G.R. No. L-64591. January 17, 1985.
RUFINO CO, petitioner, vs. HON. EFICIO B. ACOSTA, in his Official Capacity as Presiding Judge; RTC, Branch CLV, Pasig, Metro Manila, and THE REFRIGERATION INDUSTRIES, INC., and DELTA MOTORS CORPORATION, respondents.

FACTS

Petitioner Rufino Co, proprietor of CTC Appliance Center, assigned his rights under three purchase orders from Pepsi Cola Bottling Company (PEPSI) for refrigerators to respondent Refrigeration Industries, Inc. (RII). PEPSI later informed RII it did not recognize the assignment. Subsequently, RII directly delivered 1,000 refrigerators to PEPSI, which PEPSI accepted but refused to pay for, asserting its recourse was against Co. RII then demanded payment from Co, and upon his refusal, filed a sum of money case against both PEPSI and Co. However, RII later filed a motion to dismiss the complaint against PEPSI, attaching a “Joint Release, Waiver and/or Quitclaim” wherein RII, Delta Motors, and PEPSI mutually discharged each other from liabilities concerning the transaction. The court granted the dismissal. RII then moved to declare Co in default, which the court granted, leading to an ex-parte presentation of evidence and a judgment against Co.

ISSUE

Whether the trial court acted with grave abuse of discretion in proceeding against petitioner Rufino Co after dismissing the complaint against the principal debtor, PEPSI, thereby rendering Co an indispensable party without a cause of action.

RULING

Yes. The Supreme Court granted the petition, annulling all proceedings against Co after the dismissal of PEPSI. The legal logic is anchored on the nature of indispensable parties and the extinguishment of the accessory obligation. When RII executed a joint release and quitclaim with PEPSI, it effectively discharged the principal obligation arising from the delivery and acceptance of the refrigerators. Co, as the assignor, was only secondarily liable under the assignment. The dismissal of the complaint against PEPSI, the primary party-in-interest, removed the very foundation of the action against Co. Following the doctrine in “Pajarillo v. Intermediate Appellate Court,” where all defendants are indispensable, a compromise or release in favor of one necessitates the dismissal against all. The court lost authority to proceed against Co alone. Furthermore, RII’s admission of the assignment’s validity and its release of PEPSI, which profited from the goods, virtually absolved Co from liability. Thus, the default order, ex-parte proceedings, and subsequent judgment were issued with grave abuse of discretion, as Co was deprived of a meritorious defense and the court acted without jurisdiction over the remaining cause of action.