Case Digest: S.C. Megaworld v. Parada

S.C. MEGAWORLD CONSTRUCTION and DEVELOPMENT CORPORATION, Petitioner,  vs. ENGR. LUIS U. PARADA, represented by ENGR. LEONARDO A. PARADA of GENLITE INDUSTRIES, Respondent.

G.R. No. 183804               September 11, 2013

REYES, J.:

S.C. Megaworld Construction and Development Corporation (Megaworld) bought electrical lighting materials from Gentile Industries, a sole proprietorship owned by Engineer Luis U. Parada. Megaworld was unable to pay for the above purchase on due date, but blamed it on its failure to collect under its sub-contract with the Enviro KleenTechnologies, Inc. (Enviro Kleen). It was however able to persuade Enviro Kleen to agree to settle its above purchase, but after paying the respondent P250,000.00 once, Enviro Kleen stopped making further payments, leaving an outstanding balance of P816,627.00. It also ignored the various demands of the Parada, who then filed a suit in the RTC, to collect from the petitioner the said balance, plus damages, costs and expenses.

Megaworld denied liability by saying that it was released from its indebtedness to the Parada due to the novation of their contract, which. There was allegedly novation when the Parada accepted the partial payment of Enviro Kleen in its behalf, and thereby acquiesced to the substitution of Enviro Kleen as the new debtor in Megaworld’s place. 

The Regional Trial Court ruled in favor of Parada.

On appeal, Megaworld argued that the trial court should have dismissed the complaint for failure of the respondent to implead Genlite Industries as "a proper party in interest."

The sales invoices and receipts show that the respondent is the sole proprietor of Genlite Industries, and therefore the real party.

On the issue of novation, the Court of Appeals ruled that by retaining his option to seek satisfaction from the petitioner, any acquiescence which the respondent had made was limited to merely accepting Enviro Kleen as an additional debtor from whom he could demand payment, but without releasing the petitioner as the principal debtor from its debt to him.

ISSUE: W/N Genlite Industries should have been impleaded as a party-plaintiff.

RULING: No.

Only natural or juridical persons or entities authorized by law may be parties in a civil case.

A sole proprietorship has no juridical personality separate and distinct from that of its owner, and need not be impleaded as a party-plaintiff in a civil case.

Genlite Industries is merely the DTI-registered trade name or style of Parada by which he conducted his business. As such, it does not exist as a separate entity apart from its owner, and therefore it has no separate juridical personality to sue or be sued. As the sole proprietor of Genlite Industries, there is no question that the Parada is the real party in interest who stood to be directly benefited or injured by the judgment in the complaint below. There is then no necessity for Genlite Industries to be impleaded as a party-plaintiff, since the complaint was already filed in the name of its proprietor, Engr. Luis U. Parada. To heed the Megaworld’s sophistic reasoning is to permit a dubious technicality to frustrate the ends of substantial justice.

ISSUE: W/N there is novation of the contract.

RULING: None.

Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor. It is "the substitution of a new contract, debt, or obligation for an existing one between the same or different parties."

The settled rule is that novation is never presumed, but must be clearly and unequivocally shown.  In order for a new agreement to supersede the old one, the parties to a contract must expressly agree that they are abrogating their old contract in favor of a new one.

The trial court found that the respondent never agreed to release the petitioner from its obligation, and this conclusion was upheld by the CA.