FIRST DIVISION

DECISION
CEFERINA G.R. No. 162836
ARGALLON- CARPIO, J.:
JOCSON Present:
and RODOLFO
TUISING, PUNO, C.J., Chairperson, The Case
Petitioners, CARPIO,
CORONA, This is a petition for review[1] of the Decision[2] dated
LEONARDO-DE 16 January 2004 and the Resolution dated 25 March
- versus - CASTRO, and 2004 of the Court of Appeals in CA-G.R. SP No.
BERSAMIN, JJ. 79179. The Court of Appeals affirmed the Order dated
COURT OF
APPEALS, 14 April 2003 of the Regional Trial Court of Roxas,
HON. BONIFACIO T. Isabela, Branch 23 (trial court), in Civil Case No. Br.
ONG, in his capacity 23-377.
as the acting Presiding Promulgated: The Facts
Judge of the Regional
Trial Court of Roxas, July 30, 2009 On 10 August 1992, petitioner Ceferina Argallon-
Isabela, Branch 23, Jocson (Jocson) filed a complaint for Reconveyance
MARIA CRISTINA and Damages against Marcelo Steel Corporation and
FERTILIZER CORP., Maria Cristina Fertilizer Corporation (MCFC), which
and MARCELO were represented by Jose Marcelo as president of both
STEEL CORP., companies.
Respondents.
On 24 February 1999, the trial court rendered a
x------------------------------------ decision, the dispositive portion of which reads:
--------------x

1
 AS A CONSEQUENCE OF ALL THE
FOREGOING, judgment is hereby
rendered in favor of the plaintiff [Jocson]
and against the defendants [Marcelo Steel
Corporation and MCFC]: (1) Ordering the
defendants to pay the plaintiff the balance
of P2,004,810.42, with legal interest from
1976 up to the present; (2) attorneys fees in
the amount of P20,000.00; and (3) to pay
the costs.[3]
Marcelo Steel Corporation and MCFC (private
respondents) appealed to the Court of Appeals, which
affirmed the trial courts decision. Private respondents
did not appeal the Court of Appeals decision, which
became final and executory. Jocson then filed a
Motion for Issuance of a Writ of Execution. On 9
December 2002, the trial court issued an order for the
issuance of a writ of execution in accordance with the
tenor of the decision.
On 20 December 2002, a Writ of Execution [4] (writ)
was issued to the Sheriff of the Office of the Clerk of
Court of Manila, commanding the Sheriff to
implement the writ upon private respondents in
accordance with the tenor of the decision. The writ
2
was indorsed to Sheriffs Levy Duka, Luis Alina,
Andreil Garcia, and Nathaniel Abaya, who levied
upon the properties of Marcelo Steel Corporation in
full satisfaction of the judgment debt. The execution
sale was then scheduled on 17 February 2003. On 14
February 2003, Midas International Development
Corporation (Midas Corp.) filed a third-party claim,
alleging that some of the levied properties were
previously mortgaged to Midas Corp. The execution
sale was postponed to 21 February 2003. On 20
February 2003, Jocson posted a P36 million
indemnity bond[5] so that the levied properties would
not be released to claimant Midas Corp. The Sheriffs
then proceeded with the execution sale on 21
February 2003 and sold the properties of Marcelo
Steel Corporation for the full satisfaction of the
judgment against private respondents. A certificate of
sale[6] was issued to petitioner Rodolfo Tuising
(Tuising), who was the highest bidder at the auction
sale for P9.9 million.
On 28 February 2003, Jocson filed with the trial court
a Very Urgent Ex-Parte Motion for Issuance of a
Break-Open Order and Petition for Contempt of
Court.[7] On 3 March 2003, Marcelo Steel Corporation
filed an Extremely Urgent Omnibus Motion,[8] praying
for the annulment of the execution sale and for the
issuance of an order directing the Sheriffs not to
deliver the properties sold to Tuising pending
resolution of Marcelo Steel Corporations
motion. Marcelo Steel Corporation alleged that its
obligation was merely joint with MCFC and that the
total price of the properties sold on execution was
unconscionably inadequate.
On 14 April 2003, the trial court issued an order, the
dispositive portion of which reads:
WHEREFORE, premises considered, the
execution sale of the properties of the
defendant Marcelo Steel Corporation,
namely: Seven (7) dilapidated warehouses,
detachable metal structural steel with
scattered machineries, metal scraps, metal
G.I. Pipes, wires and post, held on
February 21, 2003, is hereby declared null
and void and the Certificate of Sale dated
February 21, 2003 issued pursuant thereto
is hereby set aside and cancelled.
The motion for the issuance of a break-open order is
hereby denied for lack of merit and basis. [9]
3
Jocson moved for reconsideration of the trial courts
order, claiming that the nature of the obligation to pay
the balance of the purchase price was
solidary. Tuising filed a Motion for Intervention with
Leave of Court with Motion for Reconsideration and
Entry of Appearance. On the other hand, Marcelo
Steel Corporation filed, on 7 May 2003,
a Manifestation and Motion on Satisfaction of
Judgment, depositing with the trial court a Managers
Check in the amount of P4,260,198.11 representing
full satisfaction of Marcelo Steel Corporations
obligation to Jocson. On 14 July 2003, the trial court
denied Jocsons motion for reconsideration and
Tuisings motion for intervention and reconsideration,
and granted Marcelo Steel Corporations prayer for
entry of satisfaction of judgment on its behalf.[10]
On 18 August 2003, Jocson filed with the trial court a
Notice of Appeal, which she later withdrew on 4
September 2003, and in lieu thereof, petitioners
Jocson and Tuising filed a Petition for Certiorari with
the Court of Appeals.[11] The Court of Appeals
dismissed the petition for lack of merit. Jocson and
Tuising filed a motion for reconsideration,[12]which the
Court of Appeals denied on 25 March 2004. Hence, limited only to their proportionate shares in the entire
this petition. obligation.

Meanwhile, on 23 February 2004, Jocson filed with

the trial court a Motion for Issuance of Alias Writ of The Court of Appeals Ruling
Execution to implement the decision as against
MCFC, stating that in view of the Court of Appeals The Court of Appeals held that in consonance with
decision, there is a need to execute the decision as Section 1, Rule 65 of the Rules of Civil Procedure,
against the other defendant MCFC.[13]
[15]
certiorari is not a substitute for lost appeal.
Moreover, the Court of Appeals found that the
assigned issues were factual issues not proper in a
The Trial Courts Ruling petition for certiorari, which is limited to the issues
of jurisdiction and grave abuse of discretion.
In its Order dated 14 April 2003, the trial court ruled
that the liability of Marcelo Steel Corporation was
The Court of Appeals found no grave abuse of
limited to its proportional share in the entire money
discretion on the part of the respondent judge. On the
judgment. Considering that the dispositive portion of
merits of the case, the Court of Appeals held that the
the Decision dated 24 February 1999 in this case did
obligation of private respondents to Jocson was
not state that the obligation of private respondents was
merely joint. The Court of Appeals noted that the trial
solidary, then their obligation was merely joint. Citing
courts Decision dated 24 February 1999 was silent as
the case of PH Credit Corporation v. Court of
to the nature of the liability. Solidary obligations are
Appeals,[14] the trial court held that being made to pay
not presumed in the absence of an express
for an obligation in its entirety when ones liability is
determination thereof in the judgment. When the
merely for a portion is a sufficient ground to contest
judgment does not provide that the defendants are
an execution sale. It would be the height of inequity if
liable to pay jointly and severally a certain amount of
we allow judgment obligors to shoulder entire
money, none of them may be compelled to satisfy in
monetary judgments when their legal liabilities are
full said judgment.

4
 2. THE HONORABLE COURT
The Court of Appeals found that the Sheriffs OF APPEALS ERRED IN NOT
DECIDING THAT THE
disregarded the trial courts 24 February 1999
RESPONDENT JUDGE
Decision, and deviated from the trial courts Order GRAVELY ABUSED HIS
dated 9 December 2002 and the writ of execution DISCRETION WHEN HE
dated 20 December 2002, which directed them to DECLARED THE
execute the writ in accordance with the tenor of the OBLIGATION OF THE
decision. DEFENDANTS IN CIVIL
CASE NO. 23-377 AS JOINT
AND NOT SOLIDARY.
The Issues
3. THE HONORABLE COURT
Petitioners contend that: OF APPEALS ERRED IN
[NOT] DECIDING THAT THE
1. THE HONORABLE COURT RESPONDENT JUDGE
OF APPEALS ERRED IN GRAVELY ABUSED HIS
DECIDING THAT DISCRETION IN DENYING
PETITIONERS THE MOTION FOR A BREAK-
WITHDRAWAL OF THEIR OPEN AND DECLARING THE
NOTICE OF APPEAL AND EXECUTION SALE
SUBSTITUTING IT BY CONDUCTED ON
PETITION FOR CERTIORARI FEBRUARY 21, 2003 NULL
IS PROCEDURALLY AND VOID AND THE
IMPERMISSIBLE. CERTIFICATE OF SALE
AWARDED TO PETITIONER
TUISING CANCELLED.

4. THE HONORABLE COURT

OF APPEALS ERRED IN NOT
5
 DECIDING THAT THE At the outset, the Court notes that the petition
RESPONDENT JUDGE supposedly filed by petitioners Jocson and Tuising
GRAVELY ABUSED HIS
was not signed by Jocsons counsel. It was Tuisings
DISCRETION IN GRANTING
THE PRAYER FOR counsel who signed in behalf of Jocsons counsel.
SATISFACTION OF Tuisings counsel had no authority to sign the petition
JUDGMENT DESPITE in behalf of Jocson. The records are bereft of any
RECEIPT OF PETITIONER proof that Jocson ever authorized Tuisings counsel to
JOCSON OF THE PROCEEDS be her counsel or to act in her behalf. Under Section 3,
OF THE SALE AS
Rule 7 of the Rules of Civil Procedure,[17] every
EVIDENCED BY THE
ACKNOWLEDGMENT pleading must be signed by the party or counsel
RECEIPT. representing him, otherwise the pleading produces no
legal effect.
5. THE HONORABLE COURT
OF APPEALS ERRED IN NOT Furthermore, only Tuising signed the Verification and
DECIDING THAT THE Certification for Non-Forum Shopping. Jocson did not
RESPONDENT JUDGE
GRAVELY ABUSED HIS
sign the Verification and Certification. Section 1, Rule
DISCRETION IN DENYING 45 of the Rules of Civil Procedure requires the
THE MOTION FOR petition for review on certiorari to be verified. [18] A
INTERVENTION AND IN NOT pleading required to be verified which lacks proper
CONSIDERING THE SAME verification shall be treated as an unsigned pleading.
AS PRO INTERESSE SUO.[16] [19]
Although Tuising belatedly filed on 24 September
2004 a Special Power of Attorney allegedly signed by
The Ruling of the Court Jocson and authorizing Tuising to file the petition for
review and to verify and to certify the petition, no
We find the petition without merit. explanation was given by Tuising why the Special
Power of Attorney was belatedly filed four months
6
after the petition for review was filed on 12 May
2004. The lack of a certification against forum
shopping or a defective certification is generally not
curable by its subsequent submission or correction,
unless there is a need to relax the rule under special
circumstances or for compelling reasons.[20] We find
no compelling reason for a liberal application of the
rules especially in this case where the petitioner who
did not sign the verification and certification for non-
forum shopping already filed with the trial court
a Motion for Issuance of Alias Writ of Execution. By
filing the Motion for Issuance of Alias Writ of
Execution, Jocson was in effect abiding by the Court
of Appeals Decision dated 16 January 2004.
In Athena Computers, Inc. v. Reyes,[21] the Court held
that the appellate court was correct in dismissing the
petition where the verification and certification for
non-forum shopping were signed by only one of the
two petitioners. The Court held:
The verification of the petition and
certification on non-forum shopping
before the Court of Appeals were signed
only by Jimenez. There is no showing that
he was authorized to sign the same by
Athena, his co-petitioner.
7
Section 4, Rule 7 of the Rules states that a pleading is
verified by an affidavit that the affiant has read the
pleading and that the allegations therein are true and
correct to his knowledge and belief. Consequently, the
verification should have been signed not only by
Jimenez but also by Athenas duly authorized
representative.
In Docena v. Lapesura, we ruled that the certificate of
non-forum shopping should be signed by all the
petitioners or plaintiffs in a case, and that the signing by
only one of them is insufficient. The attestation on non-
forum shopping requires personal knowledge by the
party executing the same, and the lone signing petitioner
cannot be presumed to have personal knowledge of the
filing or non-filing by his co-petitioners of any action or
claim the same as similar to the current petition. [22]
In this case, the flaw is fatal considering that Jocson,
the co-petitioner who did not sign the verification and
certification of non-forum shopping and whose
counsel did not sign the petition, was the principal
party in the original case. Jocson was the plaintiff in
the trial court who sought reconveyance of her
properties while her co-petitioner Tuising was not a
party in the original case but was merely the highest
bidder in the execution sale which was declared void
by the trial court.
The certification of non-forum shopping is rooted in
the principle that a party-litigant should not be
allowed to pursue simultaneous remedies in different
fora, such act being detrimental to an orderly judicial
procedure.[23] The petition, signed only by Tuisings
counsel, conveniently failed to mention the fact that
on 23 February 2004, prior to the filing of the petition,
Jocson already filed with the trial court a Motion for
Issuance of Alias Writ of Execution which reads:
MOTION FOR ISSUANCE OF ALIAS WRIT OF
EXECUTION
PLAINTIFF, by counsel, respectfully states:
1. The Court of Appeals had ruled finally that the DECISION
can be implemented only as against defendant Marcelo Steel
Corporation and the RTC Sheriff of Manila, in levying the
properties of the two defendant corporations, violated the
dispositive portion of the decision because there is no
showing that their liability is solidary. (CA-G.R. SP-No.
79179);
2. There is need, therefore, to execute the decision as against
the other defendant MARIA CRISTINA FERTILIZER
CORPORATION.
WHEREFORE, premises considered, it is
respectfully prayed that an ALIAS WRIT
8
OF EXECUTION be issued to implement
the decision as against defendant MARIA
CRISTINA FERTILIZER
CORPORATION. [24]
Clearly, such an action is incompatible with this
petition for review. Even at the appellate courts level,
the Motion for Reconsideration[25] supposedly filed by
petitioners Jocson and Tuising on 3 February 2004
was also signed by Tuisings counsel only.[26] Jocsons
filing of a Motion for Issuance of Alias Writ of
Execution to implement the decision as against MCFC
clearly indicates that she already acceded to the Court
of Appeals Decision dated 16 January 2004 and no
longer intended to move for its reconsideration, much
less appeal to this Court. Besides, a party should not
be allowed to abuse and make a mockery of the
judicial process by pursuing simultaneous and
incompatible remedies in different courts.
WHEREFORE, we DENY the petition.
We AFFIRM the Decision dated 16 January 2004 and
the Resolution dated 25 March 2004 of the Court of
Appeals in CA-G.R. SP No. 79179.
SO ORDERED.
 ANTO
NIO T.
CARP RENATO C. CORONA TERESITA J.
IO LEONARDO-DE CASTRO
Ass ASSOCIATE JUSTICE ASSOCIATE JUSTICE
oci
ate
Jus
tice LUCAS P. BERSAMIN
ASSOCIATE JUSTICE

WE CONCUR:
CERTIFICATION
PURSUANT TO SECTION 13, ARTICLE VIII OF
THE CONSTITUTION, I CERTIFY THAT THE
CONCLUSIONS IN THE ABOVE DECISION
REYNATO S. PUNO HAD BEEN REACHED IN CONSULTATION
CHIEF JUSTICE BEFORE THE CASE WAS ASSIGNED TO THE
WRITER OF THE OPINION OF THE COURTS
CHAIRPERSON DIVISION.

REYNATO S. PUNO
9
Chief Justice

10

THIRD DIVISION
[G.R. No. 157195. April 22, 2005]
VICAR INTERNATIONAL CONSTRUCTION,
INC., and CARMELITA V.
LIM, petitioners, vs. FEB LEASING AND
FINANCE CORPORATION (now BPI
LEASING CORPORATION), respondent.
DECISION
PANGANIBAN, J.:
Once more, the Court stresses that procedural
rules must be used to promote, not obstruct,
substantial justice. The failure to attach the
Resolution authorizing herein individual petitioner
to represent herein corporate petitioner is, under
the circumstances, excusable. The immediate
correction of the defect should have been deemed
sufficient compliance with the rules.
The Case
11
Before us is a Petition for Review
on Certiorari[1] pursuant to Rule 45 of the Rules of
Court, seeking to reverse and set aside two
Resolutions[2] of the Court of Appeals (CA) dated
October 23, 2002[3] and February 7, 2003,[4] in CA-
GR SP No. 73117. The earlier Resolution reads:
The instant petition for certiorari is hereby
DISMISSED for lack of proper verification and
certification against forum shopping as the same was
executed by Carmelita V. Lim, one of the petitioners,
without showing any authority from petitioner
corporation to sign for and on its behalf. [5]
The second assailed Resolution denied
petitioners Omnibus Motion for Reconsideration
and for Admission of the Attached Secretarys
Certificate.
The Facts
This controversy originated from a
Complaint for unjust enrichment and damages,
[6]
filed in the Regional Trial Court of Makati by herein
petitioner, Vicar International Construction, Inc.
(Vicar), against Respondent FEB Leasing and
Finance Corporation (now BPI Leasing
Corporation) and the Far East Bank and Trust
Company. In turn, FEB Leasing and Finance
Corporation filed a Complaint[7] against Vicar,
Carmelita Chaneco Lim and one John Doe, for a
sum of money, damages and replevin.
These Complaints stemmed from loans
obtained from FEB by Vicar, a corporation
engaged in the construction business, for the
purchase of certain heavy equipment. In obtaining
the loans, Deeds of Absolute Sale with a lease-
back provision were executed by the parties. In
those Deeds, Vicar appears to have sold to FEB
the equipment purchased with the loan proceeds
and, at the same time, leased them back.[8] For the
total loan of P30,315,494, Vicar claims to have
paid FEB an aggregate amount of P19,042,908 in
monthly amortizations.
Nevertheless, FEB maintains that Vicar still had
an outstanding balance of about P22,000,000,
despite the extrajudicial foreclosure of sixty-three
(63) subdivision lots. These lots, comprising an
aggregate area of 20,300 square meters in
Calamba, Laguna, were used by the corporation
as additional collateral. As a consequence, the
auction sale produced P17,000,000 which, Vicar
claims, should have been applied to its loans.
In the course of the second (replevin) case, the
trial court issued several Orders pertaining to the
possession/custody of eight (8) units of the subject
equipment. In an Order dated August 2, 2002, the
12
regional trial court (RTC) quashed the property
counterbond filed by Vicar and denied the latters
Motion to Dismiss the Complaint, which was
grounded on forum shopping. In an Order dated
September 30, 2002, the RTC denied the
corporations Motion for Reconsideration and
Motion for Voluntary Inhibition of the trial judge.
On October 3, 2002, Vicar filed a Petition
for Certiorari before the Court of Appeals, to stop
the implementation of the Writ of Replevin issued
against the subject equipment.
Ruling of the Court of Appeals
The Petition was, however, instantly dismissed
by the CA in its herein assailed Resolution dated
October 23, 2002, because the Verification and the
Certification against forum shopping had been
executed by Petitioner Carmelita V. Lim without
any showing that she had the authority to sign for
and on behalf of petitioner-corporation.
On November 23, 2003, the day after receiving
its copy of the Resolution, Vicar filed an Omnibus
Motion for Reconsideration and for Admission of
the Attached Secretarys Certificate. Nevertheless,
the CA denied the Omnibus Motion in this wise:
The belated filing by the petitioners of the Certification
of their Corporate Secretary, to the effect that petitioner
Carmelita Lim has been duly authorized by petitioner
corporation to file the subject petition for certiorari, did
not cure the defect of said petition. Absent any
compelling reason for petitioners failure to comply at
the first instance with the required certification, we
cannot, therefore, accept their subsequent compliance. [9]
Hence, this Petition. [10]
The Issues
Petitioners raise the following issues for our
consideration:
A.
Whether compelling reasons exist which warrant the
liberal construction of the Petition for Certiorari.
B.
Whether petitioners subsequent submission of the
secretarys certificate is a sufficient compliance with the
requirement of the law.
C.
13
Whether the policy of the law is to afford a party the
fullest opportunity to establish the merits of his case. [11]
In short, the principal issue is whether the
Court of Appeals erred in summarily dismissing the
Petition for Certiorari.
The Courts Ruling
The present Petition for Review is meritorious.
Main Issue:
Propriety of Summary Dismissal
Petitioners assert that Carmelita V. Lim was
duly authorized to execute, for and on behalf of
Vicar, the Verification and Certification against
forum shopping. Attached to the Petition and
signed by Petitioner Lim was the
Verification/Certification, in which was explicitly
stated the authorization and affirmation, as follows:
x x x. I am likewise duly authorized to execute this
Verification/Certification in behalf of petitioner Vicar
International Construction, Inc. x x x.
 This statement was supported by Vicars board
of directors, who unanimously approved a
Resolution dated October 2, 2002, which reads
thus:
NOW THEREFORE, BE IT RESOLVED, as it is
hereby resolved, that the Corporation be authorized to
file a Petition for Certiorari before the Court of Appeals
for the purpose of annulling or setting aside the Orders
dated 2 August 2002 and 30 September 2002 rendered
by Branch 150 of the Regional Trial Court of Makati in
connection with Civil Case No. 02-357 entitled FEB
Leasing & Finance Corporation, Plaintiff vs. Vicar
International Construction, Inc. et al., Defendants.
RESOLVED further, that the President/General
Manager Carmelita V. Lim is hereby authorized to
execute and sign any and all documents necessary for
filing of the Petition for Certiorari, including the
verification and certification against forum shopping. [12]
Petitioners candidly admit that they
inadvertently failed to attach the above Resolution
to their CA Petition. In preparing the Petition, their
counsel supposedly worked overnight without
sleep. She wanted to file it immediately to avoid
the trial courts quashal of their counterbond and,
thus, the immediate seizure of their equipment --
their only means of livelihood.
14
Their counsel allegedly believed in good faith
that the secretarys Certificate was attached to the
Petition. When they received a copy of the October
23, 2002 CA Resolution on November 11, 2002,
they lost no time in filing the following day their
Omnibus Motion for Reconsideration and for
Admission of the Attached Secretarys Certificate.
Petitioners submit that the foregoing
circumstances constitute compelling reasons to
justify setting aside the procedural defect, pursuant
to Ramos v. Court of Appeals.[13]
Further, citing Yap v. Baldado,[14] they contend
that their posthaste submission of the secretarys
Certificate, albeit after the filing of their Petition,
constitutes substantial compliance with the
requirements of the law. Finally, they aver that
pursuant to the policy of the law to afford parties
the fullest opportunity to establish the merits of
their case, the CA should have given due course to
their Petition.
On the other hand, Respondent FEB asserts
that the CAs dismissal of the Petition -- arising
from petitioners failure to attach a duly executed
verification and certification against forum
shopping -- is well within the appellate courts
authority, pursuant to Sections 3 and 5 of Rule 46
of the Revised Rules of Civil Procedure.
[15]
Respondent also claims that petitioners present
action before this Court seeks to correct a
perceived erroneous application by the CA of a
procedural rule that is not correctible by certiorari.
Finally, respondent alleges that the instant
Petition, being based on the ground of excusable
negligence, is actually a motion for new trial. As
such, the Petition must allegedly fail, because
petitioners did not execute and attach an affidavit
of merits.
The issue before us is not novel; neither are
the factual circumstances that gave rise to it.
In Shipside Incorporated v. Court of Appeals,
[16]
the petitioner had not attached any proof that its
resident manager was authorized to sign the
Verification and the non-forum shopping
Certification, as a consequence of which the
Petition was dismissed by the Court of Appeals.
Subsequent to the dismissal, however, the
petitioner filed a motion for reconsideration, to
which was already attached a Certificate issued by
its board secretary who stated that, prior to the
filing of the Petition, the resident manager had
been authorized by the board of directors to file the
Petition.
Citing several cases[17] excusing noncompliance
with the requirement of a certificate of non-forum
shopping, the Court held that with more reason
should x x x the instant petition [be allowed,] since
15
petitioner herein did submit a certification on non-
forum shopping, failing only to show proof that the
signatory was authorized to do so. The Court
further said that the subsequent submission of the
Secretarys Certificate, attesting that the signatory
to the certification was authorized to file the action
on behalf of petitioner, mitigated the oversight.
Similarly, in General Milling Corporation v.
NLRC,[18] the Court of Appeals dismissed the
Petition, which was not accompanied by any board
resolution or certification by the corporate
secretary showing that the person who had signed
the Certification of Non-Forum Shopping was duly
authorized to represent the petitioner-corporation
in the case. In the Motion for Reconsideration,
however, the petitioner attached a board
Resolution stating that the signatory of the
Certification had been duly authorized to do so.
Under those circumstances, the Court held that
there was at least substantial compliance with, and
that there was no attempt to ignore, the prescribed
procedural requirements, except that the petition
was not accompanied by a board resolution or a
secretarys certificate that the person who signed it
was duly authorized by petitioner to represent it in
the case.[19]
Also, in BA Savings Bank v. Sia,[20] the Court of
Appeals denied due course to a Petition
for certiorari filed by BA Savings Bank. The CAs
action was grounded on the fact that the
Certification on anti-forum shopping incorporated
in the Petition had been signed merely by the
banks counsel, not by a duly authorized
representative, as required under Supreme Court
Circular No. 28-91. Subsequently filed by the
petitioner was a Motion for Reconsideration, to
which was attached a Certificate issued by the
corporate secretary. The Certificate showed that
the Resolution promulgated by the board of
directors had authorized the lawyers of petitioner
to represent it in any action or proceeding before
any court, tribunal or agency; and to sign, execute
and deliver the certificate of non-forum shopping,
among others. Nevertheless, the Court of Appeals
denied the Motion on the ground that Supreme
Court Revised Circular No. 28-91 requires that it is
the petitioner, not the counsel, who must certify
under oath to all of the facts and undertakings
required therein.
The Court again reversed the appellate court
and ruled thus:
Circular 28-91 was prescribed by the Supreme Court to
prohibit and penalize the evils of forum shopping. We
see no circumvention of this rationale if the certificate
was signed by the corporations specifically authorized
counsel, who had personal knowledge of the matters
16
required in the Circular. In Bernardo v. NLRC,[21] we
explained that a literal interpretation of the Circular
should be avoided if doing so would subvert its very
rationale. Said the Court:
x x x. Indeed, while the requirement as to certificate of
non-forum shopping is mandatory, nonetheless the
requirements must not be interpreted too literally and
thus defeat the objective of preventing the undesirable
practice of forum-shopping.[22]
Guided by the above pronouncements, the
Court deems it proper and justifiable to grant the
present Petition. Clearly, petitioners did not
deliberately ignore SC Circular 28-91. In fact, a
Verification/Certification, stating the information
required under the Circular, was attached to the
Petition for Certiorari filed before the CA. In that
Verification/Certification signed by Petitioner Lim,
she attested as follows:
1. x x x I am likewise duly authorized to execute this
Verification/Certification in behalf of petitioner Vicar
International Construction, Inc.
2. In my personal capacity and as a duly authorized
representative of Vicar International Construction, Inc.,
I caused the preparation of the foregoing Petition
for Certiorari.
 xxxxxxxxx the granting of substantial justice is an even more
urgent ideal.[23] Rules of procedure are but tools
Petitioners merely missed attaching to their designed to facilitate, not obstruct, the attainment
Petition a concrete proof of Lims authority from of justice.
Vicar to execute the said Verification/Certification
WHEREFORE, the Petition is GRANTED, and
on its behalf. The latter, however, lost no time in
submitting its corporate secretarys Certificate the appealed Resolutions
are REVERSED and SET ASIDE. The case
attesting to the fact that, indeed, Petitioner Vicars
board of directors had unanimously approved a is REMANDED to the Court of Appeals, which is
directed to continue the proceedings in CA-GR SP
Resolution on October 2, 2002, authorizing its
president and general manager, Carmelita V. Lim, No. 73117 with deliberate speed. No costs.
to file the Petition and to execute and sign x x x the SO ORDERED.
verification and certification against forum
Sandoval-Gutierrez, Corona, and Carpio-
shopping.
Morales, JJ., concur.
The Certificate was submitted to the CA on the Garcia, J., No part. Had taken part in assailed
day right after it had denied the Petition. Such Resolutions.
swiftness of action indicates that the Resolution --
authorizing Petitioner Lim to file the Petition and
execute the Verification and the Certification
against forum shopping on behalf of Petitioner
Vicar -- did exist at the time the Petition was filed.
Such fact also lends credence to the assertion of
petitioners that it was only due to inadvertence and
oversight that they failed to attach the Secretarys
Certificate to their Petition for Certiorari.
In closing, the Court stresses once more that
technical rules of procedure should be used to
promote, not frustrate, justice. While the swift
unclogging of court dockets is a laudable objective,

17
 stages of these proceedings and has consistently claimed to be
Republic of the Philippines the employer of private respondent Oabel. For the duration of her
SUPREME COURT employment, private respondent Oabel performed the following
Manila functions:

FIRST DIVISION Secretary, Public Relations February 10, March 6,

-
Department: 1997 1997
G.R. No. 149660 January 20, 2009
April 21,
Gift Shop Attendant: April 7, 1997 -
1997
MARANAW HOTELS AND RESORT CORP., Petitioner,
vs. May 20,
COURT OF APPEALS, SHERYL OABEL AND MANILA Waitress: April 22, 1997 -
1997
RESOURCE DEVELOPMENT CORP., Respondents.
July 30,
Shop Attendant: May 21, 1997 -
19985
DECISION

PUNO, C.J.:
Before the Court is a petition for review on certiorari assailing a
resolution issued by the Court of Appeals. The resolution denied
the petition for review filed by petitioner Maranaw Hotels and
Resort Corp.
The present proceedings emanate from a complaint for
regularization, subsequently converted into one for illegal
dismissal, filed before Labor Arbiter Madjayran H. Ajan by private
respondent Sheryl Oabel.
It appears that private respondent Oabel was initially hired by
petitioner as an extra beverage attendant on April 24, 1995. This
lasted until February 7, 1997.1 Respondent worked in Century
Park Hotel, an establishment owned by the petitioner.
On September 16, 1996,2 petitioner contracted with Manila
Resource Development Corporation.3 Subsequently, private
respondent Oabel was transferred to MANRED, with the latter
deporting itself as her employer.4 MANRED has intervened at all
On July 20, 1998, private respondent filed before the Labor
Arbiter a petition for regularization of employment against the
petitioner. On August 1, 1998, however, private respondent Oabel
was dismissed from employment.6Respondent converted her
petition for regularization into a complaint for illegal dismissal.
Labor Arbiter Madjayran H. Ajan rendered a decision on July 13,
1999, dismissing the complaint against the petitioner. The
decision held:
While complainant alleged that she has been working with the
respondent hotel in different department (sic) of the latter on (sic)
various capacities (although not all departments are part and
parcel of the hotels), complainant never disputed the fact that her
work with the same were on a per function basis or on a "need
basis" co-terminus with the function she was hired
for.Considering that complainant job (sic) with the respondent
hotel was on a per function basis or on a "need basis",
complainant could not even be considered as casual employee or
provisional employee. Respondent hotel consider (sic)

18
complainant, at most, a project employee which does not ripened
(sic) into regular employee (sic).7
Private respondent appealed before the National Labor Relations
Commission (NLRC). The NLRC reversed the ruling of the Labor
Arbiter and held that: (1) MANRED is a labor-only contractor, and
(2) private respondent was illegally dismissed.
Of the first holding, the NLRC observed that under the very terms
of the service contract, MANRED shall provide the petitioner not
specific jobs or services but personnel and that MANRED had
insufficient capitalization and was not sufficiently equipped to
provide specific jobs.8 The NLRC likewise observed that the
activities performed by the private respondent were directly
related to and usually necessary or desirable in the business of
the petitioner.9
With respect to the termination of private respondents
employment, the NLRC held that it was not effected for a valid or
just cause and was therefore illegal. The dispositive portion of the
ruling reads thus:
WHEREFORE, the decision appealed from is hereby
REVERSED. xxxx Respondents Century Park Hotel and Manila
Resource Development Corporation are hereby declared jointly
and severally liable for the following awards in favor of
complainant: 1) her full backwages and benefits from August 1,
1998 up to the date of her actual reinstatement; 2) her salary
differentials, share in the service charges, service incentive leave
pay and 13th month pay from July 20, 1995 to July 31, 1998.
SO ORDERED.10
Petitioner subsequently appealed before the Court of Appeals. In
a resolution, the appellate court dismissed the petition on account
of the failure of the petitioner to append the board resolution
19
authorizing the counsel for petitioner to file the petition before the
Court of Appeals. The Court of Appeals held:
After a careful perusal of the records of the case, We resolve to
DISMISS the present petition on the ground of non-compliance
with the rule on certification against forum shopping taking into
account that the aforesaid certification was subscribed and
verified by the Personnel Director of petitioner corporation without
attaching thereto his authority to do so for and in behalf of
petitioner corporation per board resolution or special power of
attorney executed by the latter.11
Petitioner duly filed its motion for reconsideration which was
denied by the Court of Appeals in a resolution dated August 30,
2001.12
In the present petition for review, the petitioner invokes
substantial justice as justification for a reversal of the resolution of
the Court of Appeals.13 Petitioner likewise contends that the filing
of a motion for reconsideration with the certificate of non-forum
shopping attached constitutes substantial compliance with the
requirement.14
There is no merit to the petition.
Well-settled is the rule that the certificate of non-forum shopping
is a mandatory requirement. Substantial compliance applies only
with respect to the contents of the certificate but not as to its
presence in the pleading wherein it is required.
Petitioners contention that the filing of a motion for
reconsideration with an appended certificate of non forum-
shopping suffices to cure the defect in the pleading is absolutely
specious. It negates the very purpose for which the certification
against forum shopping is required: to inform the Court of the
pendency of any other case which may present similar issues and
involve similar parties as the one before it. The requirement
applies to both natural and juridical persons.
Petitioner relies upon this Courts ruling in Digital Microwave
Corp. v. Court of Appeals15 to show that its Personnel Director
has been duly authorized to sign pleadings for and in behalf of
the petitioner. Petitioner, however, has taken the ruling in Digital
Microwave out of context. The portion of the ruling in Digital
Microwave upon which petitioner relies was in response to the
issue of impossibility of compliance by juridical persons with the
requirements of Circular 28-91.16 The Courts identification of duly
authorized officers or directors as the proper signatories of a
certificate of non forum-shopping was in response to that issue.
The ruling does not, however, ipso facto clothe a corporate officer
or director with authority to execute a certificate of non-forum
shopping by virtue of the formers position alone.
Any doubt on the matter has been resolved by the Courts ruling
in BPI Leasing Corp. v. Court of Appeals17where this Court
emphasized that the lawyer acting for the corporation must be
specifically authorized to sign pleadings for the
corporation.18 Specific authorization, the Court held, could only
come in the form of a board resolution issued by the Board of
Directors that specifically authorizes the counsel to institute the
petition and execute the certification, to make his actions binding
on his principal, i.e., the corporation.19
This Court has not wavered in stressing the need for strict
adherence to procedural requirements. The rules of procedure
exist to ensure the orderly administration of justice. They are not
to be trifled with lightly.
For this reason alone, the petition must already be dismissed.
However, even if this grave procedural infirmity is set aside, the
petition must still fail. In the interest of averting further litigation
arising from the present controversy, and in light of the respective
positions asserted by the parties in the pleadings and other
20
memoranda filed before this Court, the Court now proceeds to
resolve the case on the merits.
Petitioner posits that it has entered into a service agreement with
intervenor MANRED. The latter, in turn, maintains that private
respondent Oabel is its employee and subsequently holds itself
out as the employer and offers the reinstatement of private
respondent.
Notably, private respondents purported employment with
MANRED commenced only in 1996, way after she was hired by
the petitioner as extra beverage attendant on April 24, 1995.
There is thus much credence in the private respondents claim
that the service agreement executed between the petitioner and
MANRED is a mere ploy to circumvent the law on employment, in
particular that which pertains on regularization.
In this regard, it has not escaped the notice of the Court that the
operations of the hotel itself do not cease with the end of each
event or function and that there is an ever present need for
individuals to perform certain tasks necessary in the petitioners
business. Thus, although the tasks themselves may vary, the
need for sufficient manpower to carry them out does not. In any
event, as borne out by the findings of the NLRC, the petitioner
determines the nature of the tasks to be performed by the private
respondent, in the process exercising control.
This being so, the Court finds no difficulty in sustaining the finding
of the NLRC that MANRED is a labor-only
contractor.20 Concordantly, the real employer of private
respondent Oabel is the petitioner.
It appears further that private respondent has already rendered
more than one year of service to the petitioner, for the period
1995-1998, for which she must already be considered a regular
employee, pursuant to Article 280 of the Labor Code:
Art. 280. Regular and casual employment. The provisions of Associate Justice Associate Justice
written agreement to the contrary notwithstanding and regardless
of the oral agreement of the parties, an employment shall be TERESITA J. LEONARDO-DE CASTRO
deemed to be regular where the employee has been engaged to Associate Justice
perform activities which are usually necessary or desirable in the
usual business or trade of the employer, except where the
C E R TI F I C ATI O N
employment has been fixed for a specific project or undertaking
the completion or termination of which has been determined at
the time of the engagement of the employee or where the work or Pursuant to Section 13, Article VIII of the Constitution, I certify
service to be performed is seasonal in nature and the that the conclusions in the above decision had been reached in
employment is for the duration of the season. consultation before the case was assigned to the writer of the
opinion of the Courts Division.
An employment shall be deemed to be casual if it is not
covered by the preceding paragraph: Provided, That any REYNATO S. PUNO
employee who has rendered at least one year of service, Chief Justice
whether such service is continuous or broken, shall be
considered a regular employee with respect to the activity in
which he is employed and his employment shall continue
while such activity exists. (Emphasis supplied)

IN VIEW WHEREOF, the present petition is DENIED. The

resolution of the Court of Appeals dated June 15, 2001 is
affirmed.

