 The phrase sometimes has also been

used to encompass both the successor in interest61 and representative parties62

exception. Through the years, the principle has evolved by broadening the coverage

of the privity exception by the formula “identity of relief sought equals substantial

identity.”63 These recent holdings of substantial identity of parties apparently has

been the judicial trend in the Philippines in binding nonparties using the privity

exception.

60 Suarez v. Naujan, G.R. No. L-22282, November 21, 1966.61 Wolverine Worldwide, Inc. v. CA, G.R. No. 78298, January 30, 1989.62 San Diego v. Cardona, 70 Phil 281 (1940).63 Firestone Ceramics, Inc. v. CA, 313 SCRA 522 (1999); Valencia v. RTC, G.R. No. 82112, April 3, 1990.

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D. The Mutuality Rule in the Philippines

In the case of Andres, et al. v. Pimentel,64 an en banc decision, it was

explicitly held for the first time that we follow the mutuality rule. It was a land

dispute case with the plaintiffs basing their title upon a purchase and sale made by

their father, Vicente Andres Cam, on the 18th day of August, 1886, from Loreano

Pimentel, father of the defendant Valeriana Pimentel, while on the other hand, the

defendant claims to have inherited these lands from her mother, Doña Ines

Guerrero. The lower court declared the plaintiffs to be the owner of the land in

question however, the defendant interposed the defense of res judicata, based upon

a judgment of the then Court of First Instance of Ilocos Norte, wherein the

Andreses were the plaintiffs and a certain Caluya was the defendant. The subject

matters of the actions are exactly the same in both cases – the lands in question.

Caluya is the son-in-law of Valeriana Pimentel, with the former alleging ownership

of the land to the latter as his defense against the title of the Andreses. The

judgment in the former case said that the documents presented by the plaintiffs may

be sufficient as between them and Laureano Pimentel and his heirs, but they are not

binding upon a third person who asserts a different right or title derived from that of

the said Laureano. Thus it was held:

“The title in the assignor Laureano Pimentel not having been duly established in this case, the

64 G.R. No. 6818, February 10, 1912.

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allegations of the complaint are not sufficient, and the court hereby absolves the defendant therefrom, with costs against the plaintiffs.”

“It is so ordered”

In passing upon the issue of the defense of res judicata of Valeriana

Pimentel, the Court found that there was no identity of parties between the case at

hand and the case of Andres, et al. v. Caluya. The court arrived at this conclusion

after finding that the same material question was submitted to the court in both

cases: that is, the ownership of the land. However, probably working on a hazy set

of facts, the Court presented the question of whether or not Laureano Pimentel was

the owner of these lands at the time he ceded them to the father of the plaintiffs

hypothetically. The Court it seems was not sure of the precise point upon which the

first judgment was based.65 In answering the hypothetical issue, the Court said that

the prior case found Laureano Pimentel not to be the owner. However, no identity

of parties having been found, Valeriana cannot invoke the defense of res judicata.

On this requirement of mutuality, the Court had this to say which illustrates well the

mutuality rule:

“It is a rule that estoppels’ must be mutual; and therefore a party will not be concluded against his contention, by a former judgment, unless he could have used it as a protection, or as a foundation of a claim had the judgment been the other way; and conversely no person can claim the benefit of a judgment as an estoppel upon his adversary unless he

65 Id.

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would have been prejudiced by a contrary decision of the case.” (citations omitted).

“Valeriana Pimentel, as we have said, the defendant in the present case, was not a defendant of record in the former case. This being true, would she have been bound by the judgment of the court had it been against the contention of her son-in-law, Domingo Caluya, the defendant in that action? In other words if the court had declared in the former case that the lands in question were the property of those plaintiffs, would Valeriana Pimentel have been bound by that judgment? If so, then her defense of res judicata is well founded; but if not, then she cannot interpose this defense against the present plaintiffs. As she was not a party of record in that case, and as the record in the present case fails to show that she was present and took part in the former trial, we think that that judgment, had it been in favor of the plaintiffs, would not be binding upon her. Consequently, the judgment in that case is not res judicata between the parties in the present case.”

Although the wisdom of entertaining the issue of res judicata and mutuality

in this case may be doubtful,66 its holding on mutuality of estoppel shows that the

rule is historically ingrained in our jurisprudence. Again in Peñalosa v. Tuazon et

al.,67 another case decided in 1912, the Supreme Court in addressing the fact that

parties in the first suit are not identically the same as those in the second, briefly

mentioned the mutuality rule. Thus it was said:

“The contention that the former action is not a bar to the present action because the parties to the two

66 Rules of Court, Revised Rules of Civil Procedure, rule 3 § 7 (1997). A case like this under the rules would require instead the compulsory joinder of indispensable parties.67 22 Phil 303 (1912).

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actions are not absolutely identical, is not supported either by reason or authority. While it is true that in general, upon the principle that estoppels must be mutual, no person is entitled to take advantage of a former judgment or decree, as decisive in his favor of a matter in controversy, unless, being a party or a privy thereto, he would have been prejudiced by it had the decision been the other way; and that judgments and decrees are conclusive evidence of facts only as between parties and privies to the litigation; nevertheless, it is not always a conclusive objection to the admissibility of a record as an estoppel or a bar that the parties to the former action included some who are not joined in the second action, or vice versa.”

Philippine decisions touching on mutuality unequivocally are very few and

all of them are “long forgotten” cases. In the writer’s view, only in three other cases

is the mutuality rule explicitly mentioned, these are the cases of Hillaro v. La

Congregacion de San Vicente de Paul,68 Perkins v. Benguet Consolidated69 and

Estate of Gavino Reyes, et al. v. Reyes.70 In Hillaro, the Supreme Court did not

have to discuss the issue of mutuality as the case was found to have no cause of

action and thereafter was dismissed. However, the Court deemed it necessary to

give an opinion on the other arguments so as to avoid further unnecessary litigation.

In this case, Hillaro, representing a certain Andres Garcia, sued the

defendants for damages sustained from the ejectment case against Garcia decided in

favor of the defendants, Loper and Jones. Hillaro having no standing to file such a

68 27 Phil 593 (1914).69 93 Phil 1034 (1953).70 97 Phil 659 (1955).

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civil case, the complaint was dismissed by the trial court and affirmed by the

Supreme Court. Notwithstanding the dismissal, the Court addressed the question

whether the ejectment case, which was filed by Loper and Jones against Garcia

could be invoked by the principal defendant, La Congregacion de San Vicente de

Paul who was not a party to the ejectment suit. The Supreme Court held that it can

and precisely this is because of mutuality. It was stated in the case:

“This question having once been litigated by Loper and Jones could not be again litigated by the corporation whom they represented, namely, the principal defendant herein. If the action began by Loper and Jones against the plaintiff in this case had resulted disfavorly [sic] to the plaintiffs in that action, a judgment against them would have been binding upon the corporation which they represented, namely, the principal defendant, touching the validity of the lease which the defendant in that action alleged he had with said corporation at the time when it attempted to lease the lands to Loper and Jones. The question whether or not the plaintiff in this action had a valid and subsisting lease of the premises in question from the principal defendant was completely disposed of in the action which Loper and Jones began against him for the possession of said lands under authority and power received from the corporation. Every point and every question necessarily in that kind of an action was there determined and finally disposed of. No action could thereafter be maintained by either of the parties to that action or their privies for the redetermination of any of those questions. If the defendant in that action had demonstrated and the court had found he had a valid and subsisting lease with La Congregacion de San Vicente de Paul that judgment would have been binding and conclusive upon said corporation. It

35

could not have maintained another action against the same defendant to determine the same question. The estoppel was mutual. The defendant therein was estopped from litigating the same question with the corporation that it had litigated with Loper and Jones, its representatives and the corporation was estopped from litigating with the defendant the same question which its representatives, Loper and Jones, had already litigated with him.

In deciding as such, the Supreme Court had to find a way to work with the

problem of including the corporation, which was not a party in the ejectment case to

be covered by the mutuality rule. It held that “it is the general rule that, although

one is not nominally or formally a party to an action he will be estopped by the

judgment therein if he was represented, as to his rights or interests in the subject

matter, by a party legally entitled to represent him, or who actually conducted the

prosecution or defense on the behalf or of the benefit of said person (citations

omitted).” Clearly the general rule referred by the Court here is a privity exception,

namely the principle of representative parties. This finding was supported by the

fact that the contract between Loper and Jones and La Congregacion de San

Vicente de Paul specifically authorized the former to institute the ejectment suit.71

In the Perkins case which was decided en banc,72 what was involved was a

suit filed by Eugene Arthur Perkins against the Benguet Consolidated Mining

Company demanding the latter to deliver to him the dividends declared by the

71 Rules of Court, Rule 70 sec. 1.72 93 Phil 1034 (1953). This case is in Spanish, translation in English was done online at http://www.worldlingo.com.

36

company alleging his ownership over some of its shares of stock. The company

refused because the wife of the plaintiff, Idonah Slade Perkins was also claiming

ownership over the said shares of stock and the dividends on the strength of two

U.S. decisions holding her to be the rightful owner of the shares of stock. Thus

Benguet asked that the complaint be amended to include Idonah Slade Perkins as

defendant. This situation was brought about by the following antecedent events.73

Sometime in 1929, disputes over money arose between Eugene Perkins and his wife

Idonah.74 For several months negotiations between them were conducted with a

view to an amicable settlement and division of the properties which had been

acquired since their marriage in 1914. On June 30, 1930, she commenced an action

in the Court of First Instance of Manila seeking relief of various kinds against her

husband.

She subsequently sought the liquidation of the properties of the conjugal

partnership and likewise prayed that one-half of the net proceeds of the partnership

be given to her. Mr. Perkins, in his answer, alleged that the property set forth in the

complaint belonged to the conjugal partnership, and presented a counterclaim and

cross-complaint against her in which he alleged that she was illegally depriving him

of the possession and administration conferred upon him by law, with respect to a

large part of the property belonging to the conjugal partnership, and prayed that she

73 The antecedent facts were culled by the writer by cross referencing this case with other cases decided by the Court involving Mr. and Mrs. Perkins which fortunately are written in English.74 Perkins v. Perkins, G.R. Nos. 35470, 35658, September 12, 1932.

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should render him an accounting of the conjugal property in her possession or under

her control and also that she transfer and deliver to him all said property which

might be found. Shortly thereafter Mrs. Perkins dismissed her attorney and filed

formal withdrawals of all her numerous actions pending against her husband. The

trial court decided the case by setting forth the following order:

“ . . . dismissing plaintiff's complaint, authorizing the plaintiff to withdraw her complaint, and condemning the plaintiff to render an accounting to the defendant of all the conjugal property now in her possession or under her control; condemning the plaintiff to convey, transfer and deliver to the defendant all such conjugal property as may result from said accounting, and to execute in favor of the defendant all such deeds and documents as may be necessary in order that defendant's title to such property may legally appear."75

Five months and eleven days after the rendition of the judgment in the first

case, she filed therein an "application to set aside judgment" based on alleged fraud

made on her by her husband. The trial court dismissed this and held that she was

guilty of laches in the presentation of her motion as it was not made within a

reasonable length of time. Thus the judgment in this case has become final. The

wife however never complied with it.

Eugene Perkins went to New York in 1933 and filed a case there against her

wife and the Guaranty Trust Company of New York, the company holding the

certificates of the Benguet Consolidated shares of stock, for and in behalf of Idonah 75 Id.