Costs against petitioner.

SO ORDERED.

REYNATO S. PUNO
Chief Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice

RENATO C. CORONA ADOLFO S. AZCUNA

21

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 153785 August 3, 2006
VERONIQUE T. HUIBONHOA, Petitioner,
vs.
ANGEL D. CONCEPCION, and HON. RAYMUNDO Z. ANNANG,
in his capacity as Presiding Judge of the Regional Trial Court
of Cabanatuan City, Branch 86, Respondents.
RESOLUTION
TINGA, J.:
This is a petition for review on certiorari under Rule 45 of the
1997 Rules of Civil Procedure assailing the Decision of the Court
of Appeals (CA) in CA-G.R. SP No. 65718 promulgated on March
12, 2002 and its Resolution dated May 27, 2002, denying
petitioners motion for reconsideration of said Decision. The CA
Decision denied the petition for certiorari filed by Veronique T.
Huibonhoa, herein petitioner, which assailed the Orders dated
July 13, 2001 and July 17, 2001 issued by Judge Raymundo
Annang in his capacity as Acting Executive Judge of the Regional
Trial Court (RTC) of Cabanatuan City.
The instant petition stemmed from a complaint for accounting and
damages filed by respondent Angel D. Concepcion, Sr. against
petitioner Veronique T. Huibonhoa. The complaint was filed with
the RTC of Cabanatuan City on July 13, 2001 and prayed for the
issuance of a preliminary injunction and preliminary mandatory
injunction to immediately restrain Huibonhoa from performing her
job as manager of Poulex Supermarket, among others. On the
22
same day the complaint was filed, Judge Annang issued a
temporary restraining order (TRO) effective for seventy-two (72)
hours. The pertinent portion of the July 13, 2001 Order reads:
WHEREFORE, premises considered, temporary restraining order
is hereby issued effective for seventy two hours from this order
restraining and prohibiting defendant Veronique T. Huibonhoa
from occupying and performing her position as Manager of the
Poulex Supermarket and from suppressing, concealing and
falsifying the records; and, further, said defendant is hereby
ordered to submit formal turn-over of all cash and other cash
items and all management and accounting records accruing for
the business operation of the [sic] Poulex Supermarket for the
period of, from November, 2000 up to the present. Further,
defendant Sphinx Security Agency is hereby ordered to allow the
plaintiff or his authorized representative/s to enter the [sic] Poulex
Supermarket as Director of the CHAS, Inc., among others, until
further order from this Court. Likewise, Sphinx Security Agency is
hereby restrained from interfering and/or preventing the
implementation of the orders of Angel D. Concepcion, Sr. in his
capacity as Chairman-President of CHAS, Inc. 1
On July 16, 2001, Huibonhoa, along with fellow stockholders of
CHAS, Inc., CHAS Enterprise Corporation and CHAS Realty and
Development Corporation, filed an intra-corporate and derivative
suit and complaint for injunction with a prayer for temporary
restraining order and/or writ of preliminary injunction to prevent
respondent Concepcion, Sr. and his agents from interfering with
the management and operations of the Poulex Supermarket. The
complaint was docketed as Civil Case No. 4068-AF.
On July 17, 2001, Huibonhoa filed an Urgent Manifestation and
Motion Ex Abundante Ad Cautelam, seeking the issuance of an
order certifying the expiration of the TRO. Thus, Judge Annang
issued on the same day an order declaring the expiration of the
temporary restraining order but at the same time directing the
continuous closure of the supermarket. The July 17, 2001 Order
reads in part:
For being meritorious, it is hereby declared that the seventy-two
(72) hour TRO effective for only seventy-two hours from its
issuance has already expired on July 16, 2001 at 5:00 p.m.
Considering the fact that the [sic] Poulex Supermarket had
already been padlocked on July 16, 2001 after 5:00 P.M.
according to the said motion and manifestation of defendant
Veronique T. Huibonhoa, the same should remain closed in the
interest of justice and in order not to create further confusion.
Anyway, this case will be raffled tomorrow, July 18, 2001 at 10:00
A.M. in accordance with the Rules. 2
On July 18, 2001, respondent Concepcions complaint for
accounting and damages, docketed as Civil Case No. 4065, was
raffled to Branch 28 of the RTC-Cabanatuan City, the branch
designated to decide cases formerly cognizable by the Securities
and Exchange Commission.
On July 20, 2001, Huibonhoa filed a petition for certiorari with the
Court of Appeals, docketed as CA-G.R. SP No. 65718. The
petition sought to annul the July 13 and July 17 Orders of Judge
Annang for having been issued with grave abuse of discretion
amounting to lack and/or excess of jurisdiction. Huibonhoas
prayer for the issuance of a temporary restraining order was
granted in a Resolution issued on July 23, 2001. The CA
Resolution enjoined respondents from implementing and/or
enforcing the assailed orders of Judge Annang, including but not
limited to the prevention of the breaking of the padlock and
reopening of Poulex Supermarket, and interference by
respondent Concepcion and his agents with the operations of the
supermarket.
On March 12, 2004, the Court of Appeals dismissed Huibonhoas
petition for certiorari assailing the twin orders of Judge Annang on
the grounds of pre-maturity and forum shopping. Huibonhoa
moved for its reconsideration but in the Resolution issued on May
27, 2002, the Court of Appeals denied her motion.
23
Hence, Huibonhoa filed the instant petition for review on certiorari
imputing the following errors to the Court of Appeals:
I.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED
IN DISMISSING THE PETITION ON THE GROUNDS THAT: (A)
PETITIONER FAILED TO MOVE FOR THE DISSOLUTION OF
THE TEMPORARY RESTRAINING ORDER WITH THE TRIAL
COURT UNDER SECTION 6, RULE 58 OF THE RULES OF
COURT; AND THAT (B) PETITIONER IS GUILTY OF FORUM
SHOPPING, CONSIDERING THAT:
A. SECTION 6, RULE 58 OF THE RULES OF COURT IS NOT
APPLICABLE TO THE CASE.
B. THE FILING OF THE COMPLAINT IN CIVIL CASE NO. 4068-
AF COULD NOT, AS IT DID NOT, CONSTITUTE FORUM
SHOPPING.
C. THE FILING OF THE PETITION FOR CERTIORARI COULD
NOT, AND DID NOT CONSTITUTE FORUM SHOPPING.
II.
THE HONORABLE COURT OF APPEALS ERRED IN NOT
ISSUING THE WRIT OF CERTIORARI TO ANNUL THE 13 JULY
2001 AND 17 JULY 2001 ORDERS OF THE TRIAL COURT. 3
After respondent Concepcion and petitioner Huibonhoa filed a
Comment and a Reply, respectively, the Court issued a
Resolution on September 28, 2005, directing the former to show
cause why the instant petition should not be dismissed for having
become moot and academic. The resolution of the petition is
ultimately hinged on the propriety of the issuance of the 72-hour
restraining order, which should have expired ipso jure on the
twentieth day, a judicial declaration to that effect not being
necessary. Thus, the filing of the instant petition almost a year
after the issuance of the TRO would be unnecessary.
Huibonhoa submitted a Compliance with Motion to Clarify dated
October 25, 2005, conveying the following: (1) Huibonhoa had
proposed a settlement for the parties to dismiss their respective
claims against each other; (2) upon a Joint Motion to Dismiss by
both petitioner Huibonhoa and respondent Concepcion, the trial
court issued an order dismissing Civil Case No. 4065, the
complaint for accounting and damages filed by respondent
Concepcion; (3) notwithstanding the dismissal of the pending
cases, the parties did not agree to cause the dismissal of the
instant petition; (4) petitioner Huibonhoa is still seeking the
reversal of the CA Decision insofar as it ruled that she was guilty
of forum shopping and a clarification on whether her counsel will
be exposed to administrative liability should the instant petition be
dismissed. 4
In dismissing the petition for certiorari, the Court of Appeals found
petitioner Huibonhoa guilty of forum shopping when she filed Civil
Case No. 4068-AF with the trial court and, thereafter, a petition
for certiorari, docketed as CA-G.R. SP No. 65718, with the Court
of Appeals. The appellate court believed that the two actions had
the same object of nullifying the TRO issued by Judge Annang in
Civil Case No. 4065. Petitioner Huibonhoa urges the Court to
evaluate the Court of Appeals finding that she engaged in forum
shopping, especially that the appellate court characterized said
act as "deliberate." She stresses that said finding and the
accompanying characterization have exposed her and her
counsel to sanctions. 5
In her defense, Huibonhoa insists that Civil Case No. 4068-AF
was filed not for the purpose of defeating the TRO issued by
Judge Annang on July 13, 2001 but on account of the acts of
disturbance and attempted forcible take-over by respondent
Concepcion committed on July 6,7,12 and 13, 2001. She also
asserts that Civil Case No. 4068-AF, while filed on July 16, 2001,
24
was signed and verified on July 13, 2001 or before a copy of the
July 13, 2001 TRO was served on her counsel.
Furthermore, Huibonhoa contends that in contrast, the petition for
certiorari was filed with the Court of Appeals to enjoin or prohibit
acts pursuant to the implementation of the July 13 and 17 Orders
of Judge Annang, although the TROs separately prayed for in the
complaint for injunction and in the petition for certiorari effectively
sought to address the interference in the operations of the
supermarket by respondent Concepcion.
There is forum shopping when, as a result of an adverse opinion
in one forum, a party seeks a favorable opinion, other than by
appeal or certiorari in another. There can also be forum shopping
when a party institutes two or more suits in different courts, either
simultaneously or successively, in order to ask the courts to rule
on the same or related causes and/or to grant the same or
substantially the same reliefs on the supposition that one or the
other court would make a favorable disposition or increase a
partys chances of obtaining a favorable decision or action. 6
The rationale against forum shopping is that a party should not be
allowed to pursue simultaneous remedies in two different fora.
Filing multiple petitions or complaints constitutes abuse of court
processes, which tends to degrade the administration of justice,
wreaks havoc upon orderly judicial procedure, and adds to the
congestion of the heavily burdened dockets of the courts. Thus,
the rule proscribing forum shopping seeks to promote candor and
transparency among lawyers and their clients in the pursuit of
their cases before the courts to promote the orderly
administration of justice, prevent undue inconvenience upon the
other party, and save the precious time of the courts. It also aims
to prevent the embarrassing situation of two or more courts or
agencies rendering conflicting resolutions or decisions upon the
same issue. 7
To determine whether a party violated the rule against forum
shopping, the most important question to ask is whether the
elements of litis pendentia are present or whether a final
judgment in one case will result to res judicata in another.
Otherwise stated, to determine forum shopping, the test is to see
whether in the two or more cases pending, there is identity of
parties, rights or causes of action, and reliefs sought. 8
A plain reading of the allegations in the complaint in Civil Case
No. 4068-AF and those in the petition for certiorari filed with the
Court of Appeals would preclude the Court from affirming the
Court
of Appeals finding that Huibonhoa had engaged in forum
shopping. Not all the elements of litis pendentia concur. There is
no identity of parties, rights or causes of action between Civil
Case No. 4068-AF and the petition for certiorari. Civil Case No.
4068-AF is a derivative suit and complaint for injunction instituted
by the stockholders of the aforementioned corporations while the
petition for certiorari was instituted by petitioner in her capacity as
manager of Poulex Supermarket. The complaint in Civil Case No.
4068-AF alleges different causes of action, including those
relating to interference by respondent Concepcion in the
operations of the supermarket and causing damages to the
corporations and the stockholders arising from such unlawful
interference. The petition for certiorari aims to nullify the two
orders of Judge Annang on the ground that they were issued with
grave abuse of discretion since only the designated special
commercial court has jurisdiction to hear and decide intra-
corporate controversies. A resolution on the merits of the petition
for certiorari would necessarily have to discuss the authority of
respondent Judge Annang to take cognizance of the case, which
was allegedly an intra-corporate matter, and the issuance of the
mandatory injunction, which was allegedly not sanctioned by any
rule. These are the main issues raised in the petition for certiorari
but are not raised as issues in Civil Case No. 4068-F.
The reliefs sought in the two actions are also different. In Civil
Case No. 4068-F, aside from the main action for a permanent
injunction, complainants therein also claimed damages. In the
25
petition for certiorari, Huibonhoa sought the prevention of the
implementation of the assailed orders of Judge Annang. The only
common thread
between the two actions is with respect to the TRO sought to
prevent respondent Concepcion from interfering with the
operations of the supermarket, but said relief is only incidental
and does not constitute the main cause of action in both cases.
All the foregoing points favorable to petitioners cause
notwithstanding, the Court cannot take favorable action on her
petition. In the light of the supervening events, particularly the
dismissal of Civil Case No. 4065, the instant petition has clearly
become moot and academic and, therefore, deserves to be
dismissed. With the termination of the case wherein the assailed
orders were issued, it is no longer necessary for this Court to
resolve whether the Court of Appeals had correctly upheld said
orders. In addition, one of said orders directed the issuance of a
TRO, which, by sheer force of law, should have expired and did
expire after 72 hours, without need of a judicial declaration to that
effect.
Likewise, with the settlement reached by the parties which
culminated in the dismissal of the cases filed by them against
each other, petitioner and her counsel have been liberated from
any risk of sanction for their supposed forum shopping.
Courts of justice constituted to pass upon substantial rights will
not consider questions where no actual interests are involved.
Thus, the well-settled rule that courts will not determine a moot
question.
Where the issues have become moot and academic, there
ceases to be any justiciable controversy, thus rendering the
resolution of the same of no practical value. Courts will decline
jurisdiction over moot cases because there is no substantial relief
to which petitioner will be entitled and which will anyway be
negated by the dismissal of the petition. This Court will therefore
abstain from expressing its opinion in a case where no legal relief
is needed or called for. 9
WHEREFORE, the instant petition for review on certiorari is
DENIED for being moot and academic. No pronouncement as to
costs.
C E R TI F I C ATI O N
Pursuant to Section 13, Article VIII of the Constitution, and the
Division Chairpersons Attestation, it is hereby certified that the
conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the
opinion of the Courts Division.

SO ORDERED. ARTEMIO V. PANGANIBAN

Chief Justice
DANTE O. TINGA
Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBING
Associate Justice
Chairperson

ANTONIO T. CARPIO, CONCHITA CARPIO MORALES

Associate Justice Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

ATT E S TATI O N

I attest that the conclusions in the above Decision had been

reached in consultation before the case was assigned to the
writer of the opinion of the Courts Division.

LEONARDO A. QUISUMBING
Associate Justice
Chairperson, Third Division

26

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 154080 January 22, 2008
NELSIE B. CAETE, RONA ANAS, MILAGROSA APUAN,
ERLINDA AQUINO, GODOFREDO AQUINO, CORITA
BARREDO, TESSIE BARREDO, JESUS BATRINA, ALBERTO
BUENAVENTURA, BONIFACIO BUENAVENTURA, EUSEBIO
CAPIRAL, MARIO CAPIRAL, LOLITA CAPIRAL, ELENA
CAPIRAL, LETICIA CAPIRAL, RENATO CAPIRAL, ELY
CABANGON, ERWIN CATALUNA, JESSIE CONRADO, JOEL
CONRADO, NARCISIO CONRADO, RICARDO CALAMPIANO,
ALUMNIO CORSANES, NILO COLATOY, MARJETO DAYAN,
HENRY DIAZ, SALVACION ESMANDE, REYNALDO
FUENTEBELLA, GERRY GEQUILLANA, DELSIE GARCIA,
NERISSA GONZALES, VISITACION JUNSAY, ESTELA JOVEN,
JOSE LANZUELA, MARLON MALANGAYON, RENATO
MARCELO, ANITA MARZONIA, MARCELINO MONTALBO,
AMADO MULI, JR., LEONITA MULI, EDUARDO OLVIDO,
ALMARIO PACON, ASUNCION PACON, SALVACION
PAGAYUNAN, ESTER PANTALEON, SHERLITA RABE, ANITA
REYES, MEDELYN RIOS, BERTITO RIVAS, ENGRACIA
RIVERA, GERALYN RIVERA, ARMANDO RIVERA, MA.
MERCY SHERVA, ALEXANDER SANGALAN, ERNESTO
SANTIAGO, JOY SANTIAGO, ELENA TALION, JOE RANDY
TRESVALLES, ELIAS VALENZUELA, GERRY VALENZUELA,
LILIBETH VALENZUELA, JOSEPHINE VICTORINO, JOJO
VICTORINO, MAXIMINO VICTORINO, NOEL VICTORINO,
REYNANTE VICTORINO, ROBERTO VICTORINO and JOVITO
VILLAREAL, represented by NELSIE B. CAETE, petitioners,
vs.
GENUINO ICE COMPANY, INC., respondent.
27
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari seeks to set aside the
Decision1 of the Court of Appeals dated January 9, 2002 in CA-
G.R. SP No. 64337 entitled "Genuino Ice Company, Inc. vs. Hon.
Victorino P. Evangelista, Nelsie B. Caete, et al.," and its
Resolution2 dated June 26, 2002, dismissing petitioners "Second
Amended Complaint" in Civil Case No. Q-99-36483 filed in
Branch 223 of the Regional Trial Court of Quezon City.
Records show that on January 11, 1999, petitioners filed a
complaint for cancellation of title to property covered by Transfer
Certificate of Title (TCT) Nos. N-140441; 3 14399;4 RT-94384
(292245);5 RT-94794 (292246);6 and 292247.7 Petitioners alleged
that said titles are spurious, fictitious and were issued "under
mysterious circumstances," considering that the holders thereof
including their predecessors-in-interest were never in actual,
adverse and physical possession of the property, rendering them
ineligible to acquire title to the said property under the Friar Lands
Act.8 Petitioners also sought to nullify Original Certificate of Title
(OCT) No. 614 from which the foregoing titles sought to be
cancelled originated or were derived.
Respondent Genuino Ice Co., Inc. filed a motion to dismiss9 on
the ground that the complaint states no cause of action because
petitioners are not real parties-in-interest; that no relief may be
granted as a matter of law; and that petitioners failed to exhaust
administrative remedies, but it was denied by the trial court.
Respondent moved for reconsideration but the same was denied.
On November 4, 1999, petitioners filed a "Second Amended
Complaint"10 which sought to annul, in addition to the titles
already alleged in the original complaint, TCT Nos. 274095 and
274096;11 274097 and 274098;12 and 274099.13
The Second Amended Complaint alleged the following causes of
action, as well as the remedy sought to be obtained, thus:
4. That plaintiffs (petitioners) and their predecessors-in-
interest are among those who have been in actual,
adverse, peaceful and continuous possession in concept
of owners of unregistered parcels of land situated at Sitio
Mabilog, Barangay Culiat, Quezon City, Metro Manila,
which parcels of land are more particularly described as
follows:
(1) "A parcel of unregistered land known as Lot
668, situated at Barangay Culiat, Quezon City x x
x."
(2) "A parcel of unregistered land known as Lot
669, situated at Barangay Culiat, Quezon City x x
x."
5. That the above-described real property is a portion of a
friar land known as "Piedad Estate," which property is
intended for distribution among the bona fide occupants
thereof pursuant to the Friar Lands Act.
6. That transfer certificates of title allegedly having
originated or derived from Original Certificate of Title No.
614 were issued by the Register of Deeds of Quezon City,
which transfer certificates of title are in truth and in fact
fictitious, spurious and null and void, for the following
reasons: (a) that no record of any agency of the
government shows as to how and in what manner was
OCT 614 issued; (b) that no record of any proceedings
whatsoever, whether judicial or administrative, can
support defendants claim that the above-described
property originated from OCT 614; and (c) that the
transfer certificates of title over the above-described
property were issued under mysterious circumstances for
28
the above-named defendants and their so-called
predecessors-in-interest never had any actual, adverse,
physical possession of the said property, thus, not
allowed to acquire title over the property in litigation
pursuant to the Friar Lands Act.
7. That defendants are holders of transfer certificates of
title of the above-described property, which transfer
certificates of title are null and void, for reasons
specifically mentioned in Paragraph 6 hereof x x x;
8. That the acts in acquiring and keeping the said transfer
certificates of title in violation of the Friar Lands Act and
other existing laws are prejudicial to plaintiffs rights over
the above-described property.
9. That equity demands that defendants transfer
certificates of title as specified in Paragraph 7 hereof be
declared fictitious, spurious and null and void ab initio.
P R AY E R
WHEREFORE, premises considered, it is most
respectfully prayed of this Honorable Court that judgment
be rendered in favor of plaintiffs and against defendants:
(1) Declaring as null and void ab initio OCT 614 and all
transfer certificates of title derived therefrom;
(2) Declaring as null and void defendants transfer
certificates of title over the property in litigation;
(3) Ordering defendant Register of Deeds of Quezon City
to cancel defendants transfer certificates of title and all
transfer certificates of title derived therefrom;
 (4) Declaring the plaintiffs as bona fide occupants of the
property in litigation pursuant to the provisions of the Friar
Lands Act and other existing laws.14
Respondent moved to dismiss the Second Amended Complaint
on the following grounds:
a) The complaint states no cause of action because: (1)
on the allegations alone, plaintiffs (petitioners) are not real
parties in interest who may bring suit to cancel
defendants (including respondent) titles; (2) based on the
allegations and prayer of the complaint, no relief, as a
matter of law, may be granted;
b) Prescription has set in;
c) There are earlier similar complaints (Civil Case Nos. Q-
95-22834 and Q-95-23111) filed by a different set of
plaintiffs against a different set of defendants but which
involve the same subject matter, cause of action and
allegations of the plaintiffs, with respect to the
cancellation of OCT 614 and succeeding titles derived
from it. Said complaints have since been dismissed by
Branch 93 of the Regional Trial Court of Quezon City, the
dismissal of which is the subject of a pending certiorari
proceeding in the appellate court.15
On January 3, 2001,16 the trial court denied respondents motion
to dismiss the Second Amended Complaint. Its motion for
reconsideration was likewise denied hence respondent filed a
petition for certiorari with the Court of Appeals.
The appellate court granted respondents petition for certiorari
and dismissed petitioners Second Amended Complaint for failure
to state a cause of action. Hence, the instant petition raising the
following issues:
29
A. THAT THE COURT OF APPEALS ERRED IN
DECLARING THAT THE COMPLAINT FILED BY THE
PETITIONERS WITH THE REGIONAL TRIAL COURT OF
QUEZON CITY IN CIVIL CASE NO. Q-99-36483 DOES
NOT STATE A VALID CAUSE OF ACTION;
B. THAT THE COURT OF APPEALS ERRED IN
DECLARING THAT THE PETITIONERS ARE NOT REAL
PARTIES IN INTEREST;
C. THAT THE COURT OF APPEALS ERRED IN
APPLYING THE DOCTRINE OF "EXHAUSTION OF
ADMINISTRATIVE REMEDIES"; and,
D. THAT THE COURT OF APPEALS ACTED WITH
GRAVE ABUSE OF DISCRETION AND DENIED
PETITIONERS RIGHT TO DUE PROCESS WHEN IT
DISMISSED THEIR COMPLAINT.17
We deny the petition.
The subject lots are part of the Piedad Estate, Quezon City, a
Friar Land acquired on December 23, 1903 by the Philippine
Government from the Philippine Sugar Estates Development
Company, Ltd., La Sociedad Agricola de Ultramar, the British-
Manila Estate Company, Ltd., and the Recoleto Order of the
Philippine Islands, as indicated in Public Act No. 1120 (Friar
Lands Act) enacted on April 26, 1904. 18
After the Piedad Estate was registered in OCT No. 614 in the
name of the Philippine Government in 1910 under the provisions
of Act 496, the area was subdivided originally into 874 lots. As a
result of subsequent surveys executed in the course of
disposition, the number of lots increased to 1,305. Disposition of
these lots was made by the Bureau of Lands thru sales, under the
Friar Lands Act, as early as 1910 and records show that even
before the Second World War, all lots in the Piedad Estate have
been disposed of.19 The Piedad Estate has long been segregated
from the mass of the public domain and has become private land
duly registered under the Torrens system following the procedure
for the confirmation of private lands prescribed in Act 496. Thus
the lands inside the Piedad Estate are no longer lands of the
public domain.20
One who acquires land under the Friar Lands Act, as well as his
successors-in-interest, may not claim successional rights to
purchase by reason of occupation from time immemorial, as this
contravenes the historical fact that friar lands were bought by the
Government of the Philippine Islands, pursuant to an Act of
Congress of the United States, approved on July 1, 1902, not
from individual persons but from certain companies, a society and
a religious order. Under the Friar Lands Act, only "actual settlers
and occupants at the time said lands are acquired by the
Government" were given preference to lease, purchase, or
acquire their holdings, in disregard of the settlement and
occupation of persons before the government acquired the
lands. 21
The basic rules of proper pleading and procedure require that
every pleading shall contain in a methodical and logical form, a
plain, concise and direct statement of the ultimate facts on which
the party pleading relies for his claim or defense, as the case may
be, omitting the statement of mere evidentiary facts. 22 And in all
averments of fraud or mistake, the circumstances constituting
fraud or mistake must be stated with particularity.23
It is axiomatic that the averments of the complaint
determine the nature of the action, and consequently, the
jurisdiction of the courts. This is because the complaint
must contain a concise statement of the ultimate facts
constituting the plaintiff's cause of action and must specify
the relief sought. No rule is better established than that
which requires the complaint to contain a statement of all
the facts constituting the plaintiff's cause of action.
Additionally, Section 5, Rule 8 of the Rules of Court
30
provides that in all averments of fraud or mistake, the
circumstances constituting fraud or mistake must be
stated with particularity. In the case at bar, while there are
allegations of fraud in the above quoted complaints, the
same are not particular enough to bring the controversy
within the SEC's jurisdiction. The said allegations are not
statements of ultimate facts but are mere conclusions of
law.
A pleading should state the ultimate facts essential to the
rights of action or defense asserted, as distinguished from
mere conclusions of fact, or conclusions of law. General
allegations that a contract is valid or legal, or is just, fair
and reasonable, are mere conclusions of law. Likewise,
allegations that a contract is void, voidable, invalid, illegal,
ultra vires, or against public policy, without stating facts
showing its invalidity, are mere conclusions of law.24
"Ultimate facts" means the essential facts constituting the
plaintiff's cause of action, or such facts as are so essential that
they cannot be stricken out without leaving the statement of the
cause of action inadequate. 25"Cause of action" has been defined
as an act or omission of one party in violation of the legal right or
rights of the other;26 and its essential elements are: 1) a right in
favor of the plaintiff by whatever means and under whatever law it
arises or is created; 2) an obligation on the part of the named
defendant to respect or not to violate such right; and 3) an act or
omission on the part of the named defendant violative of the right
of the plaintiff or constituting a breach of the obligation of
defendant to the plaintiff for which the latter may maintain an
action for recovery of damages. If these elements are not extant,
the complaint becomes vulnerable to a motion to dismiss on the
ground of failure to state a cause of action.27 In the resolution of a
motion to dismiss based on failure to state a cause of action, only
the facts alleged in the complaint as well as its annexes must be
considered.28 The test in such case is whether a court can render
a valid judgment on the complaint based upon the facts alleged
and pursuant to the prayer therein. 29
Corollarily, the question of whether or not a complaint states a
cause of action against a defendant or the action is premature is
one of law. The trial court can consider all the pleadings filed,
including annexes, motions and the evidence on record. However
in so doing, the trial court does not rule on the truth or falsity of
such documents. It merely includes such documents in the
hypothetical admission. Any review of a finding of lack of cause of
action based on these documents would not involve a calibration
of the probative value of such pieces of evidence but would only
limit itself to the inquiry of whether the law was properly applied
given the facts and these supporting documents. Therefore, what
would inevitably arise from such a review are pure questions of
law, and not questions of fact.
The trial court must likewise apply relevant statutes and
jurisprudence in determining whether the allegations in a
complaint establish a cause of action. While it focuses on the
complaint, a court clearly cannot disregard decisions material to
the proper appreciation of the questions before it. In resolving a
motion to dismiss, every court must take cognizance of decisions
this Court has rendered because they are proper subjects of
mandatory judicial notice. The said decisions, more importantly,
form part of the legal system, and failure of any court to apply
them shall constitute an abdication of its duty to resolve a dispute
in accordance with law, and shall be a ground for administrative
action against an inferior court magistrate.30
Considering the foregoing, it is not difficult to see the need for
particularity and incipient substantiation in the petitioners Second
Amended Complaint.
First, their initial claim that OCT 614 of which all the other
subject titles are derivatives is null and void, has been proven
wrong. As has been held in Pinlac and other cases, OCT 614 did
legally exist and was previously issued in the name of the
Philippine Government in 1910 under the provisions of Act 496.
31
Second, the Ad Hoc Committee of the then Ministry of Natural
Resources, which was specifically tasked to investigate the
historical background of the Piedad Estate, found that as early as
the period prior to the Second World War, all lots in the Piedad
Estate had already been disposed of.
Third, the Piedad Estate has been placed under the Torrens
system of land registration, which means that all lots therein are
titled.
Fourth, as held in the Balicudiong case, one who acquires land
under the Friar Lands Act, as well as his successors-in-interest,
may not claim successional rights to purchase by reason of
occupation from time immemorial, which means that petitioners
claimed actual, adverse, peaceful and continuous possession of
the subject property is really of no moment unless it is shown that
their predecessors-in-interest were actual settlers and occupants
at the time said lands were acquired by the Government, and
whose rights were not disregarded even though they were in
occupation of the same before the government acquired the land;
yet, no period of time in relation to adverse possession is alleged.
Petitioners Second Amended Complaint betrays no more than an
incomplete narration of facts unsupported by documentary or
other exhibits; the allegations therein partake of conclusions of
law unsupported by a particular averment of circumstances that
will show why or how such inferences or conclusions were arrived
at. It is replete with sweeping generalizations and inferences
derived from facts that are not found therein. While there are
allegations of fraud upon the claim that the subject titles were
fictitious, spurious and obtained under "mysterious
circumstances," the same are not specific to bring the
controversy within the trial courts jurisdiction. There is no
explanation or narration of facts as would show why said titles are
claimed to be fictitious or spurious, contrary to the requirement of
the Rules that the circumstances constituting fraud must be
stated with particularity; otherwise, the allegation of fraud would
simply be an unfounded conclusion of law. In the absence of
specific averments, the complaint is defective, for it presents no
basis upon which the court should act, or for the defendant to
meet it with an intelligent answer.
As to the second issue raised, petitioners claim that they
are bona fide occupants of the subject property within the
contemplation of the Friar Lands Act, having allegedly been in
actual, adverse, peaceful and continuous possession of the
property, although it is not stated for how long and since when. In
their second amended complaint, they seek judgment
(4) Declaring the plaintiffs as bona fide occupants of the
property in litigation pursuant to the provisions of the Friar
Lands Act and other existing laws. (Emphasis supplied)
They do not pray to be declared owners of the subject property
despite their alleged adverse possession but only to be
adjudged as the "bona fide occupants" thereof. In other words,
petitioners concede the States ownership of the property.
Being so, petitioners may not be considered the real parties in
interest for the purpose of maintaining the suit for cancellation of
the subject titles. The Court of Appeals is correct in declaring that
only the State, through the Solicitor General, may institute such
suit. Jurisprudence on the matter has been settled and the issue
need not be belabored. Thus
The Court also holds that private respondents are not the
proper parties to initiate the present suit. The complaint,
praying as it did for the cancellation of the transfer
certificates of title of petitioners on the ground that they
were derived from a "spurious" OCT No. 4216, assailed in
effect the validity of said title. While private respondents
did not pray for the reversion of the land to the
government, we agree with the petitioners that the prayer
in the complaint will have the same result of reverting the
land to the government under the Regalian
32
doctrine. Gabila vs. Barriga ruled that only the
government is entitled to this relief. The Court in that case
held:
"The present motion to dismiss is actually
predicated on Section 1(g), Rule 16 of the
Revised Rules of Court, i.e., failure of the
complaint to state a cause of action, for it alleges
in paragraph 12 thereof that the plaintiff admits
that he has no right to demand the cancellation or
amendment of the defendants title, because,
even if the said title were canceled or amended,
the ownership of the land embraced therein, or of
the portion thereof affected by the amendment,
would revert to the public domain. In his amended
complaint the plaintiff makes no pretense at all
that any part of the land covered by the
defendants title was privately owned by him or by
his predecessors-in-interest. Indeed, it is admitted
therein that the said land was at all times a part of
the public domain until December 18, 1964, when
the government issued a title thereon in favor of
defendant. Thus, if there is any person or entity to
relief, it can only be the government.
In the case at bar, the plaintiffs own averments negate
the existence of such right, for it would appear therefrom
that whatever right might have been violated by the
defendant belonged to the government, not to the plaintiff.
Plaintiff-appellant argues that although his complaint is
captioned as one for cancellation of title, he has
nevertheless stated therein several causes of action
based on his alleged rights of possession and ownership
over the improvements, on defendant-appellees alleged
fraudulent acquisition of the land, and on the damages
allegedly incurred by him (plaintiff-appellant) in relation to
the improvements. These matters are merely ancillary to
the central issue of whether or not defendant-appellees
 title should be canceled or amended, and they may not be
leaned upon in an effort to make out a cause of action in
relation to the said focal issue. Indeed, the principal relief
prayed for in the amended complaint is the cancellation or
amendment of defendant-appellees title."31
Under Rule 3, Section 2 of the Rules of Court, a real party in
interest is the party who stands to be benefited or injured by the
judgment in the suit, or the party entitled to the avails of the suit.
"Interest" within the meaning of the rule means material interest,
an interest in issue and to be affected by the decree, as
distinguished from mere interest in the question involved, or a
mere incidental interest. The interest of the party must also be
personal and not one based on a desire to vindicate the
constitutional right of some third and unrelated party. Real
interest, on the other hand, means a present substantial interest,
as distinguished from a mere expectancy or a future, contingent,
subordinate, or consequential interest.32
If petitioners are to be believed, they would possess a mere
inchoate interest in the properties covered by the subject titles, a
mere expectancy conditioned upon the fact that if the questioned
titles are cancelled and the property is reverted to the State, they
would probably or possibly be given preferential treatment as
qualified buyers or lessees of the property under the Friar Lands
Act. But this certainly is not the "interest" required by law that
grants them license or the personality to prosecute their case.
Only to the State does the privilege belong.
On the issue of exhaustion of administrative remedies, suffice it to
state that since petitioners do not possess the necessary interest
to prosecute the case for cancellation of title in the courts, neither
do they have the right to pursue administrative remedies outside
thereof. They are not the owners; nor are they qualified applicants
therefor. It has not been shown by their complaint that they have
previously taken steps to avail of the benefits under the Friar
Lands Act, since all they seek, should the questioned titles be
nullified, is to be declared bona fide occupants of the property
33
covered by the questioned titles. Neither is there any indication
that they possess the qualifications necessary to enable them to
avail of the preference granted under the Act.
Finally, there is no merit in petitioners contention that respondent
belatedly filed the petition for certiorari with the Court of Appeals,
and that the appellate court gravely abused its discretion when it
entertained and resolved the same.
The Order of the trial court dated January 3, 2001 denying
respondents motion to dismiss the Second Amended Complaint
was received by the respondent on January 16, 2001.
Respondent filed a motion for reconsideration on January 18,
2001 which was denied on February 28, 2001. Respondent
received the order denying its motion for reconsideration on
March 27, 2001. On the same day, it filed a Notice to File Petition
for Certiorari. On April 2, 2001, the petition for certiorari was filed
with the Court of Appeals. Clearly, the same was timely filed
hence, the appellate court correctly entertained the same.
WHEREFORE, the petition is DENIED. The Decision of the Court
of Appeals dated January 9, 2002 in CA-G.R. SP No. 64337
dismissing petitioners "Second Amended Complaint" in Civil
Case No. Q-99-36483 and the Resolution dated June 26, 2002
denying the motion for reconsideration, are AFFIRMED.
SO ORDERED.
Austria-Martinez, Corona * , Nachura, Reyes, JJ., concur.