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Perkins. He again raised the issue of ownership and alleged, first, that the said

certificates of stock were conjugal partnership property and as the designated

administrator, under Philippine law he was entitled to them. Second, There was

already a Philippine judgment recognizing him as such. Mrs. Perkins filed a general

denial and argued that the judgment in the Philippines was obtained by fraud and

therefore null and void. The husband won the case in the lower court but was later

reversed by the Court of Appeals of New York which found instead that the wife

was the absolute owner of the shares. This judgment became final when Mr.

Perkins abandoned his appeal to the Supreme Court of the United States.

In 1938, this case against Benguet Consolidated, as mentioned earlier was

filed by Eugene Perkins and later amended to include Mrs. Perkins as requested by

the company. In her answer to the amended complaint, she invoked the decision of

the Court of appeals of New York as res judicata. This case however was delayed

by the Japanese occupation of Manila during World War II. Pending that, Mrs.

Perkins this time filed a case in California against Benguet Consolidated to recover

dividends declared by the company. The company likewise refused payment

alleging that under Philippine law, it was the husband who was entitled to the

dividends. The Court of Appeals of California held however that, because the issue

as to the ownership of the stocks and dividends has already been decided by the

New York decision and was thus res judicata, and that defendant, who was not a

39

party to that action, was conclusively bound thereby and furthermore that under the

full faith and credit clause of that state; the court was bound to enforce that

judgment. Judgment therefore is entered in favor of the plaintiff.

In 1946, the case pending in Manila was finally decided with the court

finding for Eugene Perkins but Benguet promptly moved for a new trial or

reopening of the case as it allegedly forgot to present in evidence, copies of the

decisions in favor of Idonah Perkins which were rendered by the Court of Appeals

of New York and the District Court of Appeals in California. The court denied

these motions, hence the company appealed to the Supreme Court.

The Court found for the company76 and held that the decisions of the

Appellate Courts in the states of New York and California are res judicata as

regards the issue of ownership over the shares of stock and the dividends. The

Court however had to deal with the mutuality rule as Benguet was not a party to the

New York case which was also the basis of the ruling made in California wherein

the company was a party. The Court disposed of this issue easily because,

fortunately for Benguet, its request for the amendment of the complaint to include

Mrs. Perkins as a party to the action was granted. Therefore, between the judgment

rendered in New York and this case, there was identity of cause of action, subject

matter and parties. The Court however did not stop there. In a rather lengthy obiter

76 The Court also held that by filing the New York case, Eugene Perkins under the Doctrine of Election has abandoned the Philippine decision declaring him administrator of the conjugal partnership.

40

dictum it dealt further with the issue of mutuality as to Benguet Consolidated, it

pronounced some rather interesting points regarding mutuality.

The Court held “that the contention that Benguet Consolidated was not a

party to the action in New York is not that vital because the company did not have

any adverse interests in the suits. The company was a trustee only of the dividends

and its only obligation is to pay them to the person who has a right to them.

Although the main issue in the case is the question regarding the ownership of the

shares of stock and the dividends, an accessory question in the present case is, “to

whom should the company pay?” The answer evidently is that it does not have to be

paid to the person who lost in the judgment. In the New York case, it was not

necessary to decide on that question because it was already declared that Mrs.

Perkins is the owner of the 24,000 shares of stock and the dividends.”77

Justice Pablo, speaking for the Court next cites the case of Bernhard v. Bank

of America.78 This is quite curious because as will be discussed later on in this

study, Bernhard is the leading U.S. case that in no uncertain terms, abandoned the

mutuality rule and allowed a nonparty to invoke res judicata. Perkins however, did

not intend to abandon mutuality at all. Thus it is not surprising that the Court only

77 World Lingo’s (http://www.worldlingo.com) software provides a word per word translation. The writer thereafter tries to make sense of the sentences and rewrites them according to his understanding of it.78 19 Cal.2d 807, 122 P.2d 892 (1942).

41

used the factual milieus of the case rather than the holding. The Court made the

following analogy:

“(Machine translated from Spanish) …in the Bernhard case, Bank of America did not take part in a probate proceeding that approved the account of the executor, Mr. Cook, the same way that in this case Benguet was not a party to the litigation regarding the ownership of the shares of stocks and the dividends in New York; but since the probate court decided that the deposit was the property of Cook, necessarily, an unavoidable consequence is that Helen Bernhard and the other beneficiaries do not have the right to demand it from the Bank of America: it is not right that the Bank should not pay the deposit to Cook but to the plaintiffs instead. Similarly, the plaintiff cannot now demand of Benguet the payment of the dividends of the shares of stocks when it has already paid them to the true owner, Mrs. Perkins. The decision of the probate court constitutes res judicata on the ownership of the deposit and was a good defense in Bernhard by Bank of America, just as the decision of the Court of New York and made effective in California constitutes res judicata or estoppel by judgment in the present case or in any later one that tends to discuss the ownership of the shares of stock.”

Justice Pablo, in behalf of the Court, then goes on by citing the Spanish

Supreme Court when it said that the law79 has established that res judicata does not

bind nonparties generally, however there are exceptions to the rule such as when

one has been a party to a prior suit and lost, and relitigates a second time using

basically the same cause of action over the same thing.80 After that, the Court again 79 Supra note 72 citing 20, tit. 22, de la Partida 3, December 26, 1879.80 The machine translation of this part is almost nonsensical.

42

cites another American case, Coca-Cola Co. v. Pepsi-Cola Co81 where the U.S.

court held that:

“…we are of the opinion that a plaintiff who deliberately selects his forum and there unsuccessfully presents his proofs, is bound by such adverse judgment in a second suit involving all the identical issues already decided. The requirement of mutuality must yield to public policy. To hold otherwise would be to allow repeated litigation of identical questions, expressly adjudicated, and to allow a litigant having lost on a question of fact to re-open and to retry the old issues each time he can obtain a new adversary not in privity with his former one."82

It is interesting to note that the Court said here that all these cases

demonstrate that the jurisprudences in Spanish and Anglo-Saxon like the decisions

of the Court in the cases Donato v. Mendoza83 and in Peñalosa v. Tuazon,84

extended instead of restricting the application of res judicata in order to put an end

to litigation and avoid multiplicity of suits. The extending referred to in Donato is

the Court’s harmonizing of art. 1252 of the old Civil Code and paragraph 1, section

306 of the Code of Civil Procedure regarding res judicata. The former calling for

perfect identity between things, causes and persons of the litigants while the latter

provides for exceptions for the perfect identity rule and the binding of the parties’

successors in interest. The Peñalosa case on the other hand merely extended the

81 36 Del. 124, 172 A. 260 (Super.Ct.1934).82 No translation.83 25 Phil 57 (1913). 84 22 Phil 303 (1912).

43

effect of res judicata to summary proceedings. These “extending” however pales in

comparison to the “extending” done in Coca-Cola where mutuality must yield,

under certain circumstances, to public policy and in Bernhard where it was

completely abandoned.

In the case of Estate of Gavino Reyes, et al. v. Reyes85, Justice J.B.L. Reyes

had the occasion to illustrate the mutuality rule which perhaps, to date, might be the

last time it was discussed in Philippine Jurisprudence.86 Henceforth, it seems that

the rule of mutuality is so well entrenched in res judicata and conclusiveness of

judgment that subsequent cases do not anymore endeavor to explain the principle.

In this case, the defendant, Zoilo Reyes an alleged nephew and administrator of the

estate of Gavino Reyes wanted to be declared an heir of the latter by using res

judicata. This he does by invoking a prior civil case entitled, Basilia Coronel v.

Rosa Venal, a case of annulment of a sale for a piece of land. Here it was

mentioned by the Court of First Instance of Tayabas that:

“When Rosa Venal sold the whole property again in 1939 alone, she was not its exclusive owner for Gavino Reyes left nephews in the persons of Andres and Zoilo Reyes (emphasis supplied), children of his deceased brother Luciano Reyes. In the law and order

85 97 Phil 659 (1955).86 The Lex Libris program © CD Asia, enables a user to query keywords in its database that span cases decided since 1901 to the present. The keywords “mutual”, “estoppel”, and “res judicata” yielded the four pertinent cases discussed in this heading out of 18 cases in the “search result”. The keywords “mutuality” and “Bernhard” yielded only one hit, which is the Perkins v. Benguet Consolidated case.

44

of succession, brothers and sisters, nephews and nieces precede the surviving spouse.”

The part stating him to be the nephew of Gavino Reyes was argued by Zoilo

Reyes and subsequently adopted by the lower court, to be conclusive of his status as

heir. The Supreme Court said this was not correct:

“Upon these facts we hold that the finding of the Court of First Instance in its case No. 4656, as to Zoilo and Andres Reyes, could not give rise to res judicata nor to estoppel. Both bars to relitigation require that the later suit should be between the same parties or their privies, a condition that does not obtain in the present case. The first litigation was between the appellants Rodriguez and Basilia Coronel, while the second case, now before us, is between the Administrator of the Estate of Gavino Villota y Reyes, on the one hand and the Rodriguezes on the other. Obviously, there is no identity of parties.

xxx xxx xxx

It stands to reason that as the finding that Zoilo and Andres Reyes were nephews of Gavino Reyes was made in an action wherein Gavino was not a party, it can not be invoked by the appellants Rodriguez against him or his administrator, and if this be so, neither should said pronouncement be invoked by the administrator against the Rodriguez, for estoppel must be mutual.”87

That the mutuality rule prevails in this jurisdiction is well settled. These five

decisions discussed above serve as an anchor in Philippine jurisprudence for any

person seeking the benefits of the unwritten rule of mutuality of estoppel. As

87 97 Phil 659 citing Andres v. Pimentel, G.R. No. 6818, February 10, 1912.

45

mentioned earlier, no other case mentions the principle of mutuality after the case

of Estate of Gavino Reyes v. Ziolo Reyes. Even in the cases discussed above, it is

an unchallenged requisite. Mutuality it seems, in the Philippines at least, is an

unquestioned principle just as res judicata itself is universally accepted. This

however, as will be explained in the next chapter, is simply not true. In the U.S., as

early as the 1940’s, the abandonment of the mutuality rule began.

III. The Abandonment of Mutuality

A judgment, as we have seen, determines both claims and, if based on actual

litigation, issues. The same issue may arise in subsequent litigation involving

another claim. If that subsequent litigation is between the same parties, the

determination in the first action is conclusive in the second action under the rule of

res judicata or conclusiveness of judgment. The traditional rule was that the

determination was not conclusive, however, if the second action involved different

parties even though one of them had been a party to the first action and had

unsuccessfully litigated the issue on that occasion. Thus, if Jose was injured as the

result of Pedro’s operation of a car owned by Ramon, and Jose sued Ramon

contending that Pedro acted negligently but lost on a finding that Pedro had not

been negligent, Jose was not prevented from suing Pedro and therein relitigating the

question of Pedro’s negligence. The reason offered to support this conclusion was

46

that if Jose had won the first action, the determination would not be binding on

Pedro because Pedro was not a party to that action; since Pedro was not bound, the

estoppel resulting from the first action was not mutual i.e., a two-way street as

between Jose and Pedro; and therefore Jose should not be bound either. This was

the mutuality rule.