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 86568 March 22, 1990
IMPERIAL TEXTILE MILLS, INC., petitioner,
vs.
COURT OF APPEALS and THE INTERNATIONAL
CORPORATE BANK, INC., respondents.
Batino, Angala, Salud & Fabia Law Offices for petitioner.
A.M. Perez & Associates for private respondent.
GANCAYCO, J.:
This case involves the application of Sections 7 and 8 of Rule 8 of
the Rules of Court when the action or defense is based on a
written document.
The facts are undisputed. In an action for the collection of a sum
of money that was filed by the private respondent against
petitioner in the Regional Trial Court of Makati, Metro Manila, it
was alleged, among others, as follows:
3. On August 18, 1980, for valuable consideration,
defendant executed in favor of, and delivered to
plaintiff Promissory Note No. TL-0532-80, copy of
which is hereto attached as Annex "A", whereby
defendant obligated itself to pay plaintiff on
34
November 16, 1980 the sum of Twelve Million
Pesos (P12,000,000.00) and with interest thereon
at the rate of 16% per annum.
4. The promissory note, Annex "A", expressly
stipulates that in case of non-payment when due,
defendant shall pay plaintiff an additional amount
equal to 3% per month of the amount due as
liquidated damages and a further sum equal to
10% thereof as attorney's fees. 1
Attached to the complaint as Annex A was the Promissory Note. 2
An answer to the complaint was filed by petitioner. The petitioner
denied liability and alleged that one Julio Tan had no authority to
negotiate and obtain a loan on its behalf. While defendant
specifically denied the aforestated promissory note alleged in the
complaint, the answer was not verified. For this reason, in due
course, a decision was rendered by the trial court on December
1, 1986, the dispositive portion of which reads as follows:
WHEREFORE, judgment is hereby rendered in
favor of the plaintiff International Corporate Bank,
Inc. and against the defendant Imperial Textile
Mills, Inc. as follows:
1. Ordering the defendant to pay plaintiff the total
sum of P40,486,229.16, with interest thereon at
the rate of 16% per annum from 17 June 1985
until fully paid (Cf. Exhibit B Statement of
Account, p. 35, Id.);
2. Ordering the defendant to pay plaintiff the sum
of P40,000.00 as and for attorney's fees, plus the
sum of P47,470.00 as costs. (Cf. Exhibits E, F
and G).
 SO ORDERED. 3
Petitioner brought an appeal to the Court of Appeals. In a
decision dated October 17, 1988, the Court of Appeals affirmed
the judgment appealed from with costs against petitioner. 4
A motion for reconsideration of said decision was likewise denied
by the appellate court.
Hence, this petition.
The petition is devoid of merit. Sections 7 and 8 of Rule 8 of the
Rules of Court provide as follows:
Sec. 7. Action or defense based on document.
Whenever an action or defense is based upon a
written instrument or document, the substance of
such instrument or document shall be set forth in
the pleading, and the original or a copy thereof
shall be attached to the pleading as an exhibit,
which shall be deemed to be a part of the
pleading, or said copy may with like effect be set
forth in the pleading.
Sec. 8. How to contest genuineness of such
documents. When an action or defense is
founded upon a written instrument, copied in or
attached to the corresponding pleading as
provided in the preceding section, the
genuineness and due execution of the instrument
shall be deemed admitted unless the adverse
party, under oath, specifically denies them, and
sets forth what he claims to be the facts; but this
provision does not apply when the adverse party
does not appear to be a party to the instrument or
when compliance with an order for an inspection
of the original instrument is refused.
35
No rule is more settled than that in an action based on a written
instrument attached to the complaint, if the defendant fails to
specifically deny under oath the genuineness and due execution
of the instrument, the same is deemed admitted. 5
Section 7, Rule 8 of the Rules of Court is explicit in that there are
two ways of pleading an actionable document, namely:
(a) by alleging the substance of such written
instrument in the pleading and attaching a copy
thereof to the pleading; and
(b) by copying the instrument in the pleading.
The complaint in the present case complied with the first situation
under paragraph (a). The complaint alleged the substance of the
promissory note subject of the litigation and a copy of the
promissory note was attached.
There is no question likewise that the petitioner failed to
specifically deny under oath the genuineness and due execution
of the promissory note subject of the complaint. By its omission,
petitioner clearly admitted the genuineness and due execution of
the document and that the party whose signature appears
thereon had indeed signed the same and that he has the
authority to sign the same and that the agreement between the
parties is what was in words and figures in the document.
Defenses which are inconsistent with the due execution and
genuineness of the written instrument are cut-off by such
admission. 6
The claim of petitioner is that its failure to specifically deny under
oath the actionable document does not prevent it from showing
that one Julio Tan was not authorized to enter into the transaction
and to sign the promissory note for and in behalf of the petitioner.
But precisely, the petitioner is a party to the instrument
represented by Julio Tan so that it may not now deny the authority
of Julio Tan to so represent it. 7 The due execution and
genuineness of the document have thereby been conclusively
established.

Moreover, in this case the judgment appealed from is supported

by the evidence. This petition is at best dilatory.

WHEREFORE, the petition is DISMISSED, with costs against

petitioner.

SO ORDERED.

Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur.

36
 EN BANC Joselano Guevarra (complainant) filed
on March 4, 2002 a Complaint for
JOSELANO GUEVARRA, A.C. No. 7136 [1]
Disbarment before the Integrated Bar of the
Complainant,
Philippines (IBP) Committee on Bar Discipline
PUNO, C.J.,
QUISUMBING, (CBD) against Atty. Jose Emmanuel
YNARES-SANTIAGO, M. Eala a.k.a. Noli Eala (respondent) for grossly
immoral conduct and unmitigated violation of the
SANDOVAL-GUTIERREZ,
CARPIO, lawyers oath.
versus AUSTRIA-MARTINEZ,
CORONA, In his complaint, Guevarra gave the following
CARPIO MORALES,account:
AZCUNA, He first met respondent in January 2000 when
TINGA,
his (complainants) then-fiancee Irene Moje (Irene)
CHICO-NAZARIO,
GARCIA, introduced respondent to him as her friend who was
ATTY. JOSE EMMANUEL VELASCO, JR., and married to Marianne (sometimes spelled Mary Ann)
EALA, NACHURA, JJ. Tantoco with whom he had three children.
Respondent. Promulgated:
August 1, 2007 After his marriage to Irene on October 7, 2000,
complainant noticed that from January to March 2001,
x------------------------------------ Irene had been receiving from respondent cellphone
- - - - - - - - - - - - - - -x
calls, as well as messages some of which read I love
DECISION you, I miss you, or Meet you at Megamall.

Complainant also noticed that Irene habitually

PER CURIAM:
went home very late at night or early in the morning
of the following day, and sometimes did not go home
37
from work. When he asked about her whereabouts,
she replied that she slept at her parents house in
Binangonan, Rizal or she was busy with her work.
In February or March 2001, complainant saw
Irene and respondent together on two occasions. On
the second occasion, he confronted them following
which Irene abandoned the conjugal house.
On April 22, 2001, complainant went uninvited
to Irenes birthday celebration at which he saw her and
respondent celebrating with her family and
friends. Out of embarrassment, anger and humiliation,
he left the venue immediately. Following that
incident, Irene went to the conjugal house and hauled
off all her personal belongings, pieces of furniture,
and her share of the household appliances.
Complainant later found, in the masters
bedroom, a folded social card bearing the words I
Love You on its face, which card when unfolded
contained a handwritten letter dated October 7, 2000,
the day of his wedding to Irene, reading:
My everdearest Irene,
38
By the time you open this, youll be moments
away from walking down the aisle. I will
say a prayer for you that you may find
meaning in what youre about to do.
Sometimes I wonder why we ever met. Is it only
for me to find fleeting happiness but
experience eternal pain? Is it only for us to
find a true love but then lose it again? Or is
it because theres a bigger plan for the two
of us?
I hope that you have experienced true happiness
with me. I have done everything humanly
possible to love you. And today, as you
make your vows . . . I make my own vow
to YOU!
I will love you for the rest of my life. I loved you
from the first time I laid eyes on you, to
the time we spent together, up to the final
moments of your single life. But more
importantly, I will love you until the life in
me is gone and until we are together again.
Do not worry about me! I will be happy for you. I
have enough memories of us to last me a
lifetime. Always remember though that in
my heart, in my mind and in my soul,
YOU WILL ALWAYS
 . . . AND THE WONDERFUL THINGS YOU On paragraph 14 of the COMPLAINT reading:
DO!
14. Respondent and Irene were even
BE MINE . . . . AND MINE ALONE, and FLAUNTING THEIR ADULTEROUS
I WILL ALWAYS BE YOURS AND RELATIONSHIP as they attended social
YOURS ALONE! functions together. For instance, in or
about the third week of September 2001,
I LOVE YOU FOREVER, I LOVE YOU the couple attended the launch of the Wine
FOR ALWAYS. AS LONG AS IM All You Can promotion of French wines,
LIVING MY TWEETIE YOULL BE![2] held at the Mega Strip of SM Megamall B
at Mandaluyong City. Their attendance
Eternally yours, was reported in Section B of the Manila
Standard issue of 24 September 2001, on
NOLI page 21. Respondent and
Irene were photographed together; their
picture was captioned: Irene with
Complainant soon saw respondents car and that Sportscaster Noli Eala. A photocopy of
of Irene constantly parked at No. 71-B 11th Street, the report is attached as Annex C.[4] (Italics
and emphasis in the original;
New Manila where, as he was to later learn sometime
CAPITALIZATION of the phrase
in April 2001, Irene was already residing. He also flaunting their adulterous relationship
learned still later that when his friends saw Irene on or supplied),
about January 18, 2002 together with respondent
during a concert, she was pregnant.
respondent, in his ANSWER, stated:
4. Respondent
In his ANSWER,[3] respondent admitted having
specifically denies having ever
sent the I LOVE YOU card on which the above- flaunted an adulterous relationship with
quoted letter was handwritten. Irene as alleged in paragraph 14 of the

39
Complaint, the truth of the matter being
that their relationship was low profile
and known only to the immediate
members of their respective families ,
and that Respondent, as far as the
general public was concerned, was still
known to be legally married to Mary
Anne Tantoco.[5] (Emphasis and
underscoring supplied)
On paragraph 15 of the COMPLAINT reading:
15. Respondents adulterous conduct with
the complainants wife and
apparent abandoning or neglecting of his
own family, demonstrate his gross moral
depravity, making him morally unfit to
keep his membership in
bar. He flaunted his aversion to the
institution of marriage, calling it a piece of
paper. Morally reprehensible was his
writing the love letter to complainants
bride on the very day of her wedding,
vowing to continue his love for her until
we are together again, as now they are.
[6]
(Underscoring supplied),
respondent stated in his ANSWER as follows:
5. Respondent specifically denies
the allegations in paragraph 15 of the
Complaint regarding
his adulterous relationship and that his acts
demonstrate gross moral depravity thereby
making him unfit to keep his membership
in the bar, the reason being
that Respondents relationship with Irene
was not under scandalous
circumstances and that as far as his
relationship with his own family:
his 5.1 Respondent has maintained a
civil, cordial and peaceful relationship
with [his wife] Mary Anne as in fact
they still occasionally meet in public,
the even if Mary Anne is aware
of Respondents special friendship with
Irene.
xxxx
5.5 Respondent also denies that
he has flaunted his aversion to the
institution of marriage by calling the
institution of marriage a mere piece of
paper because his reference [in his
40
 above-quoted handwritten letter to
Irene] to the marriage between
Complainant and Irene as a piece of
paper was merely with respect to the
formality of the marriage contract.
[7]
(Emphasis and underscoring
supplied)
Respondent admitted[8] paragraph 18 of the
COMPLAINT reading:
18. The Rules of Court requires
lawyers to support the Constitution and
obey the laws. The Constitution regards
marriage as an inviolable social institution
and is the foundation of the family (Article
XV, Sec. 2).[9]
And on paragraph 19 of the COMPLAINT
reading:
19. Respondents grossly immoral conduct runs
afoul of the Constitution and the laws
he, as a lawyer, has been sworn to
uphold. In pursuing obsessively his illicit
love for the complainants wife, he mocked
41
the institution of marriage, betrayed his
own family, broke up the complainants
marriage, commits adultery with his wife,
and degrades the legal profession.
[10]
(Emphasis and underscoring supplied),
respondent, in his ANSWER, stated:
7. Respondent specifically denies
the allegations in paragraph 19 of the
Complaint, the reason being that under
the circumstances the acts of
Respondent with respect to his purely
personal and low profile special
relationship with Irene is neither
under scandalous circumstances nor
tantamount to grossly immoral
conduct as would be a ground for
disbarment pursuant to Rule 138,
Section 27 of the Rules of Court.
[11]
(Emphasis and underscoring
supplied)
To respondents ANSWER, complainant filed a
REPLY,[12] alleging that Irene gave birth to a girl and
Irene named respondent in the Certificate of Live
Birth as the girls father. Complainant attached to
the REPLY, as Annex A, a copy of a Certificate of
Live Birth[13] bearing Irenes signature and naming
respondent as the father of her daughter Samantha
Irene Louise Moje who was born on February 14,
2002 at St. Lukes Hospital.
Complainants REPLY merited a REJOINDER
WITH MOTION TO DISMISS[14] dated January 10,
2003 from respondent in which he denied having
personal knowledge of the Certificate of Live Birth
attached to the complainants Reply.[15] Respondent
moved to dismiss the complaint due to
the pendency of a civil case filed by complainant for
the annulment of his marriage to Irene, and a criminal
complaint for adultery against respondent and Irene
which was pending before the Quezon City
Prosecutors Office.
During the investigation before the IBP-CBD,
complainants Complaint-Affidavit
and REPLY to ANSWER were adopted as his
testimony on direct examination.[16]Respondents
counsel did not cross-examine complainant.[17]
42
After investigation, IBP-CBD Investigating
Commissioner Milagros V. San Juan, in a 12-page
REPORT AND
[18]
RECOMMENDATION dated October 26, 2004,
found the charge against respondent sufficiently
proven.
The Commissioner thus recommended[19] that
respondent be disbarred for violating Rule 1.01 of
Canon 1 of the Code of Professional
Responsibility reading:
Rule 1.01: A lawyer shall not
engage in unlawful, dishonest, immoral or
deceitful conduct (Underscoring supplied),
and Rule 7.03 of Canon 7 of the same Code reading:
Rule 7.03: A lawyer shall not engage
in conduct that adversely reflects on his fitness
to practice law, nor shall he, whether in public
or private life, behave in a scandalous manner to
the discredit of the legal
profession. (Underscoring supplied)
The IBP Board of Governors, however,
annulled and set aside the Recommendation of the
Investigating Commissioner and accordingly
dismissed the case for lack of merit, by Resolution
dated January 28, 2006 briefly reading:
RESOLUTION NO. XVII-2006-06
CBD Case No. 02-936
Joselano C. Guevarra
vs.
Atty. Jose Emmanuel M.
Eala
a.k.a. Noli Eala
RESOLVED to ANNUL and SET ASIDE,
as it is hereby ANNULLED AND SET
ASIDE, the Recommendation of the
Investigating Commissioner, and to
APPROVE the DISMISSAL of the above-
entitled case for lack of merit.[20] (Italics
and emphasis in the original)
Hence, the present petition[21] of complainant
before this Court, filed pursuant to Section 12 (c),
Rule 139[22] of the Rules of Court.
The petition is impressed with merit.
Oddly enough, the IBP Board of Governors, in
setting aside the Recommendation of the Investigating
43
Commissioner and dismissing the case for lack of
merit, gave no reason therefor as its above-quoted 33-
word Resolution shows.
Respondent contends, in his Comment[23] on the
present petition of complainant, that there is no
evidence against him.[24] The contention fails. As the
IBP-CBD Investigating Commissioner observed:
While it may be true that the love
letter dated October 7, 2000 (Exh. C)
and the news item published in
the Manila Standard (Exh. D), even
taken together do not sufficiently prove
that respondent is carrying on an
adulterous relationship with
complainants wife, there are other
pieces of evidence on record which
support the accusation of complainant
against respondent.
It should be noted that in his
Answer dated 17 October 2002,
respondent through counsel made the
following statements to wit:
Respondent specifically denies having
[ever] flaunted an adulterous
relationship with Irene as alleged in
paragraph [14] of the Complaint, the
truth of the matter being [that] their
relationship was low profile and known
only to immediate members of their
respective families . . . , and Respondent
specifically denies the allegations in
paragraph 19 of the complaint, the
reason being that under the
circumstances the acts of the
respondents with respect to his purely
personal and low profile relationship
with Irene is neither under scandalous
circumstances nor tantamount to grossly
immoral conduct . . .
These statements of respondent
in his Answer are an admission that
there is indeed a special relationship
between him and complainants wife,
Irene, [which] taken together with the
Certificate of Live Birth of Samantha
Louise Irene Moje (Annex H-1)
sufficiently prove that there was
indeed an illicit relationship between
respondent and Irene which resulted in
the birth of the child Samantha. In the
Certificate of Live Birth of Samantha
it should be noted that complainants
wife Irene supplied the information
that respondent was the father of the
44
child. Given the fact that the respondent
admitted his special relationship with
Irene there is no reason to believe that
Irene would lie or make any
misrepresentation regarding the
paternity of the child. It should be
underscored that respondent has not
categorically denied that he is the
father of Samantha Louise Irene
Moje.[25] (Emphasis and underscoring
supplied)
Indeed, from respondents ANSWER, he does
not deny carrying on an adulterous relationship with
Irene, adultery being defined under Art. 333 of the
Revised Penal Code as that committed by any married
woman who shall have sexual intercourse with a man
not her husband and by the man who has carnal
knowledge of her, knowing her to be married, even if
the marriage be subsequently declared void. [26] (Italics
supplied) What respondent denies
is having flaunted such relationship, he maintaining
that it was low profile and known only to the
immediate members of their respective families.
 In other words, respondents denial is a negative
pregnant,
a denial pregnant with the admission of the
substantial facts in the pleading responded
to which are not squarely denied. It was in
effect an admission of the averments it was
directed at. Stated otherwise, a negative
pregnant is a form of negative expression
which carries with it in affirmation or at
least an implication of some kind favorable
to the adverse party. It is a denial pregnant
with an admission of the substantial facts
alleged in the pleading. Where a fact is
alleged with qualifying or modifying
language and the words of the allegation as
so qualified or modified are literally
denied, it has been held that the qualifying
circumstances alone are denied while
the fact itself is admitted.[27] (Citations
omitted; emphasis and underscoring
supplied)
A negative pregnant too is respondents denial
of having personal knowledge of Irenes daughter
Samantha Louise Irene Mojes Certificate of Live
Birth. In said certificate, Irene named respondent a
45
lawyer, 38 years old as the childs father. And the
phrase NOT MARRIED is entered on the desired
information on DATE AND PLACE OF
MARRIAGE. A comparison of the signature
attributed to Irene in the certificate[28] with her
signature on the Marriage Certificate[29] shows that
they were affixed by one and the same
person. Notatu dignum is that, as the Investigating
Commissioner noted, respondent never denied being
the father of the child.
Franklin A. Ricafort, the records custodian of
St. Lukes Medical Center, in his January 29, 2003
Affidavit[30] which he identified at the witness stand,
declared that Irene gave the information in the
Certificate of Live Birth that the childs father is Jose
Emmanuel Masacaet Eala, who was 38 years old and
a lawyer.[31]
Without doubt, the adulterous relationship
between respondent and Irene has been sufficiently
proven by more than clearly preponderant
evidence that evidence adduced by one party which is
more conclusive and credible than that of the other
party and, therefore, has greater weight than the
other[32] which is the quantum of evidence needed in
an administrative case against a lawyer.
Administrative cases against
lawyers belong to a class of their
own. They are distinct from and they may
proceed independently of civil and
criminal cases.
. . . of proof for these types of cases
differ. In a criminal case, proof beyond
reasonable doubt is necessary; in an
administrative case for disbarment or
suspension, clearly preponderant
evidence is all that is required.
[33]
(Emphasis supplied)
Respondent insists, however, that disbarment
does not lie because his relationship with Irene was
not, under Section 27 of Rule 138 of the Revised
Rules of Court, reading:
SEC. 27. Disbarment or suspension of
attorneys by Supreme Court, grounds
therefor. A member of the bar may be
disbarred or suspended from his office as
attorney by the Supreme Court for any
deceit, malpractice, or other gross
misconduct in such office, grossly
immoral conduct, or by reason of his
conviction of a crime involving moral
turpitude, or for any violation of the oath
which he is required to take before
admission to practice, or for a willful
disobedience appearing as an attorney for a
party to a case without authority so to
do. The practice of soliciting cases at law
for the purpose of gain, either personally
or through paid agents or brokers,
constitutes malpractice.
The disbarment or suspension of a member
of the Philippine Bar by a competent court
or other disciplinatory agency in a foreign
jurisdiction where he has also been
admitted as an attorney is a ground for his
disbarment or suspension if the basis of
such action includes any of the acts
hereinabove enumerated.
The judgment, resolution or order of the
foreign court or disciplinary agency shall
be prima facie evidence of the ground for
disbarment or suspension (Emphasis and
underscoring supplied),

46
under scandalous circumstances.[34] Whether a lawyers sexual congress with a
woman not his wife or without the benefit of marriage
The immediately-quoted Rule which provides should be characterized as grossly immoral conduct
the grounds for disbarment or suspension uses the depends on the surrounding circumstances.[35] The
phrase grossly immoral conduct, not under case at bar involves a relationship between a married
scandalous circumstances.Sexual intercourse under lawyer and a married woman who is not his wife. It is
scandalous circumstances is, following Article 334 of immaterial whether the affair was carried out
the Revised Penal Code reading: discreetly. Apropos is the following pronouncement of
this Court in Vitug v. Rongcal:[36]
ART. 334. Concubinage. - Any
husband who shall keep a mistress in the On the charge of immorality,
conjugal dwelling, or, shall have sexual respondent does not deny that he had an
intercourse, under scandalous extra-marital affair with complainant,
circumstances, with a woman who is not albeit brief and discreet, and which act
his wife, or shall cohabit with her in any is not so corrupt and false as to
other place, shall be punished constitute a criminal act or so
by prision correccional in its minimum unprincipled as to be reprehensible to a
and medium periods. high degree in order to merit
disciplinary sanction. We disagree.
x x x x,
xxxx

an element of the crime of concubinage when a While it has been held in

married man has sexual intercourse with a woman disbarment cases that the mere fact of
sexual relations between
elsewhere.
two unmarried adults is not sufficient to
warrant administrative sanction for such
illicit behavior, it is not so with respect

47
 to betrayals of the marital vow of
fidelity. Even if not all forms of extra-
marital relations are punishable under
penal law, sexual relations outside
marriage is considered disgraceful and
immoral as it manifests deliberate
disregard of the sanctity of marriage
and the marital vows protected by the
Constitution and affirmed by our laws.
[37]
(Emphasis and underscoring supplied)
And so is the pronouncement in Tucay v. Atty.
Tucay:[38]
The Court need not delve into the
question of whether or not the
respondent did contract a bigamous
marriage . . . It is enough that the
records of this administrative case
substantiate the findings of the
Investigating Commissioner, as well as
the IBP Board of Governors, i.e., that
indeed respondent has been carrying on
an illicit affair with a married woman,
a grossly immoral conduct
and indicative of an extremely low
regard for the fundamental ethics of
his profession. This detestable
behavior renders him regrettably unfit
48
and undeserving of the treasured
honor and privileges which his license
confers upon him.[39] (Underscoring
supplied)
Respondent in fact also violated the lawyers
oath he took before admission to practice law which
goes:
I _________, having been permitted
to continue in the practice of law in the
Philippines, do solemnly swear that I
recognize the supreme authority of the
Republic of the Philippines; I will support
its Constitution and obey the laws as well
as the legal orders of the duly constituted
authorities therein; I will do no falsehood,
nor consent to the doing of any in court; I
will not wittingly or willingly promote or
sue any groundless, false or unlawful suit,
nor give aid nor consent to the same; I will
delay no man for money or malice, and
will conduct myself as a lawyer according
to the best of my knowledge and discretion
with all good fidelity as well as to the
courts as to my clients; and I impose upon
myself this voluntary obligation without
any mental reservation or purpose of
 evasion. So help me God. (Underscoring
supplied)
Respondent admittedly is aware of Section 2 of
Article XV (The Family) of the Constitution reading:
Section 2. Marriage, as an inviolable social
institution, is the foundation of the family
and shall be protected by the State.
In this connection, the Family Code (Executive Order
No. 209), which echoes this constitutional provision,
obligates the husband and the wife to live together,
observe mutual love, respect and fidelity, and render
mutual help and support.[40]
Furthermore, respondent violated Rule 1.01
of Canon 1 of the Code of Professional Responsibility
which proscribes a lawyer from engaging in unlawful,
dishonest, immoral or deceitful conduct, and Rule
7.03 of Canon 7 of the same Code which proscribes a
lawyer from engaging in any conduct that adversely
reflects on his fitness to practice law.
49
Clutching at straws, respondent, during
the pendency of the investigation of the case before
the IBP Commissioner, filed a Manifestation [41] on
March 22, 2005 informing the IBP-CBD that
complainants petition for nullity of his (complainants)
marriage to Irene had been granted by Branch 106 of
the Quezon City Regional Trial Court, and that the
criminal complaint for adultery complainant filed
against respondent and Irene based on the same set of
facts alleged in the instant case, which was pending
review before the Department of Justice (DOJ), on
petition of complainant, had been, on motion of
complainant, withdrawn.
The Secretary of Justices Resolution of January
16, 2004 granting complainants Motion to Withdraw
Petition for Review reads:
Considering that the instant motion
was filed before the final resolution of the
petition for review, we are inclined to grant
the same pursuant to Section 10 of
Department Circular No. 70 dated July 3,
2000, which provides that notwithstanding
the perfection of the appeal, the petitioner
may withdraw the same at any time before
it is finally resolved, in which case the
 appealed resolution shall stand as dismissal by the Quezon City Prosecutors Office of
though no appeal has been taken. complainants complaint for adultery. In reversing the
[42]
(Emphasis supplied by complainant)
City Prosecutors Resolution, DOJ Secretary
Simeon Datumanong held:
That the marriage between complainant and
Parenthetically the totality of
Irene was subsequently declared void ab initio is evidence adduced by complainant would,
immaterial. The acts complained of took in the fair estimation of the Department,
place before the marriage was declared null and void. sufficiently establish all the elements of
[43]
As a lawyer, respondent should be aware that a the offense of adultery on the part of both
man and a woman deporting themselves as husband respondents. Indeed, early on,
respondent Moje conceded to complainant
and wife are presumed, unless proven otherwise, to
that she was going out on dates with
have entered into a lawful contract of marriage. [44] In respondent Eala, and this she did when
carrying on an extra-marital affair with Irene prior to complainant confronted her
the judicial declaration that her marriage with about Ealas frequent phone calls and text
complainant was null and void, and despite messages to her. Complainant also
respondent himself being married, he showed personally
witnessed Moje and Eala having a
disrespect for an institution held sacred by the law.
rendezvous on two
And he betrayed his unfitness to be a lawyer. occasions. Respondent Eala never denied
the fact that he knew Moje to be married
As for complainants withdrawal of his petition to complainant[.] In fact, he (Eala) himself
for review before the DOJ, respondent glaringly was married to another
omitted to state that before complainant filed woman. Moreover, Mojes eventual
his December 23, 2003 Motion to Withdraw his abandonment of their conjugal home, after
complainant had once more confronted her
Petition for Review, the DOJ had already promulgated about Eala, only served to confirm the
a Resolution on September 22, 2003 reversing the illicit relationship involving both

50
respondents. This becomes all the more
apparent by Mojes subsequent relocation
in No. 71-B, 11th Street, New
Manila, Quezon City, which was a few
blocks away from the church where she
had exchange marital vows with
complainant.
It was in this place that the two
lovers apparently cohabited. Especially
since Ealas vehicle and that of Mojes were
always seen there. Moje herself admits that
she came to live in the said address
whereas Eala asserts that that was where
he held office. The happenstance that it
was in that said address
that Eala and Moje had decided to hold
office for the firm that both had formed
smacks too much of a coincidence. For
one, the said address appears to be a
residential house, for that was
where Moje stayed all throughout after her
separation from complainant. It was both
respondents love nest, to put short; their
illicit affair that was carried out there bore
fruit a few months later when Moje gave
birth to a girl at the nearby hospital of St.
Lukes Medical Center. What finally
militates against the respondents is
the indubitable fact that in the certificate of
51
birth of the girl, Moje furnished the
information that Eala was the father. This
speaks all too eloquently of the unlawful
and damning nature of the adulterous
acts of the respondents. Complainants
supposed illegal procurement of the birth
certificate is most certainly beside the
point for
both respondents Eala and Moje have
not denied, in any categorical manner,
that Eala is the father of the child
Samantha Irene Louise Moje.
[45]
(Emphasis and underscoring supplied)
It bears emphasis that adultery is a private
offense which cannot be prosecuted de oficio and thus
leaves the DOJ no choice but to grant complainants
motion to withdraw his petition for review. But even if
respondent and Irene were to be acquitted of adultery
after trial, if the Information for adultery were filed in
court, the same would not have been a bar to the
present administrative complaint.
Citing the ruling in Pangan v. Ramos,[46] viz:
x x x The acquittal of respondent
Ramos [of] the criminal charge is not a bar
 to these [administrative] proceedings. The
standards of legal profession are not
satisfied by conduct which merely enables
one to escape the penalties of
x x x criminal law. Moreover, this Court,
in disbarment proceedings is acting in an
entirely different capacity from that which
courts assume in trying criminal
case[47] (Italics in the original),
this Court in Gatchalian Promotions Talents Pools,
Inc. v. Atty. Naldoza,[48] held:
Respondent, Atty. Jose Emmanuel M. Eala,
is DISBARRED for grossly immoral conduct,
violation of his oath of office, and violation of Canon
1, Rule 1.01 and Canon 7, Rule 7.03 of the Code of
Professional Responsibility.
Let a copy of this Decision, which is
immediately executory, be made part of the records of
respondent in the Office of the Bar Confidant,
Supreme Court of the Philippines. And let copies of
the Decision be furnished the Integrated Bar of
the Philippines and circulated to all courts.