For years almost all courts avoided a frontal attack on mutuality,88 living

instead within its framework by an increasing recognition of the exceptions such as

that made in the Coca-Cola case mentioned previously.89 But it remained almost

universally recognized, though often criticized in the U.S., until 1942, when its

abandonment was spearheaded in that jurisdiction in the leading U.S. case of

Bernhard v. Bank of America.90 In this case, sometime in June 1933, Mrs. Clara

Sather, an elderly woman, made her home with Mr. and Mrs. Charles O. Cook. Due

to her failing health, she authorized Mr. Cook and her doctor to make drafts jointly

against her commercial account in the Security First National Bank of Los Angeles.

To facilitate the drafts, Mr. Cook opened a commercial account at the First National

Bank of San Dimas in the name of “Clara Sather by Charles O. Cook.” Thereafter

checks drawn by Cook and her doctor from the Los Angeles account were

deposited in the San Dimas Account.

88 FIELD, KAPLAN & CLERMONT, CIVIL PROCEDURE (1984).89 Supra note 81.90 19 Cal.2d 807, 122 P.2d 892 (1942).

47

On October of the same year, Mrs. Sather signed by mark an authorization

directing the Los Angeles Bank to transfer the balance of her savings account to the

San Dimas Bank. Cook withdrew the entire balance from that account and opened a

new account in a Los Angeles bank in the name of himself and his wife.

Mrs. Sather died in November the same year with Cook qualifying as

executor of the estate. After several years he filed his resignation and forthwith filed

an account of the estate. There was no mention of the money transferred by Mrs.

Sather to the San Dimas Bank thus Helen Bernhard, Beaulah Bernhard, Hester

Burton, and Iva LeDoux, beneficiaries under Mrs. Sather's will objected to the

accounting. After a hearing was conducted on the objections, the probate court

determined that the decedent during her lifetime had made a gift to Charles O. Cook

of the deposit in question.

Helen Bernhard was appointed administratix of the estate of Mrs. Clara

Sather after the discharge of Cook. She instituted a civil action against the Bank of

America, the successor of the San Dimas Bank, seeking to recover the deposit on

the ground that it was a debt to the estate by the bank since the withdrawal was not

authorized. The defendant raised the defense of res judicata using the decision of

the probate court that held that the deposit was a gift and was an authorized

withdrawal. Bernhard countered invoking the mutuality rule and contends that the

privity exception cannot be applied in this case.

48

Clearly, at the time of the suit, the San Dimas Bank (Bank of America) was

no longer in privity with Cook. The bank-depositor relationship ceased to exist

when Cook withdrew all the money and deposited it at another bank. Therefore the

mutuality rule would have easily defeated the plea of res judicata by the defendant

bank. However, Justice Traynor was of the view that the mutuality rule was a facile

formula for the availability of res judicata. He goes on further by pointing out a

substantial distinction between the criteria for determining who may assert a plea of

res judicata and the criteria for determining against whom a plea of res judicata may

be asserted. Thus he said:

“The requirements of due process of law forbid the assertion of a plea of res judicata against a party unless he was bound by the earlier litigation in which the matter was decided. (Coca Cola Co. v. Pepsi Cola Co., supra. See cases cited in 24 Am. & Eng. Encyc. (2d ed) 731; 15 Cinn. L. Rev. 349, 351; 82 Pa. L. Rev. 871, 872.) He is bound by that litigation only if he has been a party thereto or in privity with a party thereto. (Ibid) There is no compelling reason, however, for requiring that the party asserting the plea of res judicata must have been a party, or in privity with a party, to the earlier litigation.”91

The decision goes on to say that most jurisdictions have in effect

accomplished the same result by recognizing a broad exception to the requirements

of mutuality and privity. Justice Traynor, speaking for the Court, supported this

holding by citing examples of derivative liability suits such as master and servant,

91 19 Cal.2d 807, 812 (1942).

49

principal and agent, and indemnitor and indemnitee. In our civil law system, these

derivative liability cases have been codified in the Civil Code under art. 2180 on

vicarious liability, title X. art. 1868-1932 on agency, title XV art. 2047-2081 on

guaranty and the Insurance Code regarding indemnitor-indemnitee relationships.

Therefore in this jurisdiction, res judicata is not the basis invoked for binding

privies in such cases but rather the respective codal provisions just mentioned.

Nevertheless, the point held by the decision, that courts have implicitly recognized

the facile formula of mutuality by expanding the notion of who was in privity in

order to permit a broader binding effect holds true in this jurisdiction. As we shall

see later on, the privity exception of substantial identity of parties has been used by

our Supreme Court to achieve precisely just that.

In concluding, Justice Traynor held that the only pertinent questions in

deciding whether to apply issue preclusion should be (1) whether identical issues

are involved; (2) whether there is a final judgment on the merits; and (3) whether

the person against whom estoppel was asserted was a party or in privity with a

party to the prior suit (emphasis supplied).92

Following Justice Traynor’s lead, many jurisdictions have abandoned

mutuality. They have noted that a person should not be able to continue to try an

issue, particularly when there is no reason to suspect that the result will be different.

As long as the issue or issues are identical in both suits and a full opportunity was 92 19 Cal.2d 807, 813 (1942).

50

present in the first action to litigate those issues, a nonparty may assert collateral

estoppel against someone who was the losing party there.93

But this move away from mutuality has been in stages and jurisdictions vary

as to when they will allow nonparties to assert issue preclusion against a party to

earlier litigation.94 Many courts have made this decision depend on the litigation

posture of the parties in the first and second action.

The most common situation in which mutuality has been abandoned is when

the party against whom estoppel is asserted was in an offensive posture in the first

suit as a plaintiff, and when the person who is asserting estoppel is doing so

defensively in the second action.95 Just like the circumstances in the Bernhard case

itself. In this regard, there is simply no point in allowing a losing party to continue

litigating the same issues simply by switching adversaries hoping for a different

outcome.