Administrative cases against

This Decision takes effect immediately.
lawyers belong to a class of their
own. They are distinct from and they
may proceed independently of civil and SO ORDERED.
criminal cases.

WHEREFORE, the petition

is GRANTED. Resolution No. XVII-2006-06 passed REYNATO S. PUNO
on January 28, 2006 by the Board of Governors of the Chief Justice
Integrated Bar of
the Philippines is ANNULLED and SET ASIDE.

52
 Associate Justice Associate Jus

LEONARDO A. QUISUMBING CONSUELO YNARES-

Associate Justice Associate Justice

CANCIO C. GARCIA PRESBITERO J. VE

Associate Justice Associate Jus
ANGELINA SANDOVAL-GUTIERREZ ANTONIO T. CARPIO
Associate Justice Associate Justice

ANTONIO EDUARDO B. NACHURA

Associate Justice

MA. ALICIA AUSTRIA-MARTINEZ RENATO C. CORONA

Associate Justice Associate Justice

CONCHITA CARPIO MORALES ADOLFO S. AZCUNA

Associate Justice Associate Justice

DANTE O. TINGA MINITA V. CHICO-NAZARIO

53

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 87434 August 5, 1992
PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC.
and TAGUM PLASTICS, INC., petitioners,
vs.
SWEET LINES, INC., DAVAO VETERANS ARRASTRE AND
PORT SERVICES, INC. and HON. COURT OF
APPEALS, respondents.
De Lara, De Lunas & Rosales for petitioners.
Carlo L. Aquino for Sweet Lines, Inc.
REGALADO, J.:
A maritime suit 1 was commenced on May 12, 1978 by herein
Petitioner Philippine American General Insurance Co., Inc.
(Philamgen) and Tagum Plastics, Inc. (TPI) against private
respondents Sweet Lines, Inc. (SLI) and Davao Veterans Arrastre
and Port Services, Inc. (DVAPSI), along with S.C.I. Line (The
Shipping Corporation of India Limited) and F.E. Zuellig, Inc., as co-
defendants in the court a quo, seeking recovery of the cost of lost or
damaged shipment plus exemplary damages, attorney's fees and
costs allegedly due to defendants' negligence, with the following
factual backdrop yielded by the findings of the court below and
adopted by respondent court:
54
It would appear that in or about March 1977, the
vessel SS "VISHVA YASH" belonging to or
operated by the foreign common carrier, took on
board at Baton Rouge, LA, two (2) consignments
of cargoes for shipment to Manila and later for
transhipment to Davao City, consisting of 600
bags Low Density Polyethylene 631 and another
6,400 bags Low Density Polyethylene 647, both
consigned to the order of Far East Bank and Trust
Company of Manila, with arrival notice to Tagum
Plastics, Inc., Madaum, Tagum, Davao City. Said
cargoes were covered, respectively, by Bills of
Lading Nos. 6 and 7 issued by the foreign
common carrier (Exhs. E and F). The necessary
packing or Weight List (Exhs. A and B), as well as
the Commercial Invoices (Exhs. C and D)
accompanied the shipment. The cargoes were
likewise insured by the Tagum Plastics Inc. with
plaintiff Philippine American General Insurance
Co., Inc., (Exh. G).
In the course of time, the said vessel arrived at
Manila and discharged its cargoes in the Port of
Manila for transhipment to Davao City. For this
purpose, the foreign carrier awaited and made
use of the services of the vessel called M/V
"Sweet Love" owned and operated by defendant
interisland carrier.
Subject cargoes were loaded in Holds Nos. 2 and
3 of the interisland carrier. These were
commingled with similar cargoes belonging to
Evergreen Plantation and also Standfilco.
On May 15, 1977, the shipment(s) were
discharged from the interisland carrier into the
custody of the consignee. A later survey
conducted on July 8, 1977, upon the instance of
the plaintiff, shows the following:
Of the cargo covered by Bill of Lading No. 25 or
(2)6, supposed to contain 6,400 bags of Low
Density Polyethylene 647 originally inside 160
pallets, there were delivered to the consignee
5,413 bags in good order condition. The survey
shows shortages, damages and losses to be as
follows:
Undelivered/Damaged bags as
tallied during discharge from
vessel-173 bags; undelivered and
damaged as noted and observed
whilst stored at the pier-699 bags;
and shortlanded-110 bags (Exhs.
P and P-1).
Of the 600 bags of Low Density Polyethylene 631,
the survey conducted on the same day shows an
actual delivery to the consignee of only 507 bags
in good order condition. Likewise noted were the
following losses, damages and shortages, to wit:
Undelivered/damaged bags and
tally sheets during discharge from
vessel-17 bags.
Undelivered and damaged as
noted and observed whilst stored
at the pier-66 bags; Shortlanded-
10 bags.
Therefore, of said shipment totalling 7,000 bags,
originally contained in 175 pallets, only a total of
5,820 bags were delivered to the consignee in
55
good order condition, leaving a balance of 1,080
bags. Such loss from this particular shipment is
what any or all defendants may be answerable to
(sic).
As already stated, some bags were either
shortlanded or were missing, and some of the
1,080 bags were torn, the contents thereof partly
spilled or were fully/partially emptied, but, worse,
the contents thereof contaminated with foreign
matters and therefore could no longer serve their
intended purpose. The position taken by the
consignee was that even those bags which still
had some contents were considered as total
losses as the remaining contents were
contaminated with foreign matters and therefore
did not (sic) longer serve the intended purpose of
the material. Each bag was valued, taking into
account the customs duties and other taxes paid
as well as charges and the conversion value then
of a dollar to the peso, at P110.28 per bag
(see Exhs. L and L-1 M and O). 2
Before trial, a compromise agreement was entered into between
petitioners, as plaintiffs, and defendants S.C.I. Line and F.E.
Zuellig, upon the latter's payment of P532.65 in settlement of the
claim against them. Whereupon, the trial court in its order of
August 12, 1981 3 granted plaintiffs' motion to dismiss grounded on
said amicable settlement and the case as to S.C.I. Line and F.E.
Zuellig was consequently "dismissed with prejudice and without
pronouncement as to costs."
The trial court thereafter rendered judgment in favor of herein
petitioners on this dispositive portion:
WHEREFORE, judgment is hereby rendered in
favor of the plaintiff Philippine General American
Insurance Company Inc. and against the
 remaining defendants, Sweet Lines Inc. and
Davao Veterans Arrastre Inc. as follows:
Defendant Sweet Lines, Inc. is ordered to pay
said plaintiff the sum of P34,902.00, with legal
interest thereon from date of extrajudicial demand
on April 28, 1978 (Exh. M) until fully paid;
Defendant Sweet Lines Inc. and Davao Veterans
Arrastre and (Port) Services Inc. are directed to
pay jointly and severally, the plaintiff the sum of
P49,747.55, with legal interest thereon from April
28, 1978 until fully paid;
Each of said defendants are ordered to pay the
plaintiffs the additional sum of P5,000 is
reimbursable attorney's fees and other litigation
expenses;
Each of said defendants shall pay one-fourth (1/4)
costs. 4
Due to the reversal on appeal by respondent court of the trial
court's decision on the ground of prescription, 5 in effect dismissing
the complaint of herein petitioners, and the denial of their motion for
reconsideration, 6 petitioners filed the instant petition for review
on certiorari, faulting respondent appellate court with the following
errors: (1) in upholding, without proof, the existence of the so-called
prescriptive period; (2) granting arguendo that the said prescriptive
period does exist, in not finding the same to be null and void; and (3)
assuming arguendo that the said prescriptive period is valid and
legal, in failing to conclude that petitioners substantially complied
therewith. 7
Parenthetically, we observe that herein petitioners are jointly
pursuing this case, considering their common interest in the
shipment subject of the present controversy, to obviate any
question as to who the real party in interest is and to protect their
56
respective rights as insurer and insured. In any case, there is no
impediment to the legal standing of Petitioner Philamgen, even if
it alone were to sue herein private respondents in its own
capacity as insurer, it having been subrogated to all rights of
recovery for loss of or damage to the shipment insured under its
Marine Risk Note No. 438734 dated March 31, 1977 8 in view of the
full settlement of the claim thereunder as evidenced by the subrogation receipt 9 issued
in its favor by Far East Bank and Trust Co., Davao Branch, for the
account of petitioner TPI.
Upon payment of the loss covered by the policy, the insurer's
entitlement to subrogation pro tanto, being of the highest equity,
equips it with a cause of action against a third party in case of
contractual breach. 10 Further, the insurer's subrogatory right to sue
for recovery under the bill of lading in case of loss of or damage to
the cargo is jurisprudentially upheld. 11 However, if an insurer, in the
exercise of its subrogatory right, may proceed against the erring
carrier and for all intents and purposes stands in the place and in
substitution of the consignee, a fortiori such insurer is presumed to
know and is just as bound by the contractual terms under the bill of
lading as the insured.
On the first issue, petitioners contend that it was error for the
Court of Appeals to reverse the appealed decision on the
supposed ground of prescription when SLI failed to adduce any
evidence in support thereof and that the bills of lading said to
contain the shortened periods for filing a claim and for instituting a
court action against the carrier were never offered in evidence.
Considering that the existence and tenor of this stipulation on the
aforesaid periods have allegedly not been established, petitioners
maintain that it is inconceivable how they can possibly comply
therewith. 12 In refutation, SLI avers that it is standard practice in its
operations to issue bills of lading for shipments entrusted to it for
carriage and that it in fact issued bills of lading numbered MD-25 and
MD-26 therefor with proof of their existence manifest in the records
of the case. 13 For its part, DVAPSI insists on the propriety of the
dismissal of the complaint as to it due to petitioners' failure to prove
its direct responsibility for the loss of and/or damage to the cargo. 14
On this point, in denying petitioner's motion for reconsideration,
the Court of Appeals resolved that although the bills of lading
were not offered in evidence, the litigation obviously revolves on
such bills of lading which are practically the documents or
contracts sued upon, hence, they are inevitably involved and their
provisions cannot be disregarded in the determination of the
relative rights of the parties thereto. 15
Respondent court correctly passed upon the matter of
prescription, since that defense was so considered and
controverted by the parties. This issue may accordingly be taken
cognizance of by the court even if not inceptively raised as a
defense so long as its existence is plainly apparent on the face of
relevant pleadings. 16 In the case at bar, prescription as an
affirmative defense was seasonably raised by SLI in its
answer, 17 except that the bills of lading embodying the same were
not formally offered in evidence, thus reducing the bone of contention
to whether or not prescription can be maintained as such defense
and, as in this case, consequently upheld on the strength of mere
references thereto.
As petitioners are suing upon SLI's contractual obligation under
the contract of carriage as contained in the bills of lading, such
bills of lading can be categorized as actionable documents which
under the Rules must be properly pleaded either as causes of
action or defenses, 18 and the genuineness and due execution of
which are deemed admitted unless specifically denied under oath by
the adverse party. 19 The rules on actionable documents cover and
apply to both a cause of action or defense based on said
documents. 20
In the present case and under the aforestated assumption that
the time limit involved is a prescriptive period, respondent carrier
duly raised prescription as an affirmative defense in its answer
setting forth paragraph 5 of the pertinent bills of lading which
comprised the stipulation thereon by parties, to wit:
57
5. Claims for shortage, damage, must be made at
the time of delivery to consignee or agent, if
container shows exterior signs of damage or
shortage. Claims for non-delivery, misdelivery,
loss or damage must be filed within 30 days from
accrual. Suits arising from shortage, damage or
loss, non-delivery or misdelivery shall be instituted
within 60 days from date of accrual of right of
action. Failure to file claims or institute judicial
proceedings as herein provided constitutes waiver
of claim or right of action. In no case shall carrier
be liable for any delay, non-delivery, misdelivery,
loss of damage to cargo while cargo is not in
actual custody of carrier. 21
In their reply thereto, herein petitioners, by their own assertions
that
2. In connection with Pars. 14 and 15 of
defendant Sweet Lines, Inc.'s Answer, plaintiffs
state that such agreements are what the Supreme
Court considers as contracts of adhesion
(see Sweet Lines, Inc. vs. Hon. Bernardo Teves,
et al., G.R. No. L-37750, May 19, 1978) and,
consequently, the provisions therein which are
contrary to law and public policy cannot be
availed of by answering defendant as valid
defenses. 22
thereby failed to controvert the existence of the bills of lading and
the aforequoted provisions therein, hence they impliedly admitted
the same when they merely assailed the validity of subject
stipulations.
Petitioners' failure to specifically deny the existence, much less
the genuineness and due execution, of the instruments in
question amounts to an admission. Judicial admissions, verbal or
written, made by the parties in the pleadings or in the course of
the trial or other proceedings in the same case are conclusive, no
evidence being required to prove the same, and cannot be
contradicted unless shown to have been made through palpable
mistake or that no such admission was made. 23 Moreover, when
the due execution and genuineness of an instrument are deemed
admitted because of the adverse party's failure to make a specific
verified denial thereof, the instrument need not be presented formally
in evidence for it may be considered an admitted fact. 24
Even granting that petitioners' averment in their reply amounts to
a denial, it has the procedural earmarks of what in the law on
pleadings is called a negative pregnant, that is, a denial pregnant
with the admission of the substantial facts in the pleading
responded to which are not squarely denied. It is in effect an
admission of the averment it is directed to. 25 Thus, while
petitioners objected to the validity of such agreement for being
contrary to public policy, the existence of the bills of lading and said
stipulations were nevertheless impliedly admitted by them.
We find merit in respondent court's comments that petitioners
failed to touch on the matter of the non-presentation of the bills of
lading in their brief and earlier on in the appellate proceedings in
this case, hence it is too late in the day to now allow the litigation
to be overturned on that score, for to do so would mean an over-
indulgence in technicalities. Hence, for the reasons already
advanced, the non-inclusion of the controverted bills of lading in
the formal offer of evidence cannot, under the facts of this
particular case, be considered a fatal procedural lapse as would
bar respondent carrier from raising the defense of prescription.
Petitioners' feigned ignorance of the provisions of the bills of
lading, particularly on the time limitations for filing a claim and for
commencing a suit in court, as their excuse for non-compliance
therewith does not deserve serious attention.
It is to be noted that the carriage of the cargo involved was
effected pursuant to an "Application for Delivery of Cargoes
without Original Bill of Lading" issued on May 20, 1977 in Davao
City 26 with the notation therein that said application corresponds to
58
and is subject to the terms of bills of lading MD-25 and MD-26. It
would be a safe assessment to interpret this to mean that, sight
unseen, petitioners acknowledged the existence of said bills of
lading. By having the cargo shipped on respondent carrier's vessel
and later making a claim for loss on the basis of the bills of lading,
petitioners for all intents and purposes accepted said bills. Having
done so they are bound by all stipulations contained therein. 27 Verily,
as petitioners are suing for recovery on the contract, and in fact even
went as far as assailing its validity by categorizing it as a contract of
adhesion, then they necessarily admit that there is such a contract,
their knowledge of the existence of which with its attendant
stipulations they cannot now be allowed to deny.
On the issue of the validity of the controverted paragraph 5 of the
bills of lading above quoted which unequivocally prescribes a
time frame of thirty (30) days for filing a claim with the carrier in
case of loss of or damage to the cargo and sixty (60) days from
accrual of the right of action for instituting an action in court,
which periods must concur, petitioners posit that the alleged
shorter prescriptive period which is in the nature of a limitation on
petitioners' right of recovery is unreasonable and that SLI has the
burden of proving otherwise, citing the earlier case of Southern
Lines, Inc. vs. Court of Appeals, et al. 28 They postulate this on the
theory that the bills of lading containing the same constitute contracts
of adhesion and are, therefore, void for being contrary to public
policy, supposedly pursuant to the dictum in Sweet Lines, Inc. vs.
Teves, et al. 29
Furthermore, they contend, since the liability of private
respondents has been clearly established, to bar petitioners' right
of recovery on a mere technicality will pave the way for unjust
enrichment. 30 Contrarily, SLI asserts and defends the
reasonableness of the time limitation within which claims should be
filed with the carrier; the necessity for the same, as this condition for
the carrier's liability is uniformly adopted by nearly all shipping
companies if they are to survive the concomitant rigors and risks of
the shipping industry; and the countervailing balance afforded by
such stipulation to the legal presumption of negligence under which
the carrier labors in the event of loss of or damage to the cargo. 31
It has long been held that Article 366 of the Code of Commerce
applies not only to overland and river transportation but also to
maritime
transportation. 32 Moreover, we agree that in this jurisdiction, as
viewed from another angle, it is more accurate to state that the filing
of a claim with the carrier within the time limitation therefor under
Article 366 actually constitutes a condition precedent to the accrual
of a right of action against a carrier for damages caused to the
merchandise. The shipper or the consignee must allege and prove
the fulfillment of the condition and if he omits such allegations and
proof, no right of action against the carrier can accrue in his favor. As
the requirements in Article 366, restated with a slight modification in
the assailed paragraph 5 of the bills of lading, are reasonable
conditions precedent, they are not limitations of action. 33 Being
conditions precedent, their performance must precede a suit for
enforcement 34 and the vesting of the right to file spit does not take
place until the happening of these conditions. 35
Now, before an action can properly be commenced all the
essential elements of the cause of action must be in existence,
that is, the cause of action must be complete. All valid conditions
precedent to the institution of the particular action, whether
prescribed by statute, fixed by agreement of the parties or implied
by law must be performed or complied with before commencing
the action, unless the conduct of the adverse party has been such
as to prevent or waive performance or excuse non-performance
of the condition. 36
It bears restating that a right of action is the right to presently
enforce a cause of action, while a cause of action consists of the
operative facts which give rise to such right of action. The right of
action does not arise until the performance of all conditions
precedent to the action and may be taken away by the running of
the statute of limitations, through estoppel, or by other
circumstances which do not affect the cause of
action. 37 Performance or fulfillment of all conditions precedent upon
which a right of action depends must be sufficiently
alleged, 38 considering that the burden of proof to show that a party
has a right of action is upon the person initiating the suit. 39
59
More particularly, where the contract of shipment contains a
reasonable requirement of giving notice of loss of or injury to the
goods, the giving of such notice is a condition precedent to the
action for loss or injury or the right to enforce the carrier's liability.
Such requirement is not an empty formalism. The fundamental
reason or purpose of such a stipulation is not to relieve the carrier
from just liability, but reasonably to inform it that the shipment has
been damaged and that it is charged with liability therefor, and to
give it an opportunity to examine the nature and extent of the
injury. This protects the carrier by affording it an opportunity to
make an investigation of a claim while the matter is fresh and
easily investigated so as to safeguard itself from false and
fraudulent claims. 40
Stipulations in bills of lading or other contracts of shipment which
require notice of claim for loss of or damage to goods shipped in
order to impose liability on the carrier operate to prevent the
enforcement of the contract when not complied with, that is,
notice is a condition precedent and the carrier is not liable if
notice is not given in accordance with the stipulation, 41 as the
failure to comply with such a stipulation in a contract of carriage with
respect to notice of loss or claim for damage bars recovery for the
loss or damage suffered. 42
On the other hand, the validity of a contractual limitation of time
for filing the suit itself against a carrier shorter than the statutory
period therefor has generally been upheld as such stipulation
merely affects the shipper's remedy and does not affect the
liability of the carrier. In the absence of any statutory limitation
and subject only to the requirement on the reasonableness of the
stipulated limitation period, the parties to a contract of carriage
may fix by agreement a shorter time for the bringing of suit on a
claim for the loss of or damage to the shipment than that provided
by the statute of limitations. Such limitation is not contrary to
public policy for it does not in any way defeat the complete
vestiture of the right to recover, but merely requires the assertion
of that right by action at an earlier period than would be
necessary to defeat it through the operation of the ordinary itself 48 within the stipulated period therefor, instead of doing so only
statute of limitations. 43 on April 28, 1978 despite the vessel's arrival at the port of destination
on May 15, 1977. Their failure to timely act brings us to no inference
In the case at bar, there is neither any showing of compliance by other than the fact that petitioners slept on their rights and they must
petitioners with the requirement for the filing of a notice of claim now face the consequences of such inaction.
within the prescribed period nor any allegation to that effect. It
may then be said that while petitioners may possibly have a The ratiocination of the Court of Appeals on this aspect is worth
cause of action, for failure to comply with the above condition reproducing:
precedent they lost whatever right of action they may have in their
favor or, token in another sense, that remedial right or right to xxx xxx xxx
relief had prescribed. 44
It must be noted, at this juncture, that the
The shipment in question was discharged into the custody of the aforestated time limitation in the presentation of
consignee on May 15, 1977, and it was from this date that claim for loss or damage, is but a restatement of
petitioners' cause of action accrued, with thirty (30) days the rule prescribed under Art. 366 of the Code of
therefrom within which to file a claim with the carrier for any loss Commerce which reads as follows:
or damage which may have been suffered by the cargo and
thereby perfect their right of action. The findings of respondent Art. 366. Within the twenty-four
court as supported by petitioners' formal offer of evidence in the hours following the receipt of the
court below show that the claim was filed with SLI only on April merchandise, the claim against
28, 1978, way beyond the period provided in the bills of the carrier for damage or average
lading 45 and violative of the contractual provision, the inevitable which may be found therein upon
consequence of which is the loss of petitioners' remedy or right to opening the packages, may be
sue. Even the filing of the complaint on May 12, 1978 is of no made, provided that the
remedial or practical consequence, since the time limits for the filing indications of the damage or
thereof, whether viewed as a condition precedent or as a prescriptive average which gives rise to the
period, would in this case be productive of the same result, that is, claim cannot be ascertained from
that petitioners had no right of action to begin with or, at any rate, the outside part of the packages,
their claim was time-barred. in which case the claims shall be
admitted only at the time of the
What the court finds rather odd is the fact that petitioner TPI filed receipt.
a provisional claim with DVAPSI as early as June 14, 1977 46 and,
as found by the trial court, a survey fixing the extent of loss of and/or
After the periods mentioned have
damage to the cargo was conducted on July 8, 1977 at the instance
elapsed, or the transportation
of petitioners. 47 If petitioners had the opportunity and awareness to
file such provisional claim and to cause a survey to be conducted charges have been paid, no claim
soon after the discharge of the cargo, then they could very easily shall be admitted against the
have filed the necessary formal, or even a provisional, claim with SLI carrier with regard to the condition

60
 in which the goods transported
were delivered.
Gleanable therefrom is the fact that subject
stipulation even lengthened the period for
presentation of claims thereunder. Such
modification has been sanctioned by the Supreme
Court. In the case of Ong Yet (M)ua Hardware
Co., Inc. vs. Mitsui Steamship Co., Ltd., et al., 59
O.G. No. 17, p. 2764, it ruled that Art. 366 of the
Code of Commerce can be modified by a bill of
lading prescribing the period of 90 days after
arrival of the ship, for filing of written claim with
the carrier or agent, instead of the 24-hour time
limit after delivery provided in the aforecited legal
provision.
Tested, too, under paragraph 5 of said Bill of
Lading, it is crystal clear that the commencement
of the instant suit on May 12, 1978 was indeed
fatally late. In view of the express provision that
"suits arising from
. . . damage or loss shall be instituted within 60
days from date of accrual of right of action," the
present action necessarily fails on ground of
prescription.
In the absence of constitutional or
statutory prohibition, it is usually
held or recognized that it is
competent for the parties to a
contract of shipment to agree on a
limitation of time shorter than the
statutory period, within which
action for breach of the contract
shall be brought, and such
limitation will be enforced if
61
reasonable . . . (13 C.J.S. 496-
497)
A perusal of the pertinent provisions of law on the
matter would disclose that there is no
constitutional or statutory prohibition infirming
paragraph 5 of subject Bill of Lading. The
stipulated period of 60 days is reasonable enough
for appellees to ascertain the facts and thereafter
to sue, if need be, and the 60-day period agreed
upon by the parties which shortened the statutory
period within which to bring action for breach of
contract is valid and binding. . . . (Emphasis in the
original text.) 49
As explained above, the shortened period for filing suit is not
unreasonable and has in fact been generally recognized to be a
valid business practice in the shipping industry. Petitioners'
advertence to the Court's holding in the Southern
Lines case, supra, is futile as what was involved was a claim for
refund of excess payment. We ruled therein that non-compliance
with the requirement of filing a notice of claim under Article 366 of
the Code of Commerce does not affect the consignee's right of
action against the carrier because said requirement applies only
to cases for recovery of damages on account of loss of or
damage to cargo, not to an action for refund of overpayment, and
on the further consideration that neither the Code of Commerce
nor the bills of lading therein provided any time limitation for suing
for refund of money paid in excess, except only that it be filed
within a reasonable time.
The ruling in Sweet Lines categorizing the stipulated limitation on
venue of action provided in the subject bill of lading as a contract
of adhesion and, under the circumstances therein, void for being
contrary to public policy is evidently likewise unavailing in view of
the discrete environmental facts involved and the fact that the
restriction therein was unreasonable. In any case, Ong Yiu vs.
Court of Appeals, et al., 50 instructs us that "contracts of adhesion
wherein one party imposes a ready-made form of contract on the
other . . . are contracts not entirely prohibited. The one who adheres
to the contract is in reality free to reject it entirely; if he adheres he
gives his consent." In the present case, not even an allegation of
ignorance of a party excuses non-compliance with the contractual
stipulations since the responsibility for ensuring full comprehension
of the provisions of a contract of carriage devolves not on the carrier
but on the owner, shipper, or consignee as the case may be.
While it is true that substantial compliance with provisions on
filing of claim for loss of or damage to cargo may sometimes
suffice, the invocation of such an assumption must be viewed vis-
a-vis the object or purpose which such a provision seeks to attain
and that is to afford the carrier a reasonable opportunity to
determine the merits and validity of the claim and to protect itself
against unfounded impositions. 51 Petitioners' would nevertheless
adopt an adamant posture hinged on the issuance by SLI of a
"Report on Losses and Damages," dated May 15, 1977, 52 from
which petitioners theorize that this charges private respondents with
actual knowledge of the loss and damage involved in the present
case as would obviate the need for or render superfluous the filing of
a claim within the stipulated period.
Withal, it has merely to be pointed out that the aforementioned
report bears this notation at the lower part thereof: "Damaged by
Mla. labor upon unloading; B/L noted at port of origin," as an
explanation for the cause of loss of and/or damage to the cargo,
together with an iterative note stating that "(t)his Copy should be
submitted together with your claim invoice or receipt within 30
days from date of issue otherwise your claim will not be honored."
Moreover, knowledge on the part of the carrier of the loss of or
damage to the goods deducible from the issuance of said report
is not equivalent to nor does it approximate the legal purpose
served by the filing of the requisite claim, that is, to promptly
apprise the carrier about a consignee's intention to file a claim
and thus cause the prompt investigation of the veracity and merit
thereof for its protection. It would be an unfair imposition to
62
require the carrier, upon discovery in the process of preparing the
report on losses or damages of any and all such loss or damage,
to presume the existence of a claim against it when at that time
the carrier is expectedly concerned merely with accounting for
each and every shipment and assessing its condition. Unless and
until a notice of claim is therewith timely filed, the carrier cannot
be expected to presume that for every loss or damage tallied, a
corresponding claim therefor has been filed or is already in
existence as would alert it to the urgency for an immediate
investigation of the soundness of the claim. The report on losses
and damages is not the claim referred to and required by the bills
of lading for it does not fix responsibility for the loss or damage,
but merely states the condition of the goods shipped. The claim
contemplated herein, in whatever form, must be something more
than a notice that the goods have been lost or damaged; it must
contain a claim for compensation or indicate an intent to claim. 53
Thus, to put the legal effect of respondent carrier's report on
losses or damages, the preparation of which is standard
procedure upon unloading of cargo at the port of destination, on
the same level as that of a notice of claim by imploring substantial
compliance is definitely farfetched. Besides, the cited notation on
the carrier's report itself makes it clear that the filing of a notice of
claim in any case is imperative if carrier is to be held liable at all
for the loss of or damage to cargo.
Turning now to respondent DVAPSI and considering that
whatever right of action petitioners may have against respondent
carrier was lost due to their failure to seasonably file the requisite
claim, it would be awkward, to say the least, that by some
convenient process of elimination DVAPSI should proverbially be
left holding the bag, and it would be pure speculation to assume
that DVAPSI is probably responsible for the loss of or damage to
cargo. Unlike a common carrier, an arrastre operator does not
labor under a presumption of negligence in case of loss,
destruction or deterioration of goods discharged into its custody.
In other words, to hold an arrastre operator liable for loss of
and/or damage to goods entrusted to it there must be
preponderant evidence that it did not exercise due diligence in the Q Mr. Witness, you said that you
handling and care of the goods. processed and investigated the
claim involving the shipment in
Petitioners failed to pinpoint liability on any of the original question. Is it not a fact that in
defendants and in this seemingly wild goose-chase, they cannot your processing and investigation
quite put their finger down on when, where, how and under you considered how the shipment
whose responsibility the loss or damage probably occurred, or as was transported? Where the
stated in paragraph 8 of their basic complaint filed in the court losses could have occurred and
below, whether "(u)pon discharge of the cargoes from the original what is the extent of the respective
carrying vessel, the SS VISHVA YASH," and/or upon discharge of responsibilities of the bailees
the cargoes from the interisland vessel the MV "SWEET LOVE," and/or carriers involved?
in Davao City and later while in the custody of defendant arrastre
operator. 54 xxx xxx xxx

The testimony of petitioners' own witness, Roberto Cabato, Jr.,
Marine and Aviation Claims Manager of petitioner Philamgen,
was definitely inconclusive and the responsibility for the loss or
damage could still not be ascertained therefrom:
Q In other words, Mr. Cabato, you
only computed the loss on the
basis of the figures submitted to
you and based on the documents
like the survey certificate and the
certificate of the arrastre?
A Yes, sir.
Q Therefore, Mr. Cabato, you
have no idea how or where these
losses were incurred?
A No, sir.
xxx xxx xxx
A With respect to the shipment
being transported, we have of
course to get into it in order to
check whether the shipment
coming in to this port is in
accordance with the policy
condition, like in this particular
case, the shipment was
transported to Manila and
transhipped through an interisland
vessel in accordance with the
policy. With respect to the
losses, we have a general view
where losses could have
occurred. Of course we will have
to consider the different bailees
wherein the shipment must have
passed through, like the ocean
vessel, the interisland vessel and
the arrastre, but definitely at that
point and time we cannot
determine the extent of each
liability. We are only interested at
that point and time in the liability

63
 as regards the underwriter in
accordance with the policy that we
issued.

xxx xxx xxx

Q Mr. Witness, from the

documents, namely, the survey of
Manila Adjusters and Surveyors
Company, the survey of Davao
Arrastre contractor and the bills of
lading issued by the defendant
Sweet Lines, will you be able to
tell the respective liabilities of the
bailees and/or carriers concerned?

A No, sir. (Emphasis ours.) 55

Neither did nor could the trial court, much less the Court of
Appeals, precisely establish the stage in the course of the
shipment when the goods were lost, destroyed or damaged. What
can only be inferred from the factual findings of the trial court is
that by the time the cargo was discharged to DVAPSI, loss or
damage had already occurred and that the same could not have
possibly occurred while the same was in the custody of DVAPSI,
as demonstrated by the observations of the trial court quoted at
the start of this opinion.

ACCORDINGLY, on the foregoing premises, the instant petition is

DENIED and the dismissal of the complaint in the court a quo as
decreed by respondent Court of Appeals in its challenged
judgment is hereby AFFIRMED.

SO ORDERED.

Narvasa, C.J., Padilla and Nocon, JJ., concur.

64

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-41767 August 23, 1978
MR. AND MRS. ROMEO FERRER and ANNETTE
FERRER, petitioners,
vs.
HON. VICENTE G. ERICTA, in his capacity as Presiding
Judge of the Court of First Instance of Rizal, Quezon City,
Branch XVIII, MR. AND MRS. FRANCIS PFLEIDER and
DENNIS PFLEIDER, respondents.
Delano F. Villaruz for petitioners.
Porderio C. David for private respondents.
ANTONIO, J:
Mandamus to compel the immediate execution of the Decision of
the Court of First Instance of Quezon City, Branch XVIII, presided
over by respondent Judge, in Civil Case No. Q-19647, dated July
21, 1975. The pertinent facts are as follows:
In a complaint for damages against respondents, dated
December 27, 1974 but actually filed on January 6, 1975 (Civil
Case No. Q-19647), and assigned to the sala of respondent
Judge, it was alleged that defendants Mr. and Mrs. Francis
Pfleider, residents of Bayawan, Negros Oriental, were the owners
or operators of a Ford pick-up car; that at about 5:00 o'clock in
the afternoon of December 31, 1970, in the streets of Bayawan,
65
Negros Oriental, their son, defendant Dennis Pfleider, who was
then only sixteen (16) years of age, without proper official
authority, drove the above-described vehicle, without due regard
to traffic rules and regulations, and without taking the necessary
precaution to prevent injury to persons or damage to property,
and as a consequence the pickup car was overturned, causing
physical injuries to plaintiff Annette Ferrer, who was then a
passenger therein, which injuries paralyzed her and required
medical treatment and confinement at different hospitals for more
than two (2) years; that as a result of the physical injuries
sustained by Annette, she suffered unimaginable physical pain,
mental anguish, and her parents also suffered mental anguish,
moral shock and spent a considerable sum of money for her
treatment. They prayed that defendants be ordered to reimburse
them for actual expenses as well as other damages.
In due time, defendants filed their answer, putting up the
affirmative defense that defendant Dennis Pfleider exercised due
care and utmost diligence in driving the vehicle aforementioned
and alleging that Annette Ferrer and the other persons aboard
said vehicle were not passengers in the strict sense of the term,
but were merely joy riders and that, consequently, defendants
had no obligation whatsoever to plaintiffs.
At the pre-trial on May 12, 1975, only plaintiffs-petitioners and
their counsel were present. Consequently, defendants-private
respondents were declared in default and the plaintiff petitioners
were allowed to present their evidence ex parte. On May 21,
1975, petitioners moved that they be granted an extension of ten
(10) days from May 22, 1975 to present her evidence, which was
granted by the court a quo. The presentation of petitioners'
evidence was later continued by the trial court to June 16, 1975,
when the deposition of Annette Ferrer was submitted by
petitioners and admitted by the trial court.
On June 26, 1975, private respondents filed a motion to "set
aside the order of default and subsequent pleadings" on the
ground that "defendants' failure to appear for pre-trial was due to
accident or excusable neglect." This was opposed by petitioners
on the ground that the said pleading was not under oath, contrary
to the requirements of Sec. 3, Rule 18 of the Rules, and that it
was not accompanied by an affidavit of merit showing that the
defendants have a good defense. In view of this, the motion of
private respondents was denied by respondent Judge on July 21,
1975. On the same date, respondent Judge rendered judgment
against private respondents, finding that the minor Dennis
Pfleider, was allowed by his parents to operate a Ford pick-up car
and because of his reckless negligence caused the accident in
question, resulting in injuries to Annette, and ordering the
defendants, as a result thereof, to pay jointly and severally the
plaintiffs the following amounts: (1) P24,500.00 for actual
expenses, hospitalization and medical expenses; (2) P24,000.00
for actual expenses for the care, medicines of plaintiff Annette for
helps from December 31, 1970 to December 31, 1974; (3)
P50,000.00 for moral damages; (4) P10,000.00 for exemplary
damages; (5) P5,000.00 for attorney's fees; and (6) costs of suit.
On September 1, 1975, private respondents filed a Motion for
Reconsideration 1 of the decision and of the order denying the
motion to set aside order of default, based on the following grounds:
(1) the complaint states no cause of action insofar as Mr. and Mrs.
Pfleider are concerned because it does not allege that at the time of
the mishap, defendant Dennis Pfleider was living with them, the fact
being that at such time he was living apart from them, hence, there
can be no application of Article 2180 of the Civil Code, upon which
parents' liability is premised; and (2) that tile complaint shows on its
face "that it was filed only on January 6, 1975, or after the lapse of
MORE THAN FOUR YEARS from the date of the accident on
December 31, 1970", likewise appearing from the complaint and,
therefore, the action has already prescribed under Article 1146 of the
Civil Code.
A Supplemental Motion for Reconsideration 2 was subsequently
filed by defendants-private respondents on September 10, 1975,
alleging that their defense of prescription has not been waived and
may be raised even at such stage of the proceedings because on the
face of the complaint, as well as from the plaintiff's evidence, their
66
cause of action had already prescribed, citing as authority the
decision of this Court in Philippine National Bank v. Pacific
Commission House, 3 as well as the decisions quoted therein. The
Opposition 4 to the above supplemental motion interposed by
plaintiffs-petitioners averred that: (a) the defense of prescription had
been waived while the defense that the complaint states no cause of
action "is available only at any time not later than the trial and prior to
the decision"; (b) inasmuch as defendants have been declared in
default for failure to appear at the pretrial conference, they have lost
their standing in court and cannot be allowed to adduce evidence nor
to take part in the trial, in accordance with Section 2 of Rule 18 of the
Rules of Court; and (c) the motion and supplemental motion for
reconsideration are pro forma because the defenses raised therein
have been previously raised and passed upon by respondent court in
resolving defendants' motion to set aside order of default. Being pro
forma, said motion and supplemental motion do not suspend the
running of the thirty-day period to appeal, which was from August 5,
1975, when defendants received a copy of the decision, to
September 4, 1975, and hence the decision has already become
final and executory. Plaintiffs-petitioners accordingly prayed that a
writ of execution be issued to enforce the judgment in their favor.
On September 23, 1975, respondent judge, without setting aside
the order of default, issued an order absolving defendants from
any liability on the grounds that: (a) the complaint states no cause
of action because it does not allege that Dennis Pfleider was
living with his parents at the time of the vehicular accident,
considering that under Article 2180 of the Civil Code, the father
and, in case of his death or incapacity the mother, are only
responsible for the damages caused by their minor children who
live in their company; and (b) that the defense of prescription is
meritorious, since the complaint was filed more than four (4)
years after the date of the accident, and the action to recover
damages based on quasi-delict prescribes in four (4) years.
Hence, the instant petition for mandamus.
The basic issue is whether the defense of prescription had been
deemed waived by private respondents' failure to allege the same
in their answer.
As early as Chua Lamko v. Dioso, et al., 5 this Court sustained the
dismissal of a counterclaim on the ground of prescription, although
such defense was not raised in the answer of the plaintiff. Thus, this
Court held that where the answer does not take issue with the
complaint as to dates involved in the defendant's claim of
prescription, his failure to specifically plead prescription in the
answer does not constitute a waiver of the defense of prescription. It
was explained that the defense of prescription, even if not raised in a
motion to dismiss or in the answer, is not deemed waived unless
such defense raises issues of fact not appearing upon the preceding
pleading.
In Philippine National Bank v. Perez, et al., 6 which was an action
filed by the Philippine National Bank on March 22, 1961 for revival of
a judgment rendered on December 29, 1949 against Amando Perez,
Gregorio Pumuntoc and Virginia de Pumuntoc pursuant to Section 6,
Rule 39 of the rules of court the defendants were declared in default
for their failure to file their answer. There upon, the plaintiff submitted
its evidence, but when the case was submitted for decision, the
court a quo dismissed the complaint on the ground that plaintiff's
cause of action had already prescribed under Articles 1144 and 1152
of the Civil Code. The plaintiff in said case, contending that since
prescription is a defense that can only be set up by defendants, the
court could not motu proprio consider it as a basis for dismissal,
moved to reconsider the order, but its motion was denied. When the
issue was raised to this Court, We ruled:
It is true that the defense of prescription can only
be considered if the same is invoked as such in
the answer of the defendant and that in this
particular instance no such defense was invoked
because the defendants had been declared in
default, but such rule does riot obtain when the
evidence shows that the cause of action upon
which plaintiff's complaint is based is already
barred by the statute of limitations. (Emphasis
supplied.)
67
Again, in Philippine National Bank v. Pacific Commission
House, 7 where the action sought to revive a judgment rendered by
the Court of First Instance of Manila on February 3, 1953 and it was
patent from the stamp appearing on the first page of the complaint
that the complaint was actually filed on May 31, 1963, this Court
sustained the dismissal of the complaint on the ground of
prescription, although such defense was not raised in the answer,
overruling the appellants' invocation of Section 2 of Rule 9 of the
Rules of Court that "defenses and objections not pleaded either in a
motion to dismiss or in tile answer are deemed waived." We held
therein that "... the fact that the plaintiff's own allegation in tile
complaint or the evidence it presented shows clearly that the action
had prescribed removes this case from the rule regarding waiver of
the defense by failure to plead the same."
In the present case, there is no issue of fact involved in
connection with the question of prescription. The complaint in
Civil Case No. Q-19647 alleges that the accident which caused
the injuries sustained by plaintiff Annette Ferrer occured on
December 31, 1970. It is undisputed that the action for damages
was only filed on January 6, 1975. Actions for damages arising
from physical injuries because of a tort must be filed within four
years. 8 The four-year period begins from the day the quasi-delict is
committed or the date of the accident. 9
WHEREFORE, the instant petition for mandamus is hereby
DISMISSED, without pronouncement as to costs.
Fernando (Chairman), Barredo, Aquino, Concepcion, Jr.
and Santos, JJ., concur.

THIRD DIVISION
[G.R. No. 133284. May 9, 2000]
SPS. CLARO PONCIANO and GLORIA
PONCIANO, petitioners, vs. HONORABLE
JOSE J. PARENTELA, JR., Presiding Judge,
Regional Trial Court of Trece Martires City, Br.
23 and SPS. ILDEFONSO CLAMOSA and
LEONORA CLAMOSA, respondents.
DECISION
GONZAGA-REYES, J.:
The instant case deals with Administrative Circular 04-94.
More specifically, the primary issue is whether or not an
answer which asserts a compulsory counterclaim must
include a certificate of non-forum shopping, and if so,
whether or not the dismissal of such compulsory
counterclaim by the trial court due to the absence of such
certification has the effect of a dismissal with prejudice so
as to bar the party from re-filing such compulsory
counterclaim.
The antecedents of this case are as follows:
On June 13, 1995, private respondents Ildefonso and
Leonora Clamosa filed a complaint for a sum of money
and damages with the Regional Trial Court of Trece
Martires City, Branch 23, against petitioners Claro and
68
Gloria Ponciano for unpaid cost of labor and materials
incurred by them in repairing petitioners house in San
Roque, Cavite. The case was docketed as Civil Case No.
TM-601. Petitioners filed a motion to dismiss the
complaint for failure to state a cause of action, but the
same was denied by the trial court in its Order dated
September 21, 1995.h Y
On October 18, 1995, petitioners filed their answer with
compulsory counterclaim, claiming that they have paid
the total contract price agreed upon; that despite this, the
work of private respondents was defective; and that
private respondents abandoned the renovation before it
was completed. Petitioners asserted that they are entitled
to be paid P250,000 to complete the renovation, and
damages.
On August 23, 1996, upon motion of private respondents,
the trial court ordered that petitioners counterclaim be
stricken off from the record for failure to comply with
Administrative Circular No. 04-94, which requires an
affidavit of non-forum shopping for all initiatory pleadings
in all courts. Petitioners filed a motion for reconsideration
dated September 17, 1996, arguing, among others, that
since their counterclaim is compulsory in nature, it is not
an initiatory pleading and therefore, does not fall within
the scope of Administrative Circular No. 04-94. However,
on October 17, 1996, the trial court denied petitioners
motion for reconsideration. [1]
Petitioners questioned the trial courts orders before this
Court by means of a special civil action
for certiorari under Rule 65 of the 1997 Revised Rules of
Civil Procedure, which case was docketed as G.R. No.
127701. On February 10, 1997, the Courts Second
Division denied the petition for lack of merit, holding that-
xxx xxx xxx
We find there is no reversible error in the
trial courts questioned order. The
administrative circular invoked provides
clearly that strict compliance with its
mandate is imposed upon all initiatory
pleadings, and that "the complaint and
other initiatory pleadings referred to and
subject of this Circular are the original civil
complaint, counterclaim, cross-claim, third
(fourth, etc.) party complaint, or complaint-
in-intervention, petition, or application
wherein a party asserts his claim or
relief." It is notable that in issuing the said
circular, the court did not distinguish
between permissive and compulsory
counterclaim, and we need not make a
distinction in this regard as
well. (underscoring supplied) [2]
xxx xxx xxx
Thereafter, petitioners filed an "Answer with Amended
Compulsory Counterclaim," wherein the amendment
consisted of the addition of a certification under oath in
compliance with the Administrative Circular No. 04-94.
Initially, the trial court admitted the "Answer with
Amended Compulsory Counterclaim" in its July 9, 1997
69
Order. However, after the filing of a motion for
reconsideration by private respondents, the court
reconsidered its action and expunged the amended
compulsory counterclaim from the records. Its ruling was
[3]
explained in its Order dated December 9, 1997-
After a soul-searching evaluation of the
arguments in the Motion for reconsideration
filed by plaintiffs thru counsel dated October
6, 1997 and the Comment/Opposition
thereto field by counsel for defendants
dated November 5, 1997 this Court finds
the raison dentre of said Motion for
Reconsideration to be impressed with merit.
Surely, it would be logomachic and
fallacious and what is worse, contemptible
to admit defendants Amended Compulsory
counterclaim after the Honorable Supreme
Court had dismissed the petition for
certiorari questioning the Order of this Court
striking-off from the record defendants
compulsory counterclaim for not complying
with Administrative Circular No. 04-94. As it
is, the Honorable Supreme Court is the
highest court of the land and this court like
any other Regional Trial Court belongs to
the lower strata of the judicial [sic]. Jksm
ACCORDINGLY, the Motion for
reconsideration is hereby granted. Apropos,
defendants amended compulsory
counterclaim is hereby expunged and/or
stricken off from the record.
 SO ORDERED. [4]
After its motion for reconsideration was denied by the trial
court in an order dated March 17, 1998, petitioners filed
the present special civil action for certiorari under Rule
65, assailing the trial courts orders denying admission of
their amended compulsory counterclaim. They maintain
that this Court did not rule in its decision in G.R. No.
127701 that the dismissal of petitioners compulsory
counterclaim in Civil Case No. TM-601 for non-
compliance with Administrative Circular No. 04-94 was
with prejudice. Consequently, petitioners assert that they
should be permitted to re-file their compulsory
counterclaim provided that they comply with such
circular .
[5]
Administrative Circular No. 04-94 was issued by this
[6]
Court in order to prevent the undesirable practice of
forum-shopping, which exists when, as a result of an
adverse opinion in one forum, a party seeks a favorable
opinion (other than by appeal or certiorari) in another, or
when he institutes two or more actions or proceedings
grounded on the same cause, on the chance that one or
the other court would make a favorable disposition. The
[7]
pertinent portion of the Circular provides-
xxx xxx xxx Chief
(1) The plaintiff, petitioner, applicant or
principal party seeking relief in the
complaint, petition, application or other
initiatory pleading shall certify under oath in
such original pleading, or in a sworn
70
certification annexed thereto and
simultaneously filed therewith, to the truth
of the following facts and undertakings: (a)
he has not theretofore commenced any
other action or proceeding involving the
same issues in the Supreme Court, the
Court of Appeals, or any other tribunal or
agency; (b) to the best of his knowledge, no
such action or proceeding is pending in the
Supreme Court, the Court of Appeals, or
any other tribunal or agency; (c) if there is
any such action or proceeding which is
either pending or may have been
terminated, he must state the status
thereof; and (d) if he should thereafter learn
that a similar action or proceeding has been
filed or is pending before the Supreme
Court, the Court of Appeals, or any other
tribunal or agency, he undertakes to report
that fact within five (5) days therefrom to the
court or agency wherein the original
pleading and sworn certification
contemplated herein have been filed. Esm
The complaint and other initiatory pleadings
referred to and subject of this Circular are
the original civil complaint, counterclaim,
cross-claim, third (fourth, etc.) party
complaint, or complaint-in-intervention,
petition, or application wherein a party
asserts his claim for relief. Esmsc
xxx xxx xxx
In resolving the issues presented in this case, it should
first be asked whether, in the first place, a compulsory
counterclaim pleaded in an answer must be
accompanied with a certificate of non-forum shopping.
This very same issue was confronted in the
case of Santo Tomas University Hospital v. Surla,
[8]
wherein we held that the above-quoted provisions of
administrative Circular No. 04-94 do not apply to
compulsory counterclaims. Speaking for the Court,
Justice Vitug explained that-
It bears stressing, once again, that the real
office of Administrative Circular No. 04-94,
made effective on 01 April 1994, is to curb
the malpractice commonly referred to also
as forum-shopping. It is an act of a party
against whom an adverse judgment has
been rendered in one forum of seeking and
possibly getting a favorable opinion in
another forum, other than by appeal or the
special civil action of certiorari, or the
institution of two or more actions or
proceedings grounded on the same cause
on the supposition that one or the other
court would make a favorable disposition.
The language of the circular distinctly
suggests that it is primarily intended to
cover an initiatory pleading or an incipient
application of a party asserting a claim for
relief. Esmmis
It should not be too difficult, the
foregoing rationale of the circular aptly
71
taken, to sustain the view that the circular in
question has not, in fact, been
contemplated to include a kind of claim
which, by its very nature as being auxiliary
to the proceedings in the suit and as
deriving its substantive and jurisdictional
support therefrom, can only be
appropriately pleaded in the answer and not
remain outstanding for independent
resolution except by the court where the
main case pends. Prescinding from the
foregoing, the proviso in the second
paragraph of Section 5, Rule 8, of the 1997
Rules of Civil Procedure, i.e., that the
violation of the anti-forum shopping rule
"shall not curable by mere amendment xxx
but shall be cause for the dismissal of the
case without prejudice," being predicated
on the applicability of the need for a
certification against forum-shopping,
obviously does not include a claim which
cannot be independently set up. Esmso
A compulsory counterclaim is any claim for money or
other relief which a defending party may have against an
opposing party, which at the time of suit arises out of, or
is necessarily connected with, the same transaction or
occurrence that is the subject matter of plaintiffs
complaint. It is compulsory in the sense that if it is within
the jurisdiction of the court, and does not require for its
adjudication the presence of third parties over whom the
court cannot acquire jurisdiction, it must be set up
therein, and will be barred in the future if not set up.
[9]
In the case at bar, there is no doubt that the
counterclaims pleaded by petitioners in their answers are
compulsory in nature. The filing of a separate action by
petitioners would only result in the presentation of the
same evidence as in Civil Case No. TM-601. Proceeding
from our ruling in Santo Tomas University
Hospital, petitioners need not file a certification of non-
forum shopping since their claims are not initiatory in
character, and therefore, are not covered by the
provisions of Administrative Circular No. 04-94. Msesm

WHEREFORE, the December 9, 1997 and March 17,

1998 Orders of Branch 23 of the Regional Trial Court of
Trece Martires City in Civil Case No. TM-601 are hereby
SET ASIDE. The trial court is ORDERED to ADMIT
petitioners answer with compulsory counterclaim. No
pronouncement as to costs.

SO ORDERED.

Melo, (Chairman), Vitug, and Panganiban, JJ., concur.

Purisima, J., abroad-no part. Exsm

72

Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-26768 October 30, 1970
FAUSTINO GOJO, petitioner-appellant,
vs.
SEGUNDO GOYALA and ANTONINA
ALMOGUERA, respondents-appellees.
Fernando P. Gerona, Sr. for petitioner-appellant.
Agustin Frivaldo for respondents-appellees.
BARREDO, J.:.
Appeal from the favorable decision of the Court of First Instance
of Sorsogon on the counterclaim of respondents (herein
appellees) in its Civil Case No. 1657-84 the complaint
(petition) of therein petitioner (herein appellant) having beet
previously dismissed, without prejudice, for his failure to submit
an amended complaint as required of him in the court a
quo's earlier order.
The record shows that on 26 May 1951, appellee Segundo,
Goyala together with his now deceased wife Antonina Almoguera,
who was also named respondent or defendant in the complaint or
petition in the court below, sold to appellant by a "Deed of Pacto
de Retro Sale" a certain parcel of agricultural land having an area
of approximately two and one-half hectares for P750.00, the
repurchase to be made, according to the deed, within one year. It
73
also appears from said deed that on July 4, 1951, the vendee
paid another P100.00 as addition to the purchase price. About ten
(10) years after the execution of the said document, or on April
12, 1961, to be precise, the vendee filed with the Court of First
Instance of Sorsogon the present case against the vendors by
way of a petition for consolidation of ownership of the land
described and involved in the "Deed of Pacto de Retro Sale." In
his petition, the vendee, herein appellant, alleged, inter alia, that
the date for repurchase, May 26, 1952, having expired and the
vendors not having been able to repurchase the same under the
terms and conditions of the agreement, the ownership over the
land involved had become consolidated in him; and that for the
purpose of recording in the Registry of Property the said
consolidation of ownership, it was necessary that a judicial order
be issued to that effect and accordingly prayed for such an order.
On May 26, 1961, appellee Segundo Goyala filed an opposition
or answer to the petition. He therein alleged that his wife Antonina
Almoguera had died in the year 1959 and denied the allegation in
the petition regarding the pacto de retro sale, "the fact of the
matter being," according to him, "that on May 26, 1951, the
respondents obtained a cash load of P750.00 from the petitioner
payable in one year without interest; that only on July 26, 1951,
Dolores Goyala, daughter of the respondents, obtained from the
petitioner the sum of P50.00 to be added and credited to the
account of the respondents; and then on August 25, 1951, the
said Dolores Goyala received from the petitioner another amount
of P10.00 to be added to and credited to the account of the
respondents, (so that) the total loan of the respondents from the
petitioner aggregates P810.00 Philippine Currency" and that to
guarantee the payment of the said loan, the respondents
executed a mortgage in favor of the petitioner on a parcel of
coconut land described in Annex A of the petition, hence, altho
the deed was executed or drawn in the form of a pacto de retro
sale, the true and real intention of the parties thereto was that the
same was a mere mortgage to secure the payment of the original
loan of P750.00 together with the additional amount received
thereafter, making a total loan of P810.00, payable within, one
year without interest. He further alleged that in the evening of
May 26, 1952, he and his wife went to the house of the petitioner
and tendered to him the sum of P810.00 to pay the debt, but said
petitioner refused to receive the same and to cancel the
document of mortgage, Annex A. The said appellee also
reiterated by way of counterclaim the foregoing allegations of his
answer and prayed thus:.
WHEREFORE, the respondent Segundo Goyala
respectfully prays this Honorable Court to dismiss
the petition and render judgment in favor of the
respondents as follows:.
(a) Ordering the petitioner to
receive the sum of P810.00
tendered or deposited by the
respondents in full settlement of
their debts to him;
(b) Declaring the document
marked Annex A of the petition to
be mortgage and not a pacto de
retro sale, and ordering the same
cancelled and with no more force
and effect;
(c) Ordering the petitioner to pay
the respondents the sum of
P1,800.00 per annum beginning
May 26, 1951 until the final
termination of this case as the
reasonable monetary value of the
products for the said property, and
from this amount, there should be
deducted however, the
corresponding legal interest
annually on said loans; and
74
(d) In case, however, of the
remote possibility that this Court
should find the said instrument
(Annex A) to be a true pacto de
retro sale, and not a mere
mortgage, it is hereby prayed that
the petitioner be ordered to
execute a deed of resale or
repurchase of said property in
favor of the respondents in
accordance with Art. 1606 third
paragraph of the Civil Code."
On December 1, 1962, counsel for respondent Goyala filed a
manifestation informing the trial court that the named defendant
(respondent) Antonina Almoguera was already dead, she having
died at Labo, Camarines Norte on March 27, 1959, and that her
surviving nearest kin are her children, namely: Leonor, Pedro,
Juliana, Dolores, Valentina, Soledad, Penya, Mamerta, Salvador,
Genesa, Felipe, Elegio all surnamed Goyala with
residences at Bulan, Sorsogon. Hearing was had on that
manifestation, after which the trial court, under date of December
4, 1962, issued the following order:.
As prayed for in the manifestation of Atty. Agustin
Frivaldo counsel for the defendant, dated
December 1, 1962, on the ground stated therein,
the counsel for the plaintiff is hereby required to
submit an amended Complaint substituting therein
for one of the defendants, Antonina Almoguera,
now deceased her successors in interest as party
defendants, within the reglementary period.
Subsequently, on January 26, 1963, appellee Goyala filed a
motion to dismiss the complaint or petition on the ground that
notwithstanding the lapse of 43 days after appellant's receipt of a
copy of the above-quoted order of the trial court, said appellant
had failed and neglected to submit the amended complaint
required of him. The motion was opposed by appellant; and the
trial court, resolving the incident, issued the following order on
February 15, 1963:.
The matter under consideration is the motion to
dismiss filed by the defendants on the ground that
the plaintiff has failed and neglected to submit the
amended complaint as required in the order of
this Court dated December 4, 1962, which the
plaintiff has received on December 18, 1962.
From December 13, 1962 when the motion to
dismiss was filed, 43 days have elapsed. On
February 6, 1963 when the plaintiff has again
failed to file together with said opposition the
required amended complaint, and although
plaintiff has requested for a reasonable extension
of time within which to file the said pleading, it is
regretable to state that up to the present has
neglected to do so.
WHEREFORE, the complaint is hereby dismissed
without prejudice.
Thereafter, on July 10, 1963, appellee filed a motion to declare
appellant in default in respect of said appellee's counterclaim,
contained in his answer (opposition) to the dismissed complaint
petition) of appellant. This motion was granted by the trial court in
its order of July 11, 1963, to wit:.
Upon petition of the counsel for the defendant
Segundo Goyala to declare the plaintiff in default
on the ground of failure on the part of the plaintiff
to answer the counterclaim filed by said defendant
Segundo Goyala within the reglementary period,
despite the fact that the plaintiff's counsel was
duly served with a copy thereof, and the plaintiff's
complaint was already dismissed by this Court in
its order of February 15, 1963 on the ground of
75
neglect to submit the amended complaint as
required in the Court order of December 4, 1962,
the plaintiff is hereby declared in default on the
counterclaim filed by said defendant Segundo
Goyala.
Let the defendant Segundo Goyala submit his
evidence before the Clerk of Court, who is hereby
commissioned to receive the same.
As directed in the order above-quoted, the Clerk of Court
received the evidence of appellee in respect of his counterclaim
and, thereafter, on November 15, 1963 the trial court rendered
favorable judgment on appellee's counterclaim. The pertinent
portions of the decision referred to read thus:.
It appears that on May 26, 1951, respondents
obtained a loan of P750.00 from the petitioner. To
secure the loan, respondents executed a
document, which was made a Deed of Pacto de
Retro Sale (Exh. "A"), on suggestion of petitioner
to exempt himself from liabilities under the Usury
Law. Dolores Goyala, one of the daughters of
respondents, obtained an additional loan of
P50.00 on July 26, 1951, (Exh. "A-1") and another
P10.00 on August 19, 1951, (Exh. "A-3") from the
petitioner which amounts were duly authorized
and acknowledged by respondent Segundo
Goyala. In the late afternoon of May 26, 1952, the
last day to redeem the property, Segundo Goyala,
tendered the amount of P810.00 to herein
petitioner in complete payment of the loan and to
release the property securing the said loan, but
was refused because it was already night time,
and was advised instead to return the following
day. When Segundo Goyala returned the following
day to redeem the property he was told by
petitioner that the period to redeem has already
 expired. Segundo Goyala testified further that he
tried no less than three times to redeem the
property but each time petitioner refused the
redemption money.
It appears further that the petitioner is in
possession of the land since May 26, 1951, after
the execution of Exhibit "A" up to the present time
and had appropriated to himself the products
during the period. It is shown further that the land
is a productive coconut land and has a fair market
value of P5,000.00 with an annual yield of
P1,800.00.
The respondents are not however entitled to be
reimbursed of the value of the products obtained
by the petitioner who acted in the belief that the
agreement was a Pacto de Retro Sale which
turned out to be otherwise as the Court now so
declares.
WHEREFORE, in view of the foregoing the Court
hereby declares the Deed of Pacto de Retro Sale
(Exh. "A") an equitable mortgage and respondents
Segundo Goyala and the heirs of Antonina
Almoguera are allowed to redeem the property;
orders Faustino Gojo to withdraw the amount of
P810.00 deposited with the Clerk of Court in full
settlement of the loan, and hereby cancels and
declares without force and effect the
aforementioned Deed of Pacto de Retro Sale
executed by the spouses Segundo Goyala and
Antonina Almoguera in favor of Faustino Gojo.
Without costs.
The above-quoted decision was subsequently amended in an
order of December 19, 1963, as follows:.
76
It appearing that in the dispositive part of the
decision there was no directive to restore the
possession to the defendants upon execution, the
dispositive portion of the said decision is hereby
amended to include therein an additional directive
ordering the plaintiff to deliver and restore the
possession of the land in question to the
defendants.
Dissatisfied with the decision referred to, appellant appealed to
the Court of Appeals which upon its finding that the said appeal
involves purely questions of law, certified the same to this Court
for resolution.
In his brief, appellant assigns the following errors allegedly
committed by the trial court:.
1. THE LOWER COURT ERRED IN DECLARING
PLAINTIFF IN DEFAULT WITH RESPECT TO
DEFENDANT'S COUNTERCLAIM;
2. THE LOWER COURT ERRED IN DEPUTIZING
OR COMMISSIONING THE CLERK OF COURT
TO RECEIVE THE EVIDENCE OF THE
DEFENDANT SEGUNDO GOYALA;
3. THE LOWER COURT ERRED IN RENDERING
JUDGMENT IN FAVOR OF THE RESPONDENT
SEGUNDO GOYALA AND THE HEIRS OF
ANTONINA ALMOGUERA ALLOWING THEM TO
REDEEM THE LAND IN QUESTION FROM THE
PETITIONER FAUSTINO GOJO FOR THE SUM
OF P810.00.
The thrust of appellant's argument in respect of the first
assignment of error is to the effect that there is no occasion for
the trial court to declare him in default in respect of appellee's
counterclaim in this case, for the reasons that: (a) the said in Caseas vs. Resales, et al. 2 which is squarely applicable to the Situation
counterclaim "falls within the category of compulsory herein obtaining. In that case, We held:.
counterclaim" which does not call for an independent answer as
the complaint already denies its material allegations; and (b) the When certain of the parties to Civil Case No. 261
dismissal of the complaint in this case without prejudice carried died and due notice thereof was given to the trial
with it the dismissal of the said counterclaim. court, it devolved on the said court to order, not
the amendment of the complaint, but the
The first assignment of error of appellant is well taken. It is now appearance of the legal representatives of the
settled that a plaintiff who fails or chooses not to answer a deceased in accordance with the procedure and
compulsory counterclaim may not be declared in default, manner outlined in Rule 3, Section 17 of the
principally because the issues raised in the counterclaim are Rules of Court, which provide:.
deemed automatically joined by the allegations of the
complaint.1 In the instant case, there can be no doubt that "SECTION 17. Death of party.
appellant's counterclaim was a compulsory one in as much as it After a party dies and the claim is
arises out of or is necessarily connected with transaction or not thereby extinguished, the court
occurrence that is the subject matter of the complaint; the complaint shall order, upon proper notice,
alleged that the right of appellee to repurchase the property in the legal representative of the
question had already expired and asked for an order of deceased to appear and to be
consolidation; on the other hand, appellant's counterclaim was for substituted for the deceased,
reformation of the deed claiming that it was only a mortgage. Thus within a period of thirty (30) days,
the counterclaim was clearly inconsistent with and directly or within such time as may be
controverted; the whole theory and basic allegations of the granted. If the legal representative
complaint. In consequence, appellant's complaint stood as the fails to appear within said time, the
answer to appellee's counterclaim; hence, the incorrectness of the court may order the opposing
trial court's order declaring the appellant in default in regard to said
party to procure the appointment
counterclaim is evident.
of a legal representative of the
deceased within a time to be
Regarding the dismissal of petitioner's complaint, We hold also, specified by the court, and the
that the trial court committed reversible error in ordering the representative shall immediately
same. It is true that under Section 3 of Rule 17, a complaint may appear for and on behalf of the
be dismissed for failure to prosecute if the plaintiff fails to comply interest of the deceased. The
with an order of the court, but it is obvious that the said provision court charges involved in
cannot apply when the order supposedly ignored is a void one, as procuring such appointment, if
in this case. Here, the trial court ordered petitioner to amend the defrayed by the opposing party,
complaint only because it was informed that one of the may be recovered as costs. The
defendants had died, the court directing that the plaintiff should heirs of the deceased may be
name the heirs of the deceased as defendants in lieu of said allowed to be substituted for the
deceased. Such an order runs counter to the ruling of this Court deceased, without requiring the