There was also an early suggestion that collateral estoppel never should be

available to a nonparty who is asserting it against someone who was a defendant in

the first action.96 This limitation reflected a presumption that the defendant always

is at a disadvantage since he does not choose the time or place of suit. To avoid any

possibility that this inherent disadvantage might have prevented a full defense, a

93 Friedenthal, et al,. Civil Procedure at 688.94 Id.95 Id citing Sanderson v. Balfour, 109 N.H. 213, 247 A.2d 185 (1968).96 Id at 689 citing Brainerd Currie, Mutuality of Collateral Estoppel: Limits of the Bernhard Doctrine, 9 Stan.L.Rev. 281 (1957).

51

defendant should be bound only in subsequent actions between the same parties.

However, most courts in the U.S. now have rejected this limitation as unnecessarily

broad.97

A number of U.S. courts have drawn a line when the person asserting

collateral estoppel is doing so offensively, for purposes of establishing a claim for

relief. Some of them have ruled that mutuality still should control, at least when the

party against whom estoppel is being asserted was a defendant in the prior

litigation.98 Others have gone further and have refused to allow nonparties to benefit

from issue preclusion whenever they are asserting the judgment offensively.99 The

rationale for not allowing a nonparty to assert collateral estoppel offensively is

twofold. First, there is the concern that were the courts to abandon mutuality under

those circumstances, this would encourage people to adopt a wait and see attitude

after one suit was filed. If that suit were completed successfully, they could take

advantage of the judgment by collateral estoppel, but if it were unsuccessful, they

could claim due process right to litigate the issues anew. This result somehow

“seems unfair” to the defendant. A second concern first raised by Professor

Brainerd Currie was the possibility of inconsistent and anomalous judgments in a 97 Id citing Zdanok v. Glidden co., 327 F.2d 944 (2d Cir.1964); Bahler v. Fletcher, 257 Or. 1, 474 P.2d 329, 337 (1970); Teitelbaum Furs, Inc. v. Dominion Ins. Co., 58 Cal.2d 601, 25 Cal.Rptr. 559, 375 P.2d 439 (1962).98 Id citing Reardon v. Allen, 88 N.J.Super. 560, 213 A.2d 26 (1965); First National bank of Cincinnati v. Berkshire Life Ins. Co., 176 Ohio St. 395, 199 N.E.2d 863 (1964); Nevarov v. Caldwell, 161 Cal.App.2d 762, 327 P.2d 111 (1958).99 Id citing Spettigue v. Mahoney, 8 Ariz.App.281, 445 P.2d 557 (1968); Albernaz v. City of Fall River, 346 Mass. 336, 191 N.E.2d 771 (1963).

52

situation in which multiple suits are filed arising out of a single event, such as an air

collision or bus accident.100 If the first several judgments were for the defendant,

due process would allow other injured passengers to continue to litigate the

negligence question. However, if mutuality were abandoned totally and a later case

resulted in a plaintiff’s judgment, subsequent claimants all could rely on that

determination, even though it was likely that that verdict was an aberration. To

avoid that possibility, collateral estoppel effect must be denied.101

Not all states simply draw lines defining when they are willing to abandon

mutuality. Some, like New York, have adopted a fluid test.102 In each case in which

a nonparty attempts to benefit by asserting collateral estoppel, the court must

determine whether a full and fair opportunity was present in the first action to

explore the issues on which an estoppel is asserted so that it would be unlikely that

a different determination would be reached in a second trial.103 Under this approach,

the presumption is to allow issue preclusion, because the burden is on the party

opposing its use to demonstrate why the first opportunity was unfair and what will

be different this time.104

100 Id at 690 citing Brainerd Currie, Mutuality of Collateral Estoppel: Limits of the Bernhard Doctrine, 9 Stan.L.Rev. 281 (1957).101 Id citing State Farm Fire & Cas. Co. v. Century Home Components, Inc., 275 Or. 97, 550 P.2d 1185 (1976).102 Id citing 5 J. Weinstein, A. Miller & H. Korn, New York Civil Practice ¶¶ 5011.32.-.42.103 Id citing Waitkus v. Pomeroy, 31 Colo. App. 396, 506 P.2d 392 (1972).104 Id citing State Farm Fire & Cas. Co. v. Century Home Components, Inc., 275 Or. 97, 550 P.2d 1185 (1976).

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In 1979, the Supreme Court of the United States provided guidelines for the

federal courts evaluating assertions of collateral estoppel by nonparties. Several

years earlier the court had endorsed the abandonment of mutuality in the defensive

setting in Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation105

when it held that a patentee could be precluded from relitigating the validity of a

patent that had been declared invalid in prior litigation against other alleged

infringers. This conclusion was necessitated as a matter of sound policy. As

described by Justice White, in his opinion for the Court:

“In any lawsuit where a defendant, because of the mutuality principle, is forced to present a complete defense on the merits to a claim which the plaintiff has fully litigated and lost in a prior action, there is an arguable misallocation or resources. This misallocation of resources occurred because ‘the defendant’s time and money are diverted from alternative uses – productive or otherwise – to relitigation of a decided issue.’ Further, to allow plaintiff to relitigate ‘as long as the supply of unrelated defendants holds out reflects either the aura of the gaming table or ‘a lack of discipline and of disinterestedness on the part of the lower courts, hardly a worthy or wise basis for fashioning rules of procedure’”106

Not long afterward, in Parklane Hosiery Company v. Shore,107 the Court confronted

for the first time the question whether a nonparty could assert collateral estoppel

offensively against someone who was a defendant in the prior action – the most

105 402 U.S. 313, 91 S.Ct. 1434, 28 L.Ed. 2d 788 (1971).106 402 U.S. 313, 329, 91 S.Ct. 1434, 1443 (1971).107 439 U.S. 322, 99 S.Ct. 645, 58 L.Ed. 2d 552 (1979).

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troublesome situation for the lower courts. In this case, the respondent filed a

stockholder’s class action against the petitioners. The complaint alleged that the

petitioners had issued a materially false and misleading proxy statement in

connection with a merger. The complaint sought damages, rescission of the merger,

and recovery of costs.

Before this case was filed, the SEC filed suit against the same defendants

alleging that the proxy statement that had been issued by Parklane was materially

false and misleading in essentially the same respects as those that had been alleged

in the respondent’s complaint. Injunctive relief was requested. After hearing on the

merits, the district court found that the proxy statement was materially false and

misleading in the respects alleged, and entered declaratory judgment to that effect.

The respondents in the present case then moved for partial summary judgment

against the petitioners, asserting that the petitioners were collaterally estopped from

relitigating the issues that had been resolved against them in the action brought by

the SEC. The district court denied the motion. In an opinion by Justice Stewart, the

Court upheld the use of collateral estoppel, but issued a caveat, as follows:

“We have concluded that the preferable approach for dealing with these problems in the federal courts is not to preclude the use of offensive collateral estoppel, but to grant trial courts broad discretion to determine when it should be applied. The general rule should be that in cases where a plaintiff could easily have joined in the earlier action or where, either for the reasons discussed above or for other reasons, the

55

application of offensive estoppel would be unfair to a defendant, a trial judge should not allow the use of offensive collateral estoppel.”108

Thus the Court endorsed the complete abandonment of mutuality in the federal

courts. It substituted a discretionary standard by which the trial judge is to assess

whether allowing a nonparty to assert issue preclusion in a particular case raises any

of the concerns or problems that have encouraged some courts and commentators to

reject its use.

Four factors are specifically mentioned. First, could the nonparty have

joined the prior litigation? If so, then estoppel may not be proper, for its availability

then would encourage a wait and see attitude on the part of claimants and that

ultimately could increase the total amount of litigation. As noted by the Court,

“potential plaintiffs will have everything to gain and nothing to lose by not

intervening in the first action.”109 Second, was the subsequent litigation foreseeable

at the time of the first suit so that the defendant had every incentive to defend that

action vigorously? Third, is the judgment being relied upon consistent with prior

judgments against this defendant so that there need be no fear of the multiple-

claimant phenomenon? In most cases involving multiple claimants, collateral

estoppel may be asserted after the first determination so that there are no

inconsistent judgments as of that time and this factor will not come into play.

108 Id at 322.109 Id at 330.

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Although a question might be raised concerning whether we can determine if that

first judgment itself is an aberration, that concern is answered by an analysis of the

other factors, which require a finding that there has been a full a fair opportunity to

defend in the first suit. Fourth, are there any procedural opportunities available to

the defendant in the second action that did not exist in the first, so that a different

result might ensue if the issues are retried? The Court offered some guidance as to

this last factor. It first specifically rejected the argument raised in Parklane that the

availability of a jury trial in the second action was just such a procedural

opportunity, declaring that “the presence or absence of a jury as fact-finder is

basically neutral.” Justice Stewart described the kind of circumstances that might

suggest that it would be inappropriate to employ issue preclusion as those arising

when the defendant is forced to defend in an inconvenient forum and is unable to

engage in full discovery or to call witnesses.110 An analysis of these four questions

should fully appraise the trial judge whether or not the defendant had a full and fair

opportunity to defend the first action so that the use of collateral estoppel seems

appropriate.

What is notable about the Parklane criteria is their response to the concerns

raised. As mentioned earlier, many courts have abandoned mutuality, but when

confronted with the problems that have been raised, they either have limited their

move away from mutuality to only certain settings or have used a general standard, 110 Id at 331.

57

requiring some assessment of whether the first proceeding was fair. Parklane

provides specific guidelines for how to assess that fairness question.

The success of the Parklane standard necessarily will be determined by its

ease of application. A brief look at the criteria reveals that some ambiguities

remain. For example, with regard to the first factor – easy joinder – although it

often may be simple to determine that a particular litigant was adopting a wait and

see attitude, as when the party originally was joined in the first suit but obtained a

severance, in others the reasons for not joining will not be clear. Further, in most

instances the courts have not adopted a principle of compulsory intervention. They

have allowed individuals to control their own disputes, providing them tactical

decision-making authority. Thus a party who did not participate in any way in a

prior proceeding for sound tactical reasons, but who was not simply sitting on the

sidelines hoping to capitalize on a favorable result should not be denied the benefits

of collateral estoppel.111 Consequently, only a careful factual inquiry into the

nonparty’s decision not to join the first suit will reveal whether this concern merits

a denial of preclusion.

Under Parklane the court must evaluate on a case-by-case basis whether it is

necessary to allow what appears to be duplicative litigation to ensure the reliability

and fairness of a judgment; no precise rules can or should be formulated. This

111 Friedenthal, et al,. Civil Procedure at 693 citing Starker v. U.S., 602 F.2d 1341 (9th Cir.1979).

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approach has much to recommend it, for it allows the courts to maintain the

advantages of collateral estoppel while protecting the parties’ interests.

IV. Conclusions and Recommendations

Mutuality, strictly speaking, has no basis in law. A careful reading of rule 39

sec. 47 would show that what is spoken of is in fact merely the binding effects of a

judgment between the parties to the proceeding. Due process requires this

conclusion. Nowhere in the law however is it stated as to who may invoke res

judicata. Although under rule 16 res judicata is one of the grounds for filing a

motion to dismiss, it does not state that only a party to the prior proceeding can do

so. Another legal principle, the parol evidence rule, also deals with parties.