77
 appointment of an executor or
administrator and the court may
appoint guardian ad litem for the
minor heirs."
In the case of Barrameda vs. Barbara, 90 Phil.
718, this Court held that an order to amend the
complaint, before the proper substitution of parties
as directed by the aforequoted rule has been
effected, is void and imposes upon the plaintiff no
duty to comply therewith to the end that an order
dismissing the said complaint, for such non-
compliance, would similarly be void. In a
subsequent case, Ferriera, et al. vs. Gonzales, et
al., G.R. No. L-11567, July 17, 1958, this Court
affirmed a similar conclusion on the determination
that the continuance of a proceedings during the
pendency of which a party thereto dies, without
such party having been validly substituted in
accordance with the rules, amounts to a "lack of
jurisdiction".
The facts of this case fit four square into the
Barrameda case above-cited, save for the minor
variance that in the former two of the litigants died
while only one predeceased the case in
Barrameda. Here, as in Barrameda, during the
pendency of (the) civil case, notice was given to
the trial court of the deaths of one of the plaintiffs
and one of the defendants in it. Instead of
ordering the substitution of the deceased's legal
representatives in accordance with Rule 3, Sec.
17 of the Rules of Court, the trial court directed
the surviving plaintiff to amend the complaint and
when the latter failed to comply therewith, the said
court dismissed the complaint for such non-
compliance. We must hold, therefore, as We did
in Barrameda that inasmuch as there was no
78
obligation on the part of the plaintiff-appellant
herein to amend his complaint in Civil Case No.
261, any such imposition being void, his failure to
comply with such an order did not justify the
dismissal of his complaint. Grounded as it was
upon a void order, the dismissal was itself void."
(To the same effect, see World Wide Insurance &
Surety Co. v. Jose, etc., et al., 96 Phil. 45, 50).
Besides, in line with the principle underlying Sec. 2 of Rule 17, it
is not proper to dismiss a complaint when a compulsory
counterclaim has been pleaded by defendant. The reason is
obvious. Under the cited provision, the right of the plaintiff to
move for the dismissal of an action after the defendant has filed
his answer is qualified by the clause providing that: "If a
counterclaim has been pleaded by a defendant prior to the
service upon him of the plaintiff's motion to dismiss, the action
shall not be dismissed against the defendant's objection unless
the counterclaim can remain pending for independent
adjudication by the court." With this limitation, the power of the
court to dismiss the complaint upon motion of plaintiff, which is
usually without prejudice, is not purely discretionary.3 The purpose
is to avoid multiplicity of suits over the same matter which would
necessarily entail unnecessary expense and, what is worse,
possibility of conflict and inconsistency in the resolution of the same
questions. The same considerations would obtain, if the defendant
were the one to ask for dismissal. The best interests of justice
require that conflicting claims regarding the same matter should be
decided in one single proceeding. Dismissing the complaint without
prejudice, as the trial court has done in this case, albeit upon motion
of the defendant, will not prevent the undesirable multiplication of
suits and reventilation of the same issues in the subsequent action
that may be filed by virtue of the reservation made in the disputed
order of dismissal.
Having arrived at the foregoing conclusions, it becomes
unnecessary to discuss the other two assigned errors.
WHEREFORE, the decision appealed from is set aside and this
case is remanded to the court below for further proceedings in
consonance with the above opinion, with costs against appellee.

Reyes, J.B.L., Actg. C.J., Dizon, Makalintal, Zaldivar, Castro,

Fernando, Teehankee and Makasiar, JJ., concur.

Villamor, J., took no part.

79

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-30771 May 28, 1984
LIAM LAW, plaintiff-appellee,
vs.
OLYMPIC SAWMILL CO. and ELINO LEE CHI, defendants-
appellants.
Felizardo S.M. de Guzman for plaintiff-appellee.
Mariano M. de Joya for defendants-appellants.
MELENCIO-HERRERA, J.:
This is an appeal by defendants from a Decision rendered by the
then Court of First Instance of Bulacan. The appeal was originally
taken to the then Court of Appeals, which endorsed it to this
instance stating that the issue involved was one of law.
It appears that on or about September 7, 1957, plaintiff loaned
P10,000.00, without interest, to defendant partnership and
defendant Elino Lee Chi, as the managing partner. The loan
became ultimately due on January 31, 1960, but was not paid on
that date, with the debtors asking for an extension of three
months, or up to April 30, 1960.
80
On March 17, 1960, the parties executed another loan document.
Payment of the P10,000.00 was extended to April 30, 1960, but
the obligation was increased by P6,000.00 as follows:
That the sum of SIX THOUSAND PESOS
(P6,000.00), Philippine currency shall form part of
the principal obligation to answer for attorney's
fees, legal interest, and other cost incident thereto
to be paid unto the creditor and his successors in
interest upon the termination of this agreement.
Defendants again failed to pay their obligation by April 30, 1960
and, on September 23, 1960, plaintiff instituted this collection
case. Defendants admitted the P10,000.00 principal obligation,
but claimed that the additional P6,000.00 constituted usurious
interest.
Upon application of plaintiff, the Trial Court issued, on the same
date of September 23, 1960, a writ of Attachment on real and
personal properties of defendants located at Karanglan, Nueva
Ecija. After the Writ of Attachment was implemented, proceedings
before the Trial Court versed principally in regards to the
attachment.
On January 18, 1961, an Order was issued by the Trial Court
stating that "after considering the manifestation of both counsel in
Chambers, the Court hereby allows both parties to
simultaneously submit a Motion for Summary Judgment. 1 The
plaintiff filed his Motion for Summary Judgment on January 31, 1961, while defendants filed
theirs on February 2, 196l. 2
On June 26, 1961, the Trial Court rendered decision ordering
defendants to pay plaintiff "the amount of P10,000.00 plus the
further sum of P6,000.00 by way of liquidated damages . . . with
legal rate of interest on both amounts from April 30, 1960." It is
from this judgment that defendants have appealed.
We have decided to affirm.
Under Article 1354 of the Civil Code, in regards to the agreement
of the parties relative to the P6,000.00 obligation, "it is presumed
that it exists and is lawful, unless the debtor proves the contrary".
No evidentiary hearing having been held, it has to be concluded
that defendants had not proven that the P6,000.00 obligation was
illegal. Confirming the Trial Court's finding, we view the P6,000.00
obligation as liquidated damages suffered by plaintiff, as of March
17, 1960, representing loss of interest income, attorney's fees
and incidentals.
The main thrust of defendants' appeal is the allegation in their
Answer that the P6,000.00 constituted usurious interest. They
insist the claim of usury should have been deemed admitted by
plaintiff as it was "not denied specifically and under oath". 3
Section 9 of the Usury Law (Act 2655) provided:
Moreover, for sometime now, usury has been legally non-existent.
Interest can now be charged as lender and borrower may agree
upon. 4 The Rules of Court in regards to allegations of usury,
procedural in nature, should be considered repealed with retroactive
effect.
Statutes regulating the procedure of the courts will
be construed as applicable to actions pending and
undetermined at the time of their passage.
Procedural laws are retrospective in that sense
and to that extent. 5
... Section 24(d), Republic Act No. 876, known as the
Arbitration Law, which took effect on 19 December
1953, and may be retroactively applied to the case
at bar because it is procedural in nature. ... 6

SEC. 9. The person or corporation sued shall file WHEREFORE, the appealed judgment is hereby affirmed,
its answer in writing under oath to any complaint without pronouncement as to costs.
brought or filed against said person or corporation
before a competent court to recover the money or SO ORDERED.
other personal or real property, seeds or
agricultural products, charged or received in Teehankee (Chairman), Plana, Relova, Gutierrez, Jr. and De la
violation of the provisions of this Act. The lack of Fuente, JJ., concur.
taking an oath to an answer to a complaint will
mean the admission of the facts contained in the
latter.

The foregoing provision envisages a complaint filed against an

entity which has committed usury, for the recovery of the usurious
interest paid. In that case, if the entity sued shall not file its
answer under oath denying the allegation of usury, the defendant
shall be deemed to have admitted the usury. The provision does
not apply to a case, as in the present, where it is the defendant,
not the plaintiff, who is alleging usury.

81

Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 101883 December 11, 1992
SPOUSES LYDIA and VIRGILIO MELITON,* petitioners,
vs.
COURT OF APPEALS and NELIA A. ZIGA, represented by her
Attorney-in-Fact RAMON A. AREJOLA,** respondents.
REGALADO, J.:
In its judgment in CA-G.R. No. 25091 1 promulgated on August 9,
1991, respondent Court of Appeals annulled and set aside the orders
dated February 22, 1991 and March 18, 1991 of the Regional Trial
Court of Naga City, Branch 27, in Civil Case No. RTC 89-1942
thereof and ordered the dismissal of petitioner's complaint filed
herein, hence this appeal by certiorari.
On June 22, 1988, private respondent Nelia Ziga, in her own
behalf and as attorney-in-fact of Alex A. Ziga and Emma A. Ziga-
Siy, filed a complaint, docketed as Civil Case No. RTC 88-1480 of
the Regional Trial Court, Branch 27, Naga City, 2 against herein
petitioner Lydia Meliton for rescission of a contract of lease over a
parcel of land situated at Elias Angeles Street, Naga City. Alleged as
grounds therefor were said petitioner's failure, as lessee, to deposit
the one month rental and to pay the monthly rentals due; her
construction of a concrete wall and roof on the site of a demolished
house on the leased premises without the lessor's written consent;
82
and here unauthorized sublease of the leased property to a third
party.
On July 29, 1988, petitioner Lydia Meliton filed an answer to the
complaint denying the material averments thereof and setting up
three counterclaims for recovery of the value of her kitchenette
constructed on the leased parcel of land and which was
demolished by private respondent, in the amount of P34,000.00;
the value of the improvements introduced in the kitchenette to
beautify it, in the amount of P10,000.00, plus the value of the
furniture and fixtures purchased for use in the kitchenette in the
amount of P23,000.00; and moral damages in the amount of
P20,000.00 aside from attorney's fees of P5,000.00 and P250.00
per court appearance, with litigation expenses in the amount of
P1,000.00. 3
On May 29, 1989, the trial court, on motion of private respondent
contending that her cause of action had already become moot
and academic by the expiration of the lease contract on February
7, 1989, dismissed the complaint. The counterclaims of petitioner
Lydia Meliton were also dismissed for non-payment of the docket
fees, ergo the trial court's holding that thereby it had not acquired
jurisdiction over the same. 4
On December 6, 1989, petitioners Lydia Meliton and Virgilio
Meliton filed a complaint against private respondent for recovery
of the same amounts involved and alleged in their counterclaims
in Civil Case No. RTC 88-1480, which complaint was docketed as
Civil Case No. RTC 89-1942 5 and likewise assigned to Branch 27
of the same trial court.
On February 15, 1991, private respondent filed a motion to
dismiss the complaint on the ground that the cause of action
therein was barred by prior judgment in Civil Case No. RTC 88-
1480, the order of dismissal wherein was rendered on May 29,
1989. 6
On February 22, 1991, the court below denied private gravely abused its discretion amounting to lack of
respondent's motion to dismiss the complaint in Civil Case No. jurisdiction.
RTC 89-1942 on the ground that the dismissal of the petitioner's
counterclaims in Civil Case No. RTC 88-1480 is not an WHEREFORE, the petition for certiorari is
adjudication on the merits as the court did not acquire jurisdiction GRANTED. Accordingly, the orders complained of
over the counterclaims for failure of petitioner Lydia Meliton to (Annexes G and I, petition) are annulled and set
pay the docket fees, hence the said dismissal does not constitute aside and the respondents' complaint in Civil
a bar to the filing of the later complaint. 7 Case No. RTC 89-1942 before the respondent
Court, DISMISSED. Costs against the
Private respondent's motion for reconsideration of the foregoing respondents, except the respondent Court. 10
order was denied by the lower court for lack of merit in its order of
March 18, 1991. 8 Dissatisfied therewith, private respondent filed a petition Petitioners are now before use, assailing the said judgment of the
for certiorari with this Court. In our resolution dated April 29, 1991, we referred this case to
the Court of Appeals for proper determination and disposition pursuant to Section 9,
Court of Appeals and praying for the annulment thereof.
paragraph 1, of B.P. Blg. 129, 9 where it was docketed as CA-G.R. SP No.
25093. The present petition requires the resolution of two principal
issues, to wit: (1) whether or not the counterclaims of petitioners
In a decision promulgated on August 9, 1991, the Court of are compulsory in nature; and (2) whether or not petitioners,
Appeals granted the petition, the pertinent part of which reads: having failed to seek reconsideration of or to take an appeal from
the order of dismissal of their counterclaims, are already barred
xxx xxx xxx from asserting the same in another action.

The respondents' counterclaim against the
petitioner in Civil Case No. RTC 88-1480 (Annex
E, petition) is a compulsory counterclaim, it having
(arisen) out of or being necessarily connected
with the transaction or occurrence subject matter
of the petitioner's complaint. The failure of the
respondents to seek a reconsideration of the
dismissal of their counterclaim or to take an
appeal therefrom rendered the dismissal final.
Such dismissal barred the prosecution of their
counterclaim by another action (Section 4, Rule 9,
Revised Rules of Court; Javier vs. IAC, 171 SCRA
605).
The respondent Court, therefore, in issuing the
orders complained of (Annexes G and I, petition),
1. Considering Section 4 of Rule 9 of the Rules of Court, a
counterclaim is compulsory if (a) it arises out of, or is necessarily
connected with, the transaction or occurrence which is the subject
matter of the opposing party's claim; (b) it does not require for its
adjudication the presence of third parties of whom the court
cannot acquire jurisdiction; and (c) the court has jurisdiction to
entertain the claim.
It has been postulated that while a number of criteria have been
advanced for the determination of whether the counterclaim is
compulsory or permissive, the "one compelling test of
compulsoriness" is the logical relationship between the claim
alleged in the complaint and that in the counterclaim, that is,
where conducting separate trials of the respective claims of the
parties would entail a substantial duplication of effort and time, as
where they involve many of the same factual and/or legal issues.

83
The phrase "logical relationship" is given meaning by the purpose
of the rule which it was designed to implement. Thus, a
counterclaim is logically related to the opposing party's claim
where, as already stated, separate trials of each of their
respective claims would involve a substantial duplication of effort
and time by the parties and the courts. Where multiple claims
involve many of the same factual issues, or where they are
offshoots of the same basic controversy between the parties,
fairness and considerations of convenience and of economy
require that the counterclaimant be permitted to maintain his
cause of action. 11
In the aforesaid Civil Case No. 88-1480, all the requisites of a
compulsory counterclaim are present. The counterclaims, as this
term is now broadly defined, are logically related to the complaint.
Private respondent's complaint was for rescission of the contract
of lease due to petitioner Lydia Meliton's breach of her obligations
under the said contract. On the other hand, petitioner's
counterclaims were for damages for unlawful demolition of the
improvements she introduced pursuant to her leasehold
occupancy of the premises, as well as for the filing of that civil suit
which is contended to be clearly unfounded.
Both the claims therein of petitioners and private respondent
arose from the same contract of lease. The rights and obligations
of the parties, as well as their potential liability for damages,
emanated from the same contractual relation. Petitioners' right to
claim damages for the unlawful demolition of the improvements
they introduced on the land was based on their right of
possession under the contract of lease which is precisely the very
same contract sought to be rescinded by private respondent in
her complaint. The two actions are but the consequences of the
reciprocal obligations imposed by law upon and assumed by the
parties under their aforesaid lease contract. That contract of lease
pleaded by private respondent constitutes the foundation and
basis relied on by both parties for recovery of their respective
claims.
84
The relationship between petitioners' counterclaims and private
respondent's complaint is substantially the same as that which
exists between a complaint for recovery of land by the owner and
the claim for improvements introduced therein by the possessor.
As we have ruled, in actions for ejectment or for recovery of
possession of real property, it is well settled that the defendant's
claims for the value of the improvements on the property or
necessary expenses for its preservation are required to be
interposed in the same action as compulsory couterclaims. In
such cases, it is the refusal of the defendant to vacate or
surrender possession of the premises that serves as the vital link
in the chain of facts and events, and which constitutes the
transaction upon which the plaintiff bases his cause of action. It is
likewise an "important part of the transaction constituting the
subject matter of the counterclaim" of defendant for the value of
the improvements or the necessary expenses incurred for the
preservation of the property. They are offshoots of the same basic
controversy between the parties, that is, the right of either to the
possession of the property. 12
On the foregoing considerations, respondent Court of Appeals
correctly held that the counterclaims of petitioners are compulsory
in nature.
2. Petitioners having alleged compulsory counterclaims, the next
point of inquiry is whether or not petitioners are already barred
from asserting said claims in a separate suit, the same having
been dismissed in the preceding one. The answer is in the
negative.
It is indeed the rule, embodied in Section 4, Rule 9 of the Rules of
Court, that a counterclaim not set up shall be barred if it arises
out of or is necessarily connected with the transaction or
occurrence that is the subject matter of the opposing party's claim
and does not require for its adjudication the presence of third
parties of whom the court cannot acquire jurisdiction. However,
said rule is not applicable to the case at bar.
Contrary to the claim of private respondent, it cannot be said that
therein petitioners failed to duly interpose their causes of action
as counterclaims in the previous action. Petitioners' claims were
duly set up as counterclaims in the prior case but the same were
dismissed by reason of non-payment of docket fees. The ruling of
respondent Court of Appeals to the effect that the failure of
petitioners to appeal or to move for reconsideration of the said
order of dismissal bars them from asserting their claims in
another action cannot be upheld.
Firstly, where a compulsory counterclaim is made the subject of a
separate suit, it may be abated upon a plea of auter action
pendant or litis pendentia and/or dismissed on the ground of res
judicata, 13 depending on the stage or status of the other suit.
Both defenses are unavailing to private respondent. The present
action cannot be dismissed either on the ground of litis
pendentia since there is no other pending action between the
same parties and for the same cause, nor on the ground of res
judicata.
In order that a prior judgment will constitute a bar to a subsequent
case, the following requisites must concur: (1) the judgment must
be final; (2) the judgment must have been rendered by a court
having jurisdiction over the subject matter and the parties; (3) the
judgment must be on the merits; and (4) there must be between
the first and second actions, identity of parties, of subject matter,
and of causes of action. 14
The first case, Civil Case No. RTC 88-1480, was dismissed upon
motion of private respondent, plaintiff therein, under Section 2 of
Rule 17. Dismissal thereunder is without prejudice, except when
otherwise stated in the motion to dismiss or when stated to be
with prejudice in the order of the court. 15 The order of dismissal of
the first case was unqualified, hence without prejudice and,
therefore, does not have the effect of an adjudication on the merits.
On a parity of rationale, the same rule should apply to a counterclaim
85
duly interposed therein and which is likewise dismissed but not on
the merits thereof.
Moreover, in the same order of dismissal of the complaint, the
counterclaims of herein petitioners were dismissed by reason of
the fact the court a quo had not acquired jurisdiction over the
same for non-payment of the docket fees. On that score, the said
dismissal was also without prejudice,
since a dismissal on the ground of lack of jurisdiction does not
constitute res judicata, 16 there having been no consideration and
adjudication of the case on the merits.
The dismissal of the case without prejudice indicates the absence
of a decision on the merits and leaves the parties free to litigate
the matter in a subsequent action as though the dismissal action
had not been commenced. 17 The discontinuance of a case not on
the merits does not bar another action on the same subject
matter. 18 Evidently, therefore, the prior dismissal of herein petitioners'
counterclaims is not res judicata and will not bar the filing of another
action based on the same causes of action.
Secondly, a reading of the order of dismissal will show that the
trial court, in dismissing the complaint of private respondent, did
not intend to prejudice the claims of petitioners by barring the
subsequent judicial enforcement thereof. As stated therein, "(t)he
court in dismissing the counterclaim(s) has taken into account the
fact that a counterclaim partakes of the nature of a complaint
and/or a cause of action against the plaintiffs." 19 This is a clear
indication, deducible by necessary implication, that the lower court
was aware of the fact that petitioners could avail of the causes of
action in said counterclaims in a subsequent independent suit based
thereon and that there was no legal obstacle thereto. That this was
the import and intendment of that statement in its order dismissing
petitioners' counterclaims in Civil Case No. RTC 88-1480 was
categorically confirmed by the very same court, wherein Civil Case
No. RTC 89-1942 was also subsequently filed, in its assailed orders
denying private respondent's motion to dismiss the latter case on the
ground of res judicata.
This is also concordant with the rule governing dismissal of
actions by the plaintiff after the answer has been served as laid
down in Rule 17 of the Rules of Court, which is summarized as
follows: An action shall not be dismissed at the request of the
plaintiff after the service of the answer, except by order of the
court and upon such terms and conditions as the court deems
proper. The trial court has the judicial discretion in ruling on a
motion to dismiss at the instance of the plaintiff. It has to decide
whether the dismissal of the case should be allowed, and if so, on
what terms and conditions. 20
In dismissing private respondent's complaint, the trial court could
not but have reserved to petitioners, as a condition for such
dismissal, the right to maintain a separate action for damages.
Petitioners' claims for damages in the three counterclaims
interposed in said case, although in the nature of compulsory
counterclaims but in light of the aforesaid reservation in the
dismissal order, are consequently independent causes of action
which can be the subject of a separate action against private
respondent.
An action for damages specifically applicable in a lessor-lessee
relationship is authorized in Article 1659 of the Civil Code which
provides that:
Art. 1659. If the lessor or the lessee should not
comply with the obligations set forth in articles
1654 and 1657, the aggrieved party may ask for
the rescission of the contract and indemnification
for damages, or only the latter, allowing the
contract to remain in force.
Paragraph 3 of Article 1654 of the same Code requires that the
lessor must "maintain the lessee in the peaceful and adequate
enjoyment of the lease for the entire duration of the
contract." 21 The aggrieved party has the alternative remedies, in
case of contractual breach, of rescission with damages, or for
damages only, "allowing the contract to remain in force."
86
The act of private respondent in demolishing the structures
introduced by petitioners on the property leased and the
improvements therein during the existence of the lease contract is
a clear violation by her, as lessor, of her obligation mandated by
paragraph 3, Article 1654 of the Civil Code. The said violation
gave rise to a cause of action for damages in favor of herein
petitioners.
Lastly, even assuming arguendo that the bar under the rule on
compulsory counterclaims may be invoked, the peculiar
circumstances of this case irresistibly and justifiedly warrant the
relaxation of such rule.
The court a quo dismissed petitioners' counterclaims for non-
payment of docket fees pursuant to our then ruling in Manchester
Development Corporation, et al. vs. Court of Appeals, et
al., 22 before its modification. The failure of petitioners to seek
reconsideration of or to take an appeal from the order of dismissal of
the counterclaim should not prejudice their right to file their claims in
a separate action because they were thereby made to understand
and believe that their counterclaims were merely permissive and
could be the subject of a separate and independent action. Under
the Rules, there is no need to pay docket fees for a compulsory
counterclaim. 23 The ruling in Manchester applies specifically to
permissive counterclaims only, thereby excluding compulsory
counterclaims from its purview, 24 and that was the ruling of the court
below to which the litigants therein submitted. Had the trial court
correctly specified that petitioners' counterclaims were compulsory,
petitioners could have objected to the dismissal sought by private
respondent on the ground that said counterclaims could not remain
pending for independent adjudication. 25
Furthermore, under the Manchester doctrine, the defect cannot
be cured by an amendment of the complaint or similar pleadings,
much less the payment of the docket fee. Hence, the only remedy
left for the petitioners was to file a separate action for their claims
and to pay the prescribed docket fees therein within the
applicable and reglementary period, which is what they did in the
case at bar in obedience and deference to the judicial mandate
laid down in their case. At any rate, the ambivalent positions
adopted by the lower court can be considered cured by what we
have construed as effectively a reservation in its order of
dismissal for the filing of a complaint based on the causes of
action in the dismissed counterclaims.

This, then, is one case where it is necessary to heed the

injunction that the rules of procedure are not to be applied in a
rigid and technical sense. After all, rules of procedure are used
only to help secure substantial justice. They cannot be applied to
prevent the achievement of that goal. Form cannot and should
not prevail over substance. 26 Absent a specific requirement for
stringent application, the Rules of Court are to be liberally construed
to the end that no party shall be deprived of his day in court on
technicalities. The courts in our jurisdiction are tribunals both of law
and equity. Hence, under the antecedents of this case, we are
persuaded that even if only to approximate that desirable measure of
justice we are sworn to dispense, this controversy should be
resolved on the merits.

WHEREFORE, the questioned judgment of respondent Court of

Appeals is hereby REVERSED and SET ASIDE. Civil Case No.
RTC 89-1942 is hereby REINSTATED and the Regional Trial
Court of Naga City, Branch 27, or wherever the case has been
assigned, is directed to proceed with deliberate dispatch in the
adjudication thereof.

SO ORDERED.

Narvasa, C.J., Feliciano, Nocon and Campos, Jr., JJ., concur.

87
 Republic of the Philippines his capacity as Presiding Judge
of VELASCO, JR., JJ.
SUPREME COURT
Branch 256 of Regional Trial
Manila
Court of Muntinlupa City, and

PACIFIC GENERAL STEEL Promulgated:

MANUFACTURING
SECOND DIVISION
CORPORATION,

Respondents. January 7, 2008

KOREA TECHNOLOGIES CO., G.R. No. x----------------------------------------------------------

143581 -------------------------------x

LTD.,

Petitioner, DECISION

Present:

- versus - QUISUMBING, J., Chairperson,

CARPIO, VELASCO, JR., J.:

CARPIO MORALES,

HON. ALBERTO A. LERMA, in TINGA, and

88
In our jurisdiction, the policy is to favor Manufacturing Corp. (PGSMC) is a domestic
alternative methods of resolving disputes, corporation.
particularly in civil and commercial
disputes. Arbitration along with mediation, On March 5, 1997, PGSMC and
conciliation, and negotiation, being KOGIES executed a Contract[1] whereby
inexpensive, speedy and less hostile KOGIES would set up an LPG Cylinder
methods have long been favored by this Manufacturing Plant in
Court. The petition before us puts at issue Carmona, Cavite. The contract was
an arbitration clause in a contract mutually executed in the Philippines. On April 7,
agreed upon by the parties stipulating that 1997, the parties executed, in Korea, an
they would submit themselves to Amendment for Contract No. KLP-970301
arbitration in a foreign dated March 5, 1997[2] amending the terms
country. Regrettably, instead of hastening of payment. The contract and its
the resolution of their dispute, the parties amendment stipulated that KOGIES will
wittingly or unwittingly prolonged the ship the machinery and facilities necessary
controversy. for manufacturing LPG cylinders for which
PGSMC would pay USD 1,224,000. KOGIES
would install and initiate the operation of
Petitioner Korea Technologies Co., Ltd. the plant for which PGSMC bound itself to
(KOGIES) is a Korean corporation which is pay USD 306,000 upon the plants
engaged in the supply and installation of production of the 11-kg. LPG cylinder
Liquefied Petroleum Gas (LPG) Cylinder samples. Thus, the total contract price
manufacturing plants, while private amounted to USD 1,530,000.
respondent Pacific General Steel
On October 14, 1997, PGSMC entered
into a Contract of Lease [3] with Worth
89
Properties, Inc. (Worth) for use of Worths
5,079-square meter property with a 4,032-
square meter warehouse building to house
the LPG manufacturing plant. The monthly
rental was PhP 322,560 commencing
on January 1, 1998 with a 10% annual
increment clause.Subsequently, the
machineries, equipment, and facilities for
the manufacture of LPG cylinders were
shipped, delivered, and installed in the
Carmona plant. PGSMC paid KOGIES USD
1,224,000.
However, gleaned from the
Certificate executed by the parties on
[4]
January 22, 1998, after the installation of
the plant, the initial operation could not be
conducted as PGSMC encountered financial
difficulties affecting the supply of
materials, thus forcing the parties to agree
that KOGIES would be deemed to have
completely complied with the terms and
conditions of the March 5, 1997 contract.
For the remaining balance of
USD306,000 for the installation and initial
90
operation of the plant, PGSMC issued two
postdated checks: (1) BPI Check No.
0316412 dated January 30, 1998 for PhP
4,500,000; and (2) BPI Check No. 0316413
dated March 30, 1998 for PhP 4,500,000.[5]
When KOGIES deposited the checks,
these were dishonored for the
reason PAYMENT STOPPED. Thus, on May 8,
1998, KOGIES sent a demand letter[6] to
PGSMC threatening criminal action for
violation of Batas Pambansa Blg. 22 in
case of nonpayment. On the same date,
the wife of PGSMCs President faxed a letter
dated May 7, 1998 to KOGIES President
who was then staying at
a Makati City hotel. She complained that
not only did KOGIES deliver a different
brand of hydraulic press from that agreed
upon but it had not delivered several
equipment parts already paid for.
On May 14, 1998, PGSMC replied that
the two checks it issued KOGIES were fully
funded but the payments were stopped for
reasons previously made known to KOGIES.
[7]
On June 1, 1998, PGSMC informed
KOGIES that PGSMC was canceling their
Contract dated March 5, 1997 on the
ground that KOGIES had altered the
quantity and lowered the quality of the
machineries and equipment it delivered to
PGSMC, and that PGSMC would dismantle
and transfer the machineries, equipment,
and facilities installed in the Carmona
plant. Five days later, PGSMC filed before
the Office of the Public Prosecutor an
Affidavit-Complaint for Estafa docketed as
I.S. No. 98-03813 against Mr. Dae Hyun
Kang, President of KOGIES.
On June 15, 1998, KOGIES wrote
PGSMC informing the latter that PGSMC
could not unilaterally rescind their contract
nor dismantle and transfer the machineries
and equipment on mere imagined
violations by KOGIES. It also insisted that
their disputes should be settled by
91
arbitration as agreed upon in Article 15,
the arbitration clause of their contract.
On June 23, 1998, PGSMC again wrote
KOGIES reiterating the contents of its June
1, 1998 letter threatening that the
machineries, equipment, and facilities
installed in the plant would be dismantled
and transferred on July 4, 1998. Thus,
on July 1, 1998, KOGIES instituted an
Application for Arbitration before the
Korean Commercial Arbitration Board
(KCAB) in Seoul, Korea pursuant to Art. 15
of the Contract as amended.
On July 3, 1998, KOGIES filed a
Complaint for Specific Performance,
docketed as Civil Case No. 98-
117 against
[8]
PGSMC before the
Muntinlupa City Regional Trial Court
(RTC). The RTC granted a temporary
restraining order (TRO) on July 4, 1998,
which was subsequently extended
until July 22, 1998. In its complaint, KOGIES
alleged that PGSMC had initially admitted
that the checks that were stopped were
not funded but later on claimed that it
stopped payment of the checks for the
reason that their value was not received as
the former allegedly breached their
contract by altering the quantity and
lowering the quality of the machinery and
equipment installed in the plant and failed
to make the plant operational although it
earlier certified to the contrary as shown in
a January 22, 1998 Certificate. Likewise,
KOGIES averred that PGSMC violated Art.
15 of their Contract, as amended, by
unilaterally rescinding the contract without
resorting to arbitration. KOGIES also asked
that PGSMC be restrained from dismantling
and transferring the machinery and
equipment installed in the plant which the
latter threatened to do on July 4, 1998.
On July 9, 1998, PGSMC filed an
opposition to the TRO arguing that KOGIES
was not entitled to the TRO since Art. 15,
the arbitration clause, was null and void for
being against public policy as it ousts the
local courts of jurisdiction over the instant
controversy.
92
On July 17, 1998, PGSMC filed its
Answer with Compulsory
Counterclaim asserting that it had the full
[9]
right to dismantle and transfer the
machineries and equipment because it had
paid for them in full as stipulated in the
contract; that KOGIES was not entitled to
the PhP 9,000,000 covered by the checks
for failing to completely install and make
the plant operational; and that KOGIES was
liable for damages amounting to PhP
4,500,000 for altering the quantity and
lowering the quality of the machineries
and equipment. Moreover, PGSMC averred
that it has already paid PhP 2,257,920 in
rent (covering January to July 1998) to
Worth and it was not willing to further
shoulder the cost of renting the premises
of the plant considering that the LPG
cylinder manufacturing plant never
became operational.
After the parties submitted their
Memoranda, on July 23, 1998, the RTC
issued an Order denying the application for
a writ of preliminary injunction, reasoning same to another site: and
that PGSMC had paid KOGIES USD therefore denies plaintiffs
1,224,000, the value of the machineries application for a writ of
and equipment as shown in the contract preliminary injunction.
such that KOGIES no longer had
proprietary rights over them.And finally,
the RTC held that Art. 15 of the Contract as
amended was invalid as it tended to oust On July 29, 1998, KOGIES filed its
the trial court or any other court Reply to Answer and Answer to
jurisdiction over any dispute that may arise Counterclaim.[11] KOGIES denied it had
between the parties. KOGIES prayer for an altered the quantity and lowered the
injunctive writ was denied.[10] The quality of the machinery, equipment, and
dispositive portion of the Order stated: facilities it delivered to the plant. It claimed
that it had performed all the undertakings
under the contract and had already
WHEREFORE, in view of the produced certified samples of LPG
foregoing consideration, this cylinders. It averred that whatever was
Court believes and so holds that unfinished was PGSMCs fault since it failed
no cogent reason exists for this to procure raw materials due to lack of
Court to grant the writ of funds. KOGIES, relying on Chung Fu
preliminary injunction to restrain Industries (Phils.), Inc. v. Court of Appeals,
and refrain defendant from [12]
insisted that the arbitration clause was
dismantling the machineries and without question valid.
facilities at the lot and building of
Worth Properties, Incorporated at
Carmona, Cavite and transfer the
93
 After KOGIES filed a Supplemental
Memorandum with Motion to
Dismiss [13]
answering PGSMCs
memorandum of July 22, 1998 and seeking
dismissal of PGSMCs counterclaims,
KOGIES, on August 4, 1998, filed its Motion
for Reconsideration[14] of the July 23, 1998
Order denying its application for
an injunctive writ claiming that the
contract was not merely for machinery and
facilities worth USD 1,224,000 but was for
the sale of an LPG manufacturing plant
consisting of supply of all the machinery
and facilities and transfer of technology for
a total contract price of USD 1,530,000
such that the dismantling and transfer of
the machinery and facilities would result in
the dismantling and transfer of the very
plant itself to the great prejudice of KOGIES
as the still unpaid owner/seller of the
plant. Moreover, KOGIES points out that
the arbitration clause under Art. 15 of the
Contract as amended was a valid
arbitration stipulation under Art. 2044 of
the Civil Code and as held by this Court
in Chung Fu Industries (Phils.), Inc.[15]
94
In the meantime, PGSMC filed a
Motion for Inspection of Things [16] to
determine whether there was indeed
alteration of the quantity and lowering of
quality of the machineries and equipment,
and whether these were properly
installed. KOGIES opposed the motion
positing that the queries and issues raised
in the motion for inspection fell under the
coverage of the arbitration clause in their
contract.
On September 21, 1998, the trial
court issued an Order (1) granting PGSMCs
motion for inspection; (2) denying KOGIES
motion for reconsideration of the July 23,
1998 RTC Order; and (3) denying KOGIES
motion to dismiss PGSMCs compulsory
counterclaims as these counterclaims fell
within the requisites of compulsory
counterclaims.
On October 2, 1998, KOGIES filed an
Urgent Motion for Reconsideration[17] of the
September 21, 1998 RTC Order granting
inspection of the plant and denying
dismissal of PGSMCs compulsory
counterclaims.
Ten days after, on October 12, 1998,
without waiting for the resolution of its
October 2, 1998 urgent motion for
reconsideration, KOGIES filed before the
Court of Appeals (CA) a petition for
certiorari[18] docketed as CA-G.R. SP No.
49249, seeking annulment of the July 23,
1998 and September 21, 1998 RTC Orders
and praying for the issuance of writs of
prohibition, mandamus, and preliminary
injunction to enjoin the RTC and PGSMC
from inspecting, dismantling, and
transferring the machineries and
equipment in the Carmona plant, and to
direct the RTC to enforce the specific
agreement on arbitration to resolve the
dispute.
In the meantime, on October 19,
1998, the RTC denied KOGIES urgent
motion for reconsideration and directed
the Branch Sheriff to proceed with the
95
inspection of the machineries and
equipment in the plant on October 28,
1998.[19]
Thereafter, KOGIES filed a
Supplement to the Petition [20]
in CA-G.R. SP
No. 49249 informing the CA about
the October 19, 1998 RTC Order. It also
reiterated its prayer for the issuance of the
writs of prohibition, mandamus and
preliminary injunction which was not acted
upon by the CA. KOGIES asserted that the
Branch Sheriff did not have the technical
expertise to ascertain whether or not the
machineries and equipment conformed to
the specifications in the contract and were
properly installed.
On November 11, 1998, the Branch
Sheriff filed his Sheriffs Report[21] finding
that the enumerated machineries and
equipment were not fully and properly
installed.
The Court of Appeals affirmed the trial
court and declared
 the arbitration clause against public
policy
On May 30, 2000, the CA rendered
the assailed Decision[22] affirming the RTC
Orders and dismissing the petition for
certiorari filed by KOGIES. The CA found
that the RTC did not gravely abuse its
discretion in issuing the assailed July 23,
1998 and September 21,
1998 Orders. Moreover, the CA reasoned
that KOGIES contention that the total
contract price for USD 1,530,000 was for
the whole plant and had not been fully
paid was contrary to the finding of the RTC
that PGSMC fully paid the price of USD
1,224,000, which was for all the
machineries and equipment. According to
the CA, this determination by the RTC was
a factual finding beyond the ambit of a
petition for certiorari.
On the issue of the validity of the
arbitration clause, the CA agreed with the
96
lower court that an arbitration clause
which provided for a final determination of
the legal rights of the parties to the
contract by arbitration was against public
policy.
On the issue of nonpayment of docket
fees and non-attachment of a certificate of
non-forum shopping by PGSMC, the CA
held that the counterclaims of PGSMC were
compulsory ones and payment of docket
fees was not required since the Answer
with counterclaim was not an initiatory
pleading. For the same reason, the CA said
a certificate of non-forum shopping was
also not required.
Furthermore, the CA held that the
petition for certiorari had been filed
prematurely since KOGIES did not wait for
the resolution of its urgent motion for
reconsideration of the September 21, 1998
RTC Order which was the plain, speedy,
and adequate remedy available. According
to the CA, the RTC must be given the
opportunity to correct any alleged error it
has committed, and that since the assailed
orders were interlocutory, these cannot be
the subject of a petition for certiorari.
Hence, we have this Petition for
Review on Certiorari under Rule 45.
The Issues
b. DECLARING AS NULL AND VOID
THE ARBITRATION CLAUSE IN
ARTICLE 15 OF THE CONTRACT
BETWEEN THE PARTIES FOR
BEING CONTRARY TO PUBLIC
POLICY AND FOR OUSTING THE
COURTS OF JURISDICTION;

Petitioner posits that the appellate c. DECREEING PRIVATE

court committed the following errors: RESPONDENTS COUNTERCLAIMS
a. PRONOUNCING THE QUESTION TO BE ALL COMPULSORY NOT
OF OWNERSHIP OVER THE NECESSITATING PAYMENT OF
MACHINERY AND FACILITIES AS A DOCKET FEES AND CERTIFICATION
QUESTION OF FACT BEYOND THE OF NON-FORUM SHOPPING;
AMBIT OF A PETITION FOR
CERTIORARI INTENDED ONLY FOR d. RULING THAT THE
CORRECTION OF ERRORS OF PETITION WAS FILED
JURISDICTION OR GRAVE ABUSE PREMATURELY WITHOUT WAITING
OF DISCRETION AMOUNTING TO FOR THE RESOLUTION OF THE
LACK OF (SIC) EXCESS OF MOTION FOR RECONSIDERATION
JURISDICTION, AND CONCLUDING OF THE ORDER DATED
THAT THE TRIAL COURTS FINDING SEPTEMBER 21, 1998 OR
ON THE SAME QUESTION WAS WITHOUT GIVING THE TRIAL
IMPROPERLY RAISED IN THE COURT AN OPPORTUNITY TO
PETITION BELOW; CORRECT ITSELF;
97
 The rules on the payment of docket
e. PROCLAIMING THE TWO fees for counterclaims
ORDERS DATED JULY 23 and cross claims were amended
AND SEPTEMBER 21, 1998 NOT effective August 16, 2004
TO BE PROPER SUBJECTS OF
CERTIORARI AND PROHIBITION KOGIES strongly argues that when
FOR BEING INTERLOCUTORY IN PGSMC filed the counterclaims, it should
NATURE; have paid docket fees and filed a
certificate of non-forum shopping, and that
f. NOT GRANTING THE its failure to do so was a fatal defect.
RELIEFS AND REMEDIES PRAYED
FOR IN HE (SIC) PETITION AND, We disagree with KOGIES.
INSTEAD, DISMISSING THE SAME
FOR ALLEGEDLY WITHOUT MERIT. As aptly ruled by the CA, the
[23]
counterclaims of PGSMC were incorporated
in its Answer with Compulsory
Counterclaim dated July 17, 1998 in
The Courts Ruling accordance with Section 8 of Rule 11, 1997
Revised Rules of Civil Procedure, the rule
The petition is partly meritorious. that was effective at the time the Answer
with Counterclaim was filed. Sec. 8
Before we delve into the substantive on existing counterclaim or cross-
issues, we shall first tackle the procedural claimstates, A compulsory counterclaim or
issues. a cross-claim that a defending party has at

98
the time he files his answer shall be denying KOGIES motion to dismiss PGSMCs
contained therein. compulsory counterclaims.

Interlocutory orders proper subject of

On July 17, 1998, at the time PGSMC certiorari
filed its Answer incorporating its
counterclaims against KOGIES, it was not Citing Gamboa v. Cruz,[25] the CA also
liable to pay filing fees for said pronounced that certiorari and Prohibition
counterclaims being compulsory in are neither the remedies to question the
nature. We stress, however, that propriety of an interlocutory order of the
effective August 16, 2004 under Sec. 7, trial court.[26] The CA erred on its reliance
Rule 141, as amended by A.M. No. 04-2-04- on Gamboa. Gamboa involved the denial of
SC, docket fees are now required to be a motion to acquit in a criminal case which
paid in compulsory counterclaim or cross- was not assailable in an action for
claims. certiorari since the denial of a motion to
quash required the accused to plead and
As to the failure to submit a to continue with the trial, and whatever
certificate of forum shopping, PGSMCs objections the accused had in his motion to
Answer is not an initiatory pleading which quash can then be used as part of his
requires a certification against forum defense and subsequently can be raised as
shopping under Sec. 5[24] of Rule 7, 1997 errors on his appeal if the judgment of the
Revised Rules of Civil Procedure. It is a trial court is adverse to him. The general
responsive pleading, hence, the courts a rule is that interlocutory orders cannot be
quo did not commit reversible error in challenged by an appeal.[27] Thus,
in Yamaoka v. Pescarich Manufacturing
Corporation, we held:
99
 The proper remedy in such
cases is an ordinary appeal from
an adverse
judgment on the merits,
incorporating in said appeal the
grounds for assailing the
interlocutory orders. Allowing
appeals from interlocutory orders
would result in the sorry spectacle
of a case being subject of a
counterproductive ping-pong to
and from the appellate court as
often as a trial court is perceived
to have made an error in any of
its interlocutory rulings. However,
where the assailed interlocutory
order was issued with grave
abuse of discretion or patently
erroneous and the remedy of
appeal would not afford adequate
and expeditious relief, the Court
allows certiorari as a mode of
redress.[28]
100
Also, appeals from interlocutory
orders would open the floodgates to
endless occasions for dilatory
motions. Thus, where the interlocutory
order was issued without or in excess of
jurisdiction or with grave abuse of
discretion, the remedy is certiorari. [29]
The alleged grave abuse of discretion
of the respondent court equivalent to lack
of jurisdiction in the issuance of the two
assailed orders coupled with the fact that
there is no plain, speedy, and adequate
remedy in the ordinary course of law
amply provides the basis for allowing the
resort to a petition for certiorari under Rule
65.
Prematurity of the petition before the
CA
Neither do we think that KOGIES was
guilty of forum shopping in filing the
petition for certiorari. Note that KOGIES
motion for reconsideration of the July 23,
1998 RTC Order which denied the issuance
of the injunctive writ had already been
denied. Thus, KOGIES only remedy was to
assail the RTCs interlocutory order via a
petition for certiorari under Rule 65.
While the October 2, 1998 motion for
reconsideration of KOGIES of the
September 21, 1998 RTC Order relating to
the inspection of things, and the allowance
of the compulsory counterclaims has not
yet been resolved, the circumstances in
this case would allow an exception to the
rule that before certiorari may be availed
of, the petitioner must have filed a motion
for reconsideration and said motion should
have been first resolved by the court a
quo. The reason behind the rule is to
enable the lower court, in the first
instance, to pass upon and correct its
mistakes without the intervention of the
higher court.[30]
The September 21, 1998 RTC Order
directing the branch sheriff to inspect the
101
plant, equipment, and facilities when he is
not competent and knowledgeable on said
matters is evidently flawed and devoid of
any legal support. Moreover, there is an
urgent necessity to resolve the issue on
the dismantling of the facilities and any
further delay would prejudice the interests
of KOGIES. Indeed, there is real and
imminent threat of irreparable destruction
or substantial damage to KOGIES
equipment and machineries. We find the
resort to certiorari based on the gravely
abusive orders of the trial court sans the
ruling on the October 2, 1998 motion for
reconsideration to be proper.
The Core Issue: Article 15 of the
Contract
We now go to the core issue of the
validity of Art. 15 of the Contract, the
arbitration clause. It provides:
Article 15. Arbitration.All
disputes, controversies, or
differences which may arise
 between the parties, out of or in
relation to or in connection with
this Contract or for the breach
thereof, shall finally be settled by
arbitration in Seoul, Korea in
accordance with the Commercial
Arbitration Rules of the Korean
Commercial Arbitration
Board. The award rendered by
the arbitration(s) shall
be final and binding upon
both parties
concerned. (Emphasis supplied.)
Petitioner claims the RTC and the CA
erred in ruling that the arbitration clause is
null and void.
Petitioner is correct.
Established in this jurisdiction is the
rule that the law of the place where the
contract is made governs. Lex loci
contractus. The contract in this case was
102
perfected here in
the Philippines. Therefore, our laws ought
to govern. Nonetheless, Art. 2044 of the
Civil Code sanctions the validity of
mutually agreed arbitral clause or the
finality and binding effect of an arbitral
award. Art. 2044 provides, Any
stipulation that the arbitrators award
or decision shall be final, is valid,
without prejudice to Articles 2038, 2039
and 2040. (Emphasis supplied.)
Arts. 2038,[31] 2039,[32] and
2040[33] abovecited refer to instances
where a compromise or an arbitral award,
as applied to Art. 2044 pursuant to Art.
2043,[34] may be voided, rescinded, or
annulled, but these would not denigrate
the finality of the arbitral award.
The arbitration clause was mutually
and voluntarily agreed upon by the
parties. It has not been shown to be
contrary to any law, or against morals,
good customs, public order, or public
policy. There has been no showing that the
parties have not dealt with each other on
equal footing. We find no reason why the
arbitration clause should not be respected
and complied with by both
parties. In Gonzales v. Climax Mining Ltd.,
[35]
we held that submission to arbitration is
a contract and that a clause in a contract
providing that all matters in dispute
between the parties shall be referred to
arbitration is a contract. [36] Again in Del
Monte Corporation-USA v. Court of
Appeals, we likewise ruled that [t]he
provision to submit to arbitration any
dispute arising therefrom and the
relationship of the parties is part of that
contract and is itself a contract. [37]
Arbitration clause not contrary to
public policy
The arbitration clause which
stipulates that the arbitration must be
done in Seoul, Korea in accordance with
the Commercial Arbitration Rules of the
KCAB, and that the arbitral award is final
and binding, is not contrary to public
103
policy. This Court has sanctioned the
validity of arbitration clauses in a catena of
cases. In the 1957 case of Eastboard
Navigation Ltd. v. Juan Ysmael and Co.,
Inc.,[38] this Court had occasion to rule that
an arbitration clause to resolve differences
and breaches of mutually agreed
contractual terms is valid. In BF
Corporation v. Court of Appeals, we held
that [i]n this jurisdiction, arbitration has
been held valid and constitutional. Even
before the approval on June 19, 1953 of
Republic Act No. 876, this Court has
countenanced the settlement of disputes
through arbitration. Republic Act No. 876
was adopted to supplement the New Civil
Codes provisions on arbitration.[39] And
in LM Power Engineering Corporation v.
Capitol Industrial Construction Groups, Inc.,
we declared that:
Being an inexpensive,
speedy and amicable method of
settling disputes, arbitrationalong
with mediation, conciliation and
negotiationis encouraged by the
Supreme Court. Aside from
unclogging judicial dockets,
arbitration also hastens the
resolution of disputes, especially
of the commercial kind. It is thus
regarded as the wave of the
future in international civil and
commercial disputes. Brushing
aside a contractual agreement
calling for arbitration between the
parties would be a step backward.
Having said that the instant
arbitration clause is not against public
policy, we come to the question on what
governs an arbitration clause specifying
that in case of any dispute arising from the
contract, an arbitral panel will be
constituted in a foreign country and the
arbitration rules of the foreign country
would govern and its award shall be final
and binding.

RA 9285 incorporated the UNCITRAL

Consistent with the above- Model law
mentioned policy of encouraging to which we are a signatory
alternative dispute resolution
methods, courts should liberally
construe arbitration clauses. For domestic arbitration proceedings,
Provided such clause is we have particular agencies to arbitrate
susceptible of an interpretation disputes arising from contractual
that covers the asserted dispute, relations. In case a foreign arbitral body is
an order to arbitrate should be chosen by the parties, the arbitration rules
granted. Any doubt should be of our domestic arbitration bodies would
resolved in favor of arbitration.[40] not be applied. As signatory to the

104
Arbitration Rules of the UNCITRAL Model SEC. 19. Adoption of the
Law on International Commercial Model Law on International
Arbitration [41]
of the United Nations Commercial
Commission on International Trade Law Arbitration.International
(UNCITRAL) in the New York Convention commercial arbitration shall be
on June 21, 1985, governed by the Model Law on
the Philippines committed itself to be International Commercial
bound by the Model Law. We have even Arbitration (the Model Law)
incorporated the Model Law in Republic Act adopted by the United Nations
No. (RA) 9285, otherwise known as Commission on International
the Alternative Dispute Resolution Act of Trade Law on June 21, 1985
2004 entitled An Act to Institutionalize the (United Nations Document
Use of an Alternative Dispute Resolution A/40/17) and recommended for
System in the Philippines and to Establish enactment by the General
the Office for Alternative Dispute Assembly in Resolution No. 40/72
Resolution, and for Other approved on December 11, 1985,
Purposes, promulgated on April 2, copy of which is hereto attached
2004. Secs. 19 and 20 of Chapter 4 of the as Appendix A.
Model Law are the pertinent provisions:

CHAPTER 4 - INTERNATIONAL SEC. 20. Interpretation of

COMMERCIAL ARBITRATION Model Law.In interpreting the
Model Law, regard shall be had to
its international origin and to the
need for uniformity in its

105
 interpretation and resort may be
made to the travaux
preparatories and the report of
the Secretary General of the
United Nations Commission on
International Trade Law dated
March 25, 1985 entitled,
International Commercial
Arbitration: Analytical
Commentary on Draft Trade
identified by reference number
A/CN. 9/264.
While RA 9285 was passed only in
2004, it nonetheless applies in the instant
case since it is a procedural law which has
a retroactive effect. Likewise, KOGIES filed
its application for arbitration before the
KCAB on July 1, 1998 and it is still pending
because no arbitral award has yet been
rendered. Thus, RA 9285 is applicable to
the instant case. Well-settled is the rule
that procedural laws are construed to be
106
applicable to actions pending and
undetermined at the time of their passage,
and are deemed retroactive in that sense
and to that extent. As a general rule,
the retroactive application of procedural
laws does not violate any personal rights
because no vested right has yet attached
nor arisen from them.[42]
Among the pertinent features of RA
9285 applying and incorporating the
UNCITRAL Model Law are the following:
(1) The RTC must refer to arbitration
in proper cases
Under Sec. 24, the RTC does not have
jurisdiction over disputes that are properly
the subject of arbitration pursuant to an
arbitration clause, and mandates the
referral to arbitration in such cases, thus:
SEC. 24. Referral to
Arbitration.A court before which
an action is brought in a matter
which is the subject matter of an
 arbitration agreement shall, if at enforcement, which court under Sec. 36 of
least one party so requests not the UNCITRAL Model Law may refuse
later than the pre-trial recognition or enforcement on the grounds
conference, or upon the request provided for. RA 9285 incorporated these
of both parties thereafter, refer provisos to Secs. 42, 43, and 44 relative to
the parties to arbitration unless it Secs. 47 and 48, thus:
finds that the arbitration
agreement is null and void, SEC. 42. Application of
inoperative or incapable of being the New York Convention.The New
performed. York Convention shall govern the
recognition and enforcement of
arbitral awards covered by said
Convention.

(2) Foreign arbitral awards must be

confirmed by the RTC The recognition and
enforcement of such arbitral
Foreign arbitral awards while mutually awards shall be filed with
stipulated by the parties in the arbitration the Regional Trial Court in
clause to be final and binding are not accordance with the rules of
immediately enforceable or cannot be procedure to be promulgated by
implemented immediately. Sec. 35[43] of the the Supreme Court. Said
UNCITRAL Model Law stipulates the procedural rules shall provide that
requirement for the arbitral award to be the party relying on the award or
recognized by a competent court for applying for its enforcement shall

107
file with the court the original or
authenticated copy of the award
and the arbitration agreement. If
the award or agreement is not
made in any of the official
languages, the party shall supply
a duly certified translation thereof
into any of such languages.
The applicant shall establish
that the country in which foreign
arbitration award was made in
party to the New York Convention.
xxxx
SEC. 43. Recognition and
Enforcement of Foreign Arbitral
Awards Not Covered by the New
York Convention.The recognition
and enforcement of foreign
arbitral awards not covered by the
108
New York Convention shall be
done in accordance with
procedural rules to be
promulgated by the Supreme
Court. The Court may, on grounds
of comity and reciprocity,
recognize and enforce a non-
convention award as a convention
award.
SEC. 44. Foreign Arbitral Award
Not Foreign Judgment.A foreign
arbitral award when confirmed by
a court of a foreign country, shall
be recognized and enforced as a
foreign arbitral award and not as
a judgment of a foreign court.
A foreign arbitral award,
when confirmed by the Regional
Trial Court, shall be enforced in
the same manner as final and
executory decisions of courts of
law of the Philippines
 Region, at the option of the
applicant.
xxxx

SEC. 48. Notice of

SEC. 47. Venue and
Jurisdiction.Proceedings for
recognition and enforcement of
an arbitration agreement or for
vacations, setting aside,
correction or modification of an
arbitral award, and any
application with a court for
arbitration assistance and
supervision shall be deemed as
special proceedings and shall be
filed with the Regional Trial Court
(i) where arbitration proceedings
are conducted; (ii) where the
asset to be attached or levied
upon, or the act to be enjoined is
located; (iii) where any of the
parties to the dispute resides or
has his place of business; or (iv)
in the National Judicial Capital
Proceeding to Parties.In a special
proceeding for recognition and
enforcement of an arbitral award,
the Court shall send notice to the
parties at their address of record
in the arbitration, or if any part
cannot be served notice at such
address, at such partys last
known address. The notice shall
be sent al least fifteen (15) days
before the date set for the initial
hearing of the application.
It is now clear that foreign arbitral
awards when confirmed by the RTC are
deemed not as a judgment of a foreign
court but as a foreign arbitral award, and
when confirmed, are enforced as final and
executory decisions of our courts of law.

109
 Thus, it can be gleaned that the
concept of a final and binding arbitral
award is similar to judgments or awards
given by some of our quasi-judicial bodies,
like the National Labor Relations
Commission and Mines Adjudication Board,
whose final judgments are stipulated to be
final and binding, but not immediately
executory in the sense that they may still
be judicially reviewed, upon the instance of
any party. Therefore, the final foreign
arbitral awards are similarly situated in
that they need first to be confirmed by the
RTC.
(3) The RTC has jurisdiction to review
foreign arbitral awards
Sec. 42 in relation to Sec. 45 of RA
9285 designated and vested the RTC with
specific authority and jurisdiction to set
aside, reject, or vacate a foreign arbitral
award on grounds provided under Art.
34(2) of the UNCITRAL Model Law. Secs. 42
and 45 provide:
110
SEC. 42. Application of
the New York Convention.The New
York Convention shall govern the
recognition and enforcement of
arbitral awards covered by said
Convention.
The recognition and
enforcement of such arbitral
awards shall be filed with
the Regional Trial Court in
accordance with the rules of
procedure to be promulgated by
the Supreme Court. Said
procedural rules shall provide that
the party relying on the award or
applying for its enforcement shall
file with the court the original or
authenticated copy of the award
and the arbitration agreement. If
the award or agreement is not
made in any of the official
languages, the party shall supply
 a duly certified translation thereof
into any of such languages.
The applicant shall establish
that the country in which foreign
arbitration award was made is
party to the New York Convention.
If the application for
rejection or suspension of
enforcement of an award has
been made, the Regional Trial
Court may, if it considers it
proper, vacate its decision and
may also, on the application of
the party claiming recognition or
enforcement of the award, order
the party to provide appropriate
security.
xxxx
111
SEC. 45. Rejection of a
Foreign Arbitral Award.A party to
a foreign arbitration proceeding
may oppose an application for
recognition and enforcement of
the arbitral award in accordance
with the procedures and rules to
be promulgated by the Supreme
Court only on those grounds
enumerated under Article V of the
New York Convention. Any other
ground raised shall be
disregarded by the Regional Trial
Court.
Thus, while the RTC does not have
jurisdiction over disputes governed by
arbitration mutually agreed upon by the
parties, still the foreign arbitral award is
subject to judicial review by the RTC which
can set aside, reject, or vacate it. In this
sense, what this Court held in Chung Fu
Industries (Phils.), Inc. relied upon by
KOGIES is applicable insofar as the foreign
arbitral awards, while final and binding, do
not oust courts of jurisdiction since these
arbitral awards are not absolute and
without exceptions as they are still
judicially reviewable. Chapter 7 of RA 9285
has made it clear that all arbitral awards,
whether domestic or foreign, are subject to
judicial review on specific grounds
provided for.
(4) Grounds for judicial review
different in domestic and foreign
arbitral awards
The differences between a final
arbitral award from an international or
foreign arbitral tribunal and an award
given by a local arbitral tribunal are the
specific grounds or conditions that vest
jurisdiction over our courts to review the
awards.
For foreign or international arbitral
awards which must first be confirmed by
the RTC, the grounds for setting aside,
112
rejecting or vacating the award by the RTC
are provided under Art. 34(2) of the
UNCITRAL Model Law.
For final domestic arbitral awards,
which also need confirmation by the RTC
pursuant to Sec. 23 of RA 876 [44] and shall
be recognized as final and executory
decisions of the RTC,[45] they may only be
assailed before the RTC and vacated on the
grounds provided under Sec. 25 of RA 876.
[46]
(5) RTC decision of assailed foreign
arbitral award appealable
Sec. 46 of RA 9285 provides for an
appeal before the CA as the remedy of an
aggrieved party in cases where the RTC
sets aside, rejects, vacates, modifies, or
corrects an arbitral award, thus:
 SEC. 46. Appeal from Court
Decision or Arbitral Awards.A
decision of the Regional Trial
Court confirming, vacating,
setting aside, modifying or
correcting an arbitral award may
be appealed to the Court of
Appeals in accordance with the
rules and procedure to be
promulgated by the Supreme
Court.
The losing party who
appeals from the judgment of the
court confirming an arbitral award
shall be required by the appellate
court to post a counterbond
executed in favor of the prevailing
party equal to the amount of the
award in accordance with the
rules to be promulgated by the
Supreme Court.
Thereafter, the CA decision may
further be appealed or reviewed before
113
this Court through a petition for review
under Rule 45 of the Rules of Court.
PGSMC has remedies to protect its
interests
Thus, based on the foregoing features
of RA 9285, PGSMC must submit to the
foreign arbitration as it bound itself
through the subject contract. While it may
have misgivings on the foreign arbitration
done in Korea by the KCAB, it has available
remedies under RA 9285. Its interests are
duly protected by the law which requires
that the arbitral award that may be
rendered by KCAB must be confirmed here
by the RTC before it can be enforced.
With our disquisition above, petitioner
is correct in its contention that an
arbitration clause, stipulating that the
arbitral award is final and binding, does not
oust our courts of jurisdiction as the
international arbitral award, the award of
which is not absolute and without
exceptions, is still judicially reviewable
under certain conditions provided for by
the UNCITRAL Model Law on ICA as applied
and incorporated in RA 9285.
Finally, it must be noted that there is
nothing in the subject Contract which
provides that the parties may dispense
with the arbitration clause.
Unilateral rescission improper and
illegal
Having ruled that the arbitration
clause of the subject contract is valid and
binding on the parties, and not contrary to
public policy; consequently, being bound
to the contract of arbitration, a party may
not unilaterally rescind or terminate the
contract for whatever cause without first
resorting to arbitration.
What this Court held in University of
the Philippines v. De Los Angeles [47] and
reiterated in succeeding cases,[48] that the
act of treating a contract as rescinded on
account of infractions by the other
contracting party is valid albeit provisional
as it can be judicially assailed, is not
114
applicable to the instant case on account
of a valid stipulation on arbitration. Where
an arbitration clause in a contract is
availing, neither of the parties can
unilaterally treat the contract as rescinded
since whatever infractions or breaches by
a party or differences arising from the
contract must be brought first and resolved
by arbitration, and not through an
extrajudicial rescission or judicial action.
The issues arising from the contract
between PGSMC and KOGIES on whether
the equipment and machineries delivered
and installed were properly installed and
operational in the plant in Carmona,
Cavite; the ownership of equipment and
payment of the contract price; and
whether there was substantial compliance
by KOGIES in the production of the
samples, given the alleged fact that
PGSMC could not supply the raw materials
required to produce the sample LPG
cylinders, are matters proper for
arbitration.Indeed, we note that on July 1,
1998, KOGIES instituted an Application for
Arbitration before the KCAB
in Seoul, Korea pursuant to Art. 15 of the
Contract as amended. Thus, it is
incumbent upon PGSMC to abide by its
commitment to arbitrate.
Corollarily, the trial court gravely
abused its discretion in granting PGSMCs
Motion for Inspection of Things
on September 21, 1998, as the subject
matter of the motion is under the primary
jurisdiction of the mutually agreed arbitral
body, the KCAB in Korea.
In addition, whatever findings and
conclusions made by the RTC Branch
Sheriff from the inspection made on
October 28, 1998, as ordered by the trial
court on October 19, 1998, is of no worth
as said Sheriff is not technically competent
to ascertain the actual status of the
equipment and machineries as installed in
the plant.
For these reasons, the September 21,
1998 and October 19, 1998 RTC Orders
pertaining to the grant of the inspection of
115
the equipment and machineries have to be
recalled and nullified.
Issue on ownership of plant proper for
arbitration
Petitioner assails the CA ruling that the
issue petitioner raised on whether the
total contract price of USD 1,530,000 was
for the whole plant and its installation is
beyond the ambit of a Petition for
Certiorari.
Petitioners position is untenable.
It is settled that questions of fact cannot
be raised in an original action for certiorari.
[49]
Whether or not there was full payment
for the machineries and equipment and
installation is indeed a factual issue
prohibited by Rule 65.
However, what appears to constitute a
grave abuse of discretion is the order of
the RTC in resolving the issue on the
ownership of the plant when it is the
arbitral body (KCAB) and not the RTC which interim measures to protect vested rights
has jurisdiction and authority over the said of the parties. Sec. 28 pertinently provides:
issue. The RTCs determination of such
factual issue constitutes grave abuse of
SEC. 28. Grant of interim
discretion and must be reversed and set
Measure of Protection.(a) It is
aside.
not incompatible with an
arbitration agreement for a
party to request, before
constitution of the tribunal,
RTC has interim jurisdiction to protect
from a Court to grant such
the rights of the parties
measure. After constitution of
the arbitral tribunal and during
Anent the July 23, 1998 Order
arbitral proceedings, a request for
denying the issuance of the injunctive writ
an interim measure of protection,
paving the way for PGSMC to dismantle
or modification thereof, may be
and transfer the equipment and
made with the arbitral or to the
machineries, we find it to be in order
extent that the arbitral
considering the factual milieu of the
tribunal has no power to act
instant case.
or is unable to act effectivity,
the request may be made with
Firstly, while the issue of the proper
the Court. The arbitral tribunal is
installation of the equipment and
deemed constituted when the
machineries might well be under the
sole arbitrator or the third
primary jurisdiction of the arbitral body to
arbitrator, who has been
decide, yet the RTC under Sec. 28 of RA
nominated, has accepted the
9285 has jurisdiction to hear and grant
116
nomination and written (iii) to produce or preserve
communication of said any evidence; or
nomination and acceptance has
(iv) to compel any other
been received by the party
appropriate act or omission.
making the request.

(c) The order granting

(b) The following rules on
provisional relief may be
interim or provisional relief shall
conditioned upon the provision of
be observed:
security or any act or omission
specified in the order.

Any party may request that

provisional relief be granted
(d) Interim or provisional
against the adverse party.
relief is requested by written
application transmitted by
reasonable means to the Court or
Such relief may be granted:
arbitral tribunal as the case may
be and the party against whom
the relief is sought, describing in
(i) to prevent irreparable appropriate detail the precise
loss or injury; relief, the party against whom the
(ii) to provide security for relief is requested, the grounds
the performance of any for the relief, and the evidence
obligation; supporting the request.

117

(e) The order shall
binding upon the parties.
Article 17. Power of arbitral
be
tribunal to order interim
measures

(f) Either party may apply

xxx xxx xxx
with the Court for assistance in
implementing or enforcing an
interim measure ordered by an
(2) An interim measure is
arbitral tribunal.
any temporary measure, whether
in the form of an award or in
(g) A party who does not another form, by which, at any
comply with the order shall be time prior to the issuance of the
liable for all damages resulting award by which the dispute is
from noncompliance, including all finally decided, the arbitral
expenses, and reasonable tribunal orders a party to:
attorney's fees, paid in obtaining
the orders judicial
enforcement. (Emphasis ours.) (a) Maintain or restore the status
quo pending determination of the
dispute;
Art. 17(2) of the UNCITRAL Model Law
on ICA defines an interim measure of
protection as:

118
 (b) Take action that would
prevent, or refrain from taking
A court shall have the same
action that is likely to cause,
power of issuing an interim
current or imminent harm or
measure in relation to arbitration
prejudice to the arbitral process
proceedings, irrespective of
itself;
whether their place is in the
territory of this State, as it has in
relation to proceedings in courts.
(c) Provide a means of preserving
The court shall exercise such
assets out of which a subsequent
power in accordance with its own
award may be satisfied; or
procedures in consideration of the
specific features of international
arbitration.
(d) Preserve evidence that may
be relevant and material to the
resolution of the dispute.
In the recent 2006 case of Transfield
Philippines, Inc. v. Luzon Hydro
Corporation, we were explicit that even the
Art. 17 J of UNCITRAL Model Law
pendency of an arbitral proceeding does
on ICA also grants courts power and
not foreclose resort to the courts for
jurisdiction to issue interim measures:
provisional reliefs. We explicated this way:
Article 17 J. Court-ordered interim
As a fundamental point, the
measures
pendency of arbitral proceedings

119
does not foreclose resort to the It is thus beyond cavil that the RTC
courts for provisional reliefs. The has authority and jurisdiction to grant
Rules of the ICC, which governs interim measures of protection.
the parties arbitral dispute, allows
the application of a party to a Secondly, considering that the
judicial authority for interim or equipment and machineries are in the
conservatory measures. Likewise, possession of PGSMC, it has the right to
Section 14 of Republic Act (R.A.) protect and preserve the equipment and
No. 876 (The Arbitration Law) machineries in the best way it
recognizes the rights of any party can. Considering that the LPG plant was
to petition the court to take non-operational, PGSMC has the right to
measures to safeguard and/or dismantle and transfer the equipment and
conserve any matter which is the machineries either for their protection and
subject of the dispute in preservation or for the better way to make
arbitration. In addition, R.A. 9285, good use of them which is ineluctably
otherwise known as the within the management discretion of
Alternative Dispute Resolution Act PGSMC.
of 2004, allows the filing of
provisional or interim measures Thirdly, and of greater import is the
with the regular courts whenever reason that maintaining the equipment
the arbitral tribunal has no power and machineries in Worths property is not
to act or to act effectively.[50] to the best interest of PGSMC due to the
prohibitive rent while the LPG plant as set-
up is not operational. PGSMC was losing
PhP322,560 as monthly rentals or
PhP3.87M for 1998 alone without
120
considering the 10% annual rent increment
in maintaining the plant.
Fourthly, and corollarily, while the
KCAB can rule on motions or petitions
relating to the preservation or transfer of
the equipment and machineries as an
interim measure, yet on hindsight, the July
23, 1998 Order of the RTC allowing the
transfer of the equipment and machineries
given the non-recognition by the lower
courts of the arbitral clause, has accorded
an interim measure of protection to PGSMC
which would otherwise been irreparably
damaged.
Fifth, KOGIES is not unjustly
prejudiced as it has already been
paid a substantial amount based on the
contract. Moreover, KOGIES is amply
protected by the arbitral action it has
instituted before the KCAB, the award of
which can be enforced in our jurisdiction
through the RTC. Besides, by our decision,
PGSMC is compelled to submit to
121
arbitration pursuant to the valid arbitration
clause of its contract with KOGIES.
PGSMC to preserve the subject
equipment and machineries
Finally, while PGSMC may have been
granted the right to dismantle and transfer
the subject equipment and machineries, it
does not have the right to convey or
dispose of the same considering the
pending arbitral proceedings to settle the
differences of the parties. PGSMC therefore
must preserve and maintain the subject
equipment and machineries with the
diligence of a good father of a
family[51] until final resolution of the arbitral
proceedings and enforcement of the
award, if any.
WHEREFORE, this petition is PARTLY
GRANTED, in that:
 (1) The May 30, 2000 CA Decision in
CA-G.R. SP No. 49249
No pronouncement as to costs.
is REVERSED and SET ASIDE;

SO ORDERED.
(2) The September 21, 1998 and
October 19, 1998 RTC Orders in Civil Case
No. 98-117 are REVERSED and SET
ASIDE;
PRESBITERO J. VELASCO, JR.

(3) The parties are Associate Justice

hereby ORDERED to submit themselves to
the arbitration of their dispute and
differences arising from the subject
Contract before the KCAB; and

(4) PGSMC is hereby ALLOWED to

dismantle and transfer the equipment and
machineries, if it had not done so,
and ORDERED to preserve and maintain
them until the finality of whatever arbitral
award is given in the arbitration
proceedings.

122
 FIRST DIVISION Promulga
ted:
TRADERS ROYAL BANK,[1]

ERLINDA GAJUDO, Respondent. March 21, 2006

FERNANDO G.R. No. 151098
x -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
GAJUDO, JR., ESTELITA GAJUDO, -- -- -- -- -- -- -- -- -- -- -- - -- x

BALTAZAR GAJUDO and

DANILO Present:
DECISION
ARAHAN CHUA,
Petitioners, Pang
aniban, CJ, PANGANIBAN, CJ:

Chairman,

T
Ynares-Santiago, he mere fact that a defendant
- versus - Austria-Martinez, is declared in default does not
Callejo, Sr., and automatically result in the
Chico-Nazario, JJ grant of the prayers of the

123
plaintiff. To win, the latter must still

present the same quantum of

Before us is a Petition for
evidence that would be required if
Review[2] under Rule 45 of the Rules
the defendant were still present. A
of Court, assailing the June 29,
party that defaults is not deprived of
2001 Decision[3] and December 6,
its rights, except the right to be
2001 Resolution[4] of the Court of
heard and to present evidence to the
Appeals (CA) in CA-GR CV No.
trial court. If the evidence presented
43889. The CA disposed as follows:
does not support a judgment for the

plaintiff, the complaint should be UPON THE VIEW WE TAKE OF

dismissed, even if the defendant may
not have been heard or allowed to
present any countervailing evidence.
THIS CASE, THUS, the partial
judgment appealed from, must be, as it
hereby is, VACATED and SET ASIDE,
and another one entered DISMISSING
the complaint at bench. Without costs.[5]

The Case
124

The assailed Resolution denied
petitioners Motion
Reconsideration[6] for lack of merit.
The Facts
The CA narrated the facts as
follows:
[Petitioners] filed a complaint
before the Regional Trial Court of
Quezon City, Branch 90, against
[respondent] Traders Royal Bank, the
City Sheriff of Quezon City and the
Register of Deeds of Quezon
City. Docketed thereat as Civil Case No.
Q-41203, the complaint sought the
annulment of the extra-judicial
foreclosure and auction sale made by
[the] city sheriff of Quezon City of a
for parcel of land covered by TCT No.
16711 of the Register of Deeds of
Quezon City, the conventional
redemption thereof, and prayed for
damages and the issuance of a writ of
preliminary injunction.
The complaint alleged that in mid
1977[, Petitioner] Danilo Chua obtained
a loan from [respondent] bank in the
amount of P75,000.00 secured by a
real estate mortgage over a parcel of
land covered by TCT No. 16711, and
owned in common by the [petitioners];
that when the loan was not paid,
[respondent] bank commenced extra-
judicial foreclosure proceedings on the
property; that the auction sale of the
property was set on 10 June 1981, but
was reset to 31 August 1981, on
125
[Petitioner Chuas] request, which,
however, was made without the
knowledge and conformity of the other
[petitioners]; that on the re-scheduled
auction sale, [the] Sheriff of Quezon
City sold the property to the
[respondent] bank, the highest bidder
therein, for the sum of P24,911.30; that
the auction sale was tainted with
irregularity because, amongst others,
the bid price was shockingly or
unconscionably, low; that the other
[petitioners] failed to redeem the
property due to their lack of knowledge
of their right of redemption, and want of
sufficient education; that, although the
period of redemption had long expired,
[Petitioner] Chua offered to buy back,
and [respondent] bank also agreed to
sell back, the foreclosed property, on
the understanding that Chua would pay
[respondent] bank the amount
of P40,135.53, representing the sum
that the bank paid at the auction sale,
plus interest; that [Petitioner] Chua
made an initial payment thereon in the
amount of P4,000.00, covered by
126
Interbank Check No. 09173938, dated
16 February 1984, duly receipted by
[respondent] bank; that, in a sudden
change of position, [respondent] bank
wrote Chua, on 20 February 1984,
asking that he could repurchase the
property, but based on the current
market value thereof; and that
sometime later, or on 22 March 1984,
[respondent] bank wrote Chua anew,
requiring him to tender a new offer to
counter the offer made thereon by
another buyer.
Traversing [petitioners] complaint,
[respondent] bank, upon 05 July 1984,
filed its answer with counterclaim,
thereunder asserting that the
foreclosure sale of the mortgaged
property was done in accordance with
law; and that the bid price was neither
unconscionable, nor shockingly low;
that [petitioners] slept on their rights
when they failed to redeem the property
within the one year statutory period;
and that [respondent] bank, in offering
to sell the property to [Petitioner] Chua
on the basis of its current market price,
was acting conformably with law, and
with legitimate banking practice and
regulations.
Pre-trial having been concluded,
the parties entered upon trial, which
dragged/lengthened to several months
due to postponements. Upon 11 June
1988, however, a big conflagration hit
the City Hall of Quezon City, which
destroyed, amongst other things, the
records of the case. After the records
were reconstituted, [petitioners]
discovered that the foreclosed property
was sold by [respondent] bank to the
Ceroferr Realty Corporation, and that
the notice of lis pendens annotated on
the certificate of title of the foreclosed
property, had already been
cancelled. Accordingly, [petitioners],
with leave of court, amended their
complaint, but the Trial Court dismissed
the case without prejudice due to
127
[petitioners] failure to pay additional
filing fees.
So, upon 11 June 1990,
[petitioners] re-filed the complaint with
the same Court, whereat it was
docketed as Civil Case No. 90-5749,
and assigned to Branch 98: the
amended complaint substantially
reproduced the allegations of the
original complaint. But [petitioners] this
time impleaded as additional
defendants the Ceroferr Realty
Corporation and/or Cesar Roque, and
Lorna Roque, and included an
additional cause of action, to wit: that
said new defendants conspired with
[respondent] bank in [canceling] the
notice of lis pendens by falsifying a
letter sent to and filed with the office of
the Register of Deeds of Quezon City,
purportedly for the cancellation of said
notice.
 Summons was served on
[respondent] bank on 26 September
1990, per Sheriffs Return dated 08
October 1990. Supposing that all the
defendants had filed their answer,
[petitioners] filed, on 23 October 1991,
a motion to set case for pre-trial, which
motion was, however, denied by the
Trial Court in its Order of25 October
1991, on the ground that [respondent]
bank has not yet filed its answer. On 13
November 1991[, petitioners] filed a
motion for reconsideration, thereunder
alleging that they received by registered
mail, on 19 October 1990, a copy of
[respondent] banks answer with
counterclaim, dated 04 October 1990,
which copy was attached to the
motion. In its Order of 14 November
1991, the trial Court denied for lack of
merit, the motion for reconsideration,
therein holding that the answer with
counterclaim filed by [respondent] bank
referred to another civil case pending
before Branch 90 of the same Court.
128
For this reason, [petitioners] filed
on 02 December 1991 a motion to
declare [respondent] bank in default,
thereunder alleging that no answer has
been filed despite the service of
summons on it on 26 September 1990.
On 13 December 1991, the Trial
Court declared the motion submitted for
resolution upon submission by
[petitioners] of proof of service of the
motion on [respondent] bank.
Thus, on 16 January 1992, upon
proof that [petitioners] had indeed
served [respondent] bank with a copy of
said motion, the Trial Court issued an
Order of default against [respondent]
bank.
Upon 01 December 1992, on
[petitioners] motion, they were by the
Court allowed to present evidence ex
parte on 07 January 1993, insofar as
[respondent] bank was concerned. Respondent bank appealed the

Partial Decision[9] to the CA. During

Thereafter, or on 08 February
the pendency of that appeal,
1993, the Trial Court rendered the new
questioned partial decision.[7] Ceroferr Realty Corporation and/or
Aggrieved, [respondent] bank
filed a motion to set aside [the] partial Cesar and/or Lorna Roque filed a
decision by default against Traders
Manifestation with Motion[10] asking
Royal Bank and admit [respondent]
Traders Royal Banks x x x Answer with the CA to discharge them as parties,
counterclaim: thereunder it averred,
amongst others, that the erroneous because the case against them had
filing of said answer was due to an
honest mistake of the typist and already been dismissed on the basis
inadvertence of its counsel.
of their Compromise

The [trial court] thumbed down Agreement[11] with

the motion in its Order of 26 July 1993.
[8] petitioners. On May 14, 1996, the CA

issued a Resolution[12] granting

Ceroferr et al.s Manifestation with

129
Motion to discharge movants as to have rested on shaky ground was

parties to the appeal. The Court, the latters Motion to Set Aside

though, deferred resolution of the Partial Decision by Default Against

matters raised in the Comment[13] of Traders Royal Bank and Admit

respondent bank. The latter Defendant Traders Royal Banks

contended that the Partial Decision Answer.[14] The reasons offered by the

had been novated by the bank for failing to file an answer

Compromise Agreement, whose were considered by the appellate

effect of res judicata had rendered court to be at once specious, shallow

that Decision functus officio. and sophistical and can hardly be

dignified as a mistake or excusable

Ruling of the Court of Appeals
negligence, which ordinary prudence

could not have guarded against.[15]

The CA ruled in favor of

respondent bank. Deemed, however,

130
 In particular, the CA ruled that merit. These mistakes and the

the erroneous docket number placed inexcusable negligence committed by

on the Answer filed before the trial respondents lawyer were binding on

court was not an excusable the bank.

negligence by the banks counsel. The

latter had a bounden duty to be

On the issue of whether
scrupulously careful in reviewing
petitioners had convincingly
pleadings. Also, there were several
established their right to relief, the
opportunities to discover and rectify
appellate court held that there was
the mistake, but these were not
no ground to invalidate the
taken. Moreover, the banks Motion
foreclosure sale of the mortgaged
to Set Aside the Partial Decision and
property. First, under Section 3 of
to Admit [the] Answer was not
Act No. 3135, an extrajudicial
accompanied by an affidavit of
foreclosure sale did not require

131
personal notice to
mortgagor. Second, there was
allegation or proof of noncompliance
with the publication requirement and
the public posting of the notice of
sale, provided under Act No. 3135,
as amended. Third, there was no
showing of inadequacy of price as no
competent evidence was presented
to show the real market value of the
land sold or the readiness of another
buyer to offer a price higher than
that at which the property had been
sold.
the
no Moreover, petitioners failed to
prove that the bank had agreed to
sell the property back to them. After
pointing out that the redemption
period had long expired, respondents
written communications to Petitioner
Chua only showed, at most, that the
former had made a proposal for the
latter to buy back the property at the
current market price; and that
Petitioner Chua was requested to
make an offer to repurchase the
property, because another buyer had
132
already made an offer to buy it. On Agreement. Petitioners recognition

the other hand, respondent noted of Ceroferrs title to the mortgaged

that the Interbank check for P4,000 property was intended to preclude

was for deposit only. Thus, there was future litigation against it.

no showing that the check had been

issued to cover part of the

Hence this Petition.[16]
repurchase price.

The appellate court also held Issues

that the Compromise Agreement had

In their Memorandum,
not resulted in the novation of the
petitioners raise the following
Partial Decision, because the two issues:
were not incompatible. In fact, the

bank was not even a party to the

133
 1. Whether or not the Respondent
Court of Appeals erred in failing to apply
The first issue is one of law and may
the provisions of Section 3, Rule 9 of be taken up by the Court without
the 1997 Rules of Civil Procedure [and
in applying instead] the rule on
hindrance, pursuant to Section 1 of
preponderance of evidence under Rule 45 of the Rules of Court.[18] The
Section 1, Rule 133 of the Rules of
Court. second and the third issues,
however, would entail an evaluation
of the factual findings of the
2. Whether or not the respondent
appellate court failed to apply the appellate court, a function ordinarily
conventional redemption rule provided
for under Article 1601 of the New Civil
not assumed by this Court, unless in
Code. some excepted cases. The Court will
thus rule on the first issue before
3. Whether or not this Honorable addressing the second and the third
Court can exercise its judicial
issues jointly.
prerogative to evaluate the findings of
facts.[17]

The Courts Ruling

134
 The Petition has no merit. order under Section 3 of Rule 9 is not

the same as that provided for in

First Issue: Section 1 of Rule 133.
Quantum of Proof

For ease of discussion, these two

rules will be reproduced below,

starting with Section 3 of Rule 9 of

Petitioners challenge the CA the Rules of Court:
Decision for applying Section 3 of Rule

9 of the Rules of Court, rather than Sec. 3. Default; declaration of. If

Section 1 of Rule 133 of the same
Rules. In essence, petitioners argue
that the quantum of evidence for
judgments flowing from a default
the defending party fails to answer within
the time allowed therefor, the court shall,
upon motion of the claiming party with
notice to the defending party, and proof of
such failure, declare the defending party
in default. Thereupon, the court shall
proceed to render judgment granting the
claimant such relief as his pleading may

135
warrant, unless the court in its discretion
requires the claimant to submit
evidence. Such reception of evidence
(c) Effect of partial default. When a
may be delegated to the clerk of court.
pleading asserting a claim states a
common cause of action against several
defending parties, some of whom answer
(a) Effect of order of default. A
and the others fail to do so, the court shall
party in default shall be entitled to notice
try the case against all upon the answers
of subsequent proceedings but not to
thus filed and render judgment upon the
take part in the trial.
evidence presented.

(b) Relief from order of default. A

(d) Extent of relief to be awarded.
party declared in default may at any time
A judgment rendered against a party in
after notice thereof and before judgment
default shall not exceed the amount or be
file a motion under oath to set aside the
different in kind from that prayed for nor
order of default upon proper showing that
award unliquidated damages.
his failure to answer was due to fraud,
accident, mistake or excusable
negligence and that he has a meritorious
(e) Where no defaults allowed. If
defense.In such case, the order of default
the defending party in an action for
may be set aside on such terms and
annulment or declaration of nullity of
conditions as the judge may impose in
marriage or for legal separation fails to
the interest of justice.
answer, the court shall order the
prosecuting attorney to investigate
whether or nor a collusion between the

136
 parties exists, and if there is no collusion,
to intervene for the State in order to see
to it that the evidence submitted is not
fabricated.
We now quote Section 1 of
Rule 133:
SECTION 1. Preponderance of
evidence, how determined. In civil cases,
the party having the burden of proof must
establish his case by a preponderance of
evidence. In determining where the
preponderance or superior weight of
evidence on the issues involved lies, the
court may consider all the facts and
circumstances of the case, the witnesses
manner of testifying, their intelligence,
137
their means and opportunity of knowing
the facts to which they are testifying, the
nature of the facts to which they testify,
the probability or improbability of their
testimony, their interest or want of
interest, and also their personal
credibility so far as the same may
legitimately appear upon the trial. The
court may also consider the number of
witnesses, though the preponderance is
not necessarily with the greater number.
Between the two rules, there is
no incompatibility that would
preclude the application of either
one of them. To begin with, Section 3
of Rule 9 governs the procedure
which the trial court is directed to from that prayed for nor award

take when a defendant fails to file an unliquidated damages.

answer. According to this provision,

the court shall proceed to render

As in other civil cases, basic is
judgment granting the claimant such
the rule that the party making
relief as his pleading may warrant,
allegations has the burden of
subject to the courts discretion on
proving them by a preponderance of
whether to require the presentation
evidence.[19] Moreover, parties must
of evidence ex parte. The same
rely on the strength of their own
provision also sets down guidelines
evidence, not upon the weakness of
on the nature and extent of the relief
the defense offered by their
that may be granted. In particular,
opponent.[20] This principle holds
the courts judgment shall not exceed
true, especially when the latter has
the amount or be different in kind
had no opportunity to present
138
evidence because of a default default. Favorable relief can be

order. Needless to say, the extent of granted only after the court has

the relief that may be granted can ascertained that the relief is

only be as much as has been alleged warranted by the evidence offered

and proved[21] with preponderant and the facts proven by the

evidence required under Section 1 of presenting party. In Pascua, this

Rule 133. Court ruled that x x x it would be

meaningless to require presentation

of evidence if every time the other

Regarding judgments by default,
party is declared in default, a
it was explained in Pascua v.
decision would automatically be
Florendo [22]
that complainants are
rendered in favor of the non-
not automatically entitled to the
defaulting party and exactly
relief prayed for, once the
according to the tenor of his prayer.
defendants are declared in
139

This is not contemplated by the
Rules nor is it sanctioned by the due
process clause.[23]
The import of a judgment by
default was further clarified in Lim
Tanhu v. Ramolete.[24] The following
disquisition is most instructive:
Unequivocal, in the literal sense,
as these provisions [referring to the
subject of default then under Rule 18 of
the old Rules of Civil Procedure] are, they
do not readily convey the full import of
140
what they contemplate. To begin with,
contrary to the immediate notion that can
be drawn from their language, these
provisions are not to be understood as
meaning that default or the failure of the
defendant to answer should be
interpreted as an admission by the said
defendant that the plaintiffs cause of
action find support in the law or that
plaintiff is entitled to the relief prayed for.
x x x.
xxxxxxxxx
Being declared in default does not
constitute a waiver of rights except that of
being heard and of presenting evidence
in the trial court. x x x.
In other words, a defaulted
defendant is not actually thrown out of
court. While in a sense it may be said
that by defaulting he leaves himself at the
 mercy of the court, the rules see to it that
any judgment against him must be in parte under Section 3 of Rule 9, they
accordance with law. The evidence to
support the plaintiffs cause is, of course, were not excused from establishing
presented in his absence, but the court is
not supposed to admit that which is their claims for damages by the
basically incompetent. Although the
required quantum of proof under
defendant would not be in a position to
object, elementary justice requires that
Section 1 of Rule 133. Stated
only legal evidence should be considered
against him. If the evidence presented differently, any advantage they may
should not be sufficient to justify a
judgment for the plaintiff, the complaint have gained from the ex
must be dismissed. And if an unfavorable
judgment should be justifiable, it cannot parte presentation of evidence does
exceed in amount or be different in kind
from what is prayed for in the complaint. not lower the degree of proof
[25]

required. Clearly then, there is no

incompatibility between the two

rules.

In sum, while petitioners were

Second and Third Issues:
allowed to present evidence ex

141
 Review of the Evidence
Indeed, the differences between the

findings of the two courts a

quo, leading to entirely disparate

Petitioners urge this Court to depart
dispositions, is reason enough for
from the general rule that the lower
this Court to review the evidence in
courts findings of fact are not
this case.[27] Whether the CA
reviewable in a petition for review.
indulged in surmises and conjectures
[26]
In support of their plea, they cite
when it issued the assailed Decision
the conflicting findings of the trial
will thus be determined.
and the appellate courts, as well as

the alleged conjectures and surmises

made by the CA in arriving at its At the outset, it behooves this Court

Decision. to clarify the CAs impression that no

evidence was presented in the case

which might have contributed to

142
petitioners challenge to its ordered to present their evidence ex

Decision. The appellate courts parte. But the absence of a hearing

observation was based on the did not mean that no evidence was

notation by the lower courts clerk of presented. The Partial Decision

court that there were no separate dated February 8, 1993, in fact

folders for exhibits and transcripts, clearly enumerated the pieces of

because there was no actual hearing evidence adduced by petitioners

conducted in this case.[28] during the ex parte presentation

on January 7, 1993. The

True, there was no hearing documentary evidence they

conducted between petitioners and presented consisted of the following:

respondent, precisely because the 1. A copy of respondent banks

latter had been declared in default, Petition for the extrajudicial
and petitioners had therefore been

143
foreclosure and auction sale of the 4. A copy of the Interbank check

mortgaged parcel of land[29] dated February 16, 1984, in the

amount of P4,000[32]

2. The Certificate of Sale that

was a consequence of the foreclosure 5. The Official Receipt issued by

sale[30] the bank acknowledging the check[33]

3. A Statement of Account 6. The banks letter dated

dated February 15, 1984, showing February 20, 1984, advising

Petitioner Chuas outstanding debt in Petitioner Chua of the sale of the

the amount of P40,135.53[31] property at an extrajudicial public

auction; the lapse of the period of

redemption; and an invitation to

144
purchase the property at its current done after that of the Amended

market price[34] Complaint[36]

7. Another letter from the bank 9. A copy of the title showing

dated March 22, 1984, inviting the inscription of the Notice of Lis

Petitioner Chua to submit, within five Pendens[37]

days, an offer to buy the same

property, which another buyer had

10. A copy of the Absolute Deed
offered to buy[35]
of Sale to Cerrofer[38]

8. A copy of the Notice of Lis

11. A copy of a letter
Pendens, the filing of which was
dated August 29, 1986, made and

145
signed by petitioners counsel, already lapsed when respondent

requesting the cancellation of the bank supposedly offered to sell the

Notice of Lis Pendens[39] property in question. The records

clearly show that the Certificate of

Sale following the extrajudicial

12. A copy of a page of the
public auction of the property was
Memorandum of Encumbrance from
registered on June 21, 1982, the date
TCT No. (314341) 7778/T-39 [40]
from which the legal redemption

period was to be reckoned.

Having clarified this matter, we [41]
Petitioners insist, though,
proceed to review the facts.
that they had the right to repurchase

the property through conventional

Petitioners do not deny that the one- redemption, as provided

year period for legal redemption had

146
under Article 1601 of the Civil Code, [42]
However, it has also been held

worded as follows: that for legal redemption to be

converted into conventional

ART. 1601. Conventional
redemption shall take place when the redemption, two requisites must be
vendor reserves the right to repurchase
the thing sold, with the obligation to
established: 1) voluntary agreement
comply with the provisions of Article 1616
of the parties to extend the
and other stipulations which may have
been agreed upon. redemption period; and 2)

It is true that the one-year period the debtors commitment to pay the

of redemption provided in Act No. redemption price on a fixed date.

3135, as amended -- the law under

[43]
Thus, assuming that an offer was

which the property here was sold in made to Petitioner Chua to buy back

a foreclosure sale -- is only directory the property after the lapse of the

and, as such can be extended by period of legal redemption,

agreement of the parties. petitioners needed to show that the

147
parties had agreed to extend the redemption period had already
lapsed.[44] The bank, though, had
period, and that Petitioner Chua offered to sell back the property to
had committed to pay the him at the current market value.
Indeed, an examination of his earlier
redemption price on a fixed date.
letter of February 17, 1984, readily
reveals that he expressed willingness
The letters sent by the bank to to settle his account with the bank,
Petitioner Chua on February 20 but that his present financial
and March 22, 1984, do not situation precludes [him] from
convincingly show that the parties effecting an immediate settlement x
arrived at a firm agreement for the x x.[45]
repurchase of the property. What can
be gleaned from the February 20
On the other hand, the letter
letter is that Petitioner Chua
dated March 22, 1984, clearly states
proposed to pay the redemption
that x x x the Bank rejected [his]
price for the property, but that the
request to redeem said property due
bank refused to accede to his
to [the] lapse of [the] one (1) year
request, because the one-year
legal redemption period.
148
 Nonetheless, he was [invited] to
[46]
submit an offer to buy the same
property in five (5) days from receipt
[of the letter].[47] Petitioner Chua was
also informed that the bank had
received an offer to purchase the
foreclosed property. As to the P4,000
check enclosed in his proposal
dated February 17, 1984, as a token
of his good faith, he was advised that
the amount was still outstanding in
the books of the bank and could be
claimed by him if he thought the
invitation was not feasible.
More important, there was no
showing that petitioners had
committed to pay the redemption
price on a fixed date. True, Petitioner
149
Chua had attempted to establish a
previous agreement to repurchase
the property for less than its fair
market value. He had submitted in
evidence a Statement of
Account[48] dated February 15, 1984,
showing a balance of P40,135.53; the
Interbank check dated February 16,
1984 , for P4,000, which was
deposited to the account of
respondent bank;[49] and the Official
Receipt for the check.[50]
Granting that these documents
evinced an agreement, petitioners
were still unable to establish a firm
commitment on their part to pay the
redemption price on a fixed date. On
the contrary, the February 17 letter
of Petitioner Chua to the bank clearly
manifested that he was not capable
of paying the account
immediately. For this reason, he
proposed to pay in three or four
installments without a specification
of dates for the payments, but with a
plea for a reduction of the interest
charges. That proposal was rejected.
Indeed, other than the Interbank
check marked for deposit by
respondent bank, no other evidence
was presented to establish that
petitioners had offered to pay the
alleged redemption price
of P40,135.53 on a fixed date. For
that matter, petitioners have not
shown that they tendered payment of
150
the balance and/or consigned the
payment to the court, in order to
fulfill their part of the purported
agreement. These remedies are
available to an aggrieved debtor
under Article 1256 of the Civil Code,
[51]
when the creditor unjustly refuses
to accept the payment of an
obligation.
The next question that presents itself
for resolution is the propriety of the
CAs ruling vacating the Partial
Decision of the regional trial court
(RTC) and dismissing the case. To
recall, the RTC had resolved to
 preponderant to support the claims of
withhold a ruling on petitioners right the [petitioners]. However, in view of the
fact that the property subject matter of
to redeem conventionally and/or this case has already been conveyed to
defendant Cerrofer Realty Corporation
order the reconveyance of the thus the issue as to whether or not the
said conveyance or sale is valid is sill
property in question, pending a
pending between the [petitioners] and
[respondents] Cerrofer Realty
determination of the validity of the
Corporation and Cesar Roque and
sale to Cerrofer Realty Corporation Lorna Roque. Hence, this Court
resolves to grant the prayer for
and Spouses Cesar and Lorna damages against Traders Royal Bank.

Roque. The trial court, however,

The claims of the [petitioners] as
granted the prayer for damages against [respondent] Traders Royal
Bank having been established and
against respondent bank. The RTC proved by evidence, judgment is hereby
rendered ordering [respondent] Traders
ruled as follows:
Royal Bank to pay [petitioners] actual
damage or the market value of the land
in question in the sum of P500,000.00;
The evidence presented by the sum of P70,000.00 as compensatory
[petitioners] in so far as the cause of damages; the sum of P200,000.00 to
action against [respondent] Traders the heirs of [petitioner] Danilo Chua; and
Royal Bank is concerned are

151
 attorneys fees in the sum of P30,000.00.
[52]
To adjudge damages, paragraph

(d) of Section 3 of Rule 9 of the

Rules of Court provides that a

judgment against a party in default

In the light of the pending issue
shall not exceed the amount or be
as to the validity of the sale of the
different in kind from that prayed for
property to the third parties
nor award unliquidated
(Cerrofer Realty Corporation and
damages. The proscription against
Spouses Roque), the trial court
the award of unliquidated damages
properly withheld judgment on the
is significant, because it means that
matter and thus left the prayer for
the damages to be awarded must be
damages as the sole issue for
proved convincingly, in accordance
resolution.
with the quantum of evidence

required in civil cases.

152
 much less, proof -- of noncompliance

Unfortunately for petitioners, with the requirement of publication

the grant of damages was not and public posting of the notice of

sufficiently supported by the sale, as required by ct No.

evidence for the following reasons. 3135. Neither has there been

competent evidence to show that the

price paid at the foreclosure sale

First, petitioners were not
was inadequate.[54] To be sure, there
deprived of their property without
was no ground to invalidate the sale.
cause. As correctly pointed out by

the CA, Act No. 3135, as amended,

does not require personal notice to Second, as previously stated,

the mortgagor.[53] In the present petitioners have not convincingly

case, there has been no allegation -- established their right to damages

on the basis of the purported

153
agreement to repurchase.