However, unlike res judicata, it is clear from the rules that only parties and their

successors in interest to a written contract can invoke it as it commands that no

evidence of such terms other than the contents of the written agreement shall be

admissible. In Lechugas v. CA,112 Victoria Lechugas filed two cases against the

private respondents for ejectment and for recovery and possession of a parcel of

land she bought from a certain Leoncia Lasangue evidenced by a public instrument.

The private respondents contended that the deed of absolute sale did not contain the

intended terms of the sale as in fact; the vendor intended to sell to Lechugas a

different portion of her land. This was testified to in behalf of private respondents

112 G.R. No. L-39972 & L-40300, August 6, 1986.

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by Lasangue. The trial court admitted this evidence and was objected to by the

plaintiff under the parol evidence rule. The Court said that such contention is

without merit:

“As explained by a leading commentator on our Rules of Court, the parol evidence rule does not apply, and may not properly be invoked by either party to the litigation against the other, where at least one of the parties to the suit is not party or a privy of a party to the written instrument in question and does not base a claim on the instrument or assert a right originating in the instrument or the relation established thereby. (Francisco on Evidence, Vol. VII, part I of the Rules of Court, p. 155 citing 32 C.J.S. 79.).”

Thus by implication, it can not be argued that the letter of the law requires

mutuality for if it did, language similar to the parol evidence rule would have been

employed. As discussed before, fair play is the basis for the mutuality rule. A

person bound by a judgment cannot enforce it against a nonparty. To be fair, it

became a “legal” tradition that a nonparty should not be able to use res judicata

against someone who was by law precluded from using res judicata against him. A

case of “I lay down my gun, you lay down yours and lets fight mano-a-mano.” This

however was found unreasonable in Bernhard113 as in reality; it makes sense not to

apply mutuality in certain contexts such as derivative liability suits.

In the Perkins case,114 the Court might have had the opportunity to abandon

the mutuality rule and follow the lead of Bernhard which it had cited in the 113 Bernhard v. Bank of America, 19 Cal.2d 807 (1942).114 Perkins v. Benguet Consolidated, 93 Phil 1034 (1953).

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decision. Instead, it based its holding on Coca-Cola v. Pepsi-Cola,115 which only

called for the occasional disregard of the mutuality rule when, because of public

policy, the need arises. At any rate, the opportunity there would not have been

precedent setting as in fact, there was identity of parties between the other

defendant, Mrs. Perkins and the plaintiff, Mr Perkins. Still, this does not dispose of

the question whether to abandon mutuality or not. Is there a pressing need to

abandon it considering that the last Philippine case that spoke of it was in 1955?116

However, the better question is, do we need it to be in place in our civil procedure,

an unwritten one at that? The rule that judgments only bind parties to the action is,

as mentioned in the beginning, central to the whole process of dispensing judgment.

Without it all of the rules on pleadings and practice would all be for naught. This

purpose in putting an end to litigation is actually diminished by the mutuality rule

because it allows repeated litigation, for as long as the number of nonparties holds

out. It can apparently be seen that such a situation is wasteful of many resources,

both of the judiciary and the public.

Another reason for abandoning mutuality is because of the availability of a

better rule. An express recognition under our rules that a nonparty has a right to

assert res judicata against a person who is in the first place supposed to be bound by

an unfavorable decision would dissipate any confusion as to when it is validly

115 36 Del. 124, 172 A. 260 (Super.Ct.1934).116 97 Phil 659 (1955).

61

available as a defense. Mutuality requires that it would only be available between

parties to a prior proceeding leaving nonparties without any expedient remedy

against these parties in case of possible litigation between them involving the same

cause of action on the same subject matter. Proving privity with a party, just to be

able to invoke res judicata, is taxing to a defendant when there is no such privity in

the first place. Forcing one to litigate under such circumstances cannot be

considered fair.

The writer recommends that such a rule providing for the time and manner

in which a nonparty can invoke res judicata should be put in the Rules of Court.

Although, a judicial decision pronouncing the abandonment of mutuality would be

enough considering that mutuality, as discussed earlier, is nowhere written in the

Rules of Court. The opportunity to do so would depend upon such an issue reaching

the Supreme Court. As already said before, in the Philippines, no serious challenge

to the mutuality rule has been put forth. To passively wait for such an opportunity

would not be good policy for in the interregnum, the dockets of the courts continue

to fill up. Such a written rule would foreclose frivolous litigations against

nonparties once laid down in the Rules of Court.

The Parklane Caveat consisting of four factors to be considered by a court in

determining the merits of the assertion of res judicata offensively by a nonparty can

62

help fine-tune this rule. Hence the writer proposes the modification of paragraph (c)

of section 47 under Rule 39 thus:

(c) In any other litigation between the same parties or their successors in interest, that only is deemed to have been adjudged in a former judgment or final order which appears upon its face to have been so adjudged, or which was actually and necessarily included therein or necessary thereto. Such former judgment or final order will likewise be conclusive as to such party or his successor in interest in any other litigation against a nonparty. However, when a nonparty as a plaintiff wants to assert and put in issue such judgment or final order against a party or his successor in interest, it will be allowed only upon the court’s discretion, if the nonparty alleges that it could not have joined or foresee the prior litigation, that the judgment or final order relied upon is consistent with prior judgments against such party or his successor in interest and provided lastly that no other procedural remedy is available to the party or his successor in interest in the subsequent action which was not available in the first action.

Thus it is humbly submitted that the short rule as reformulated above, would

finally result in the definite abandonment of the mutuality rule in this jurisdiction,

make clear the rights and remedies of nonparties and lend a hand in decongesting

the court’s dockets of repetitive claims as well as frivolous cases.

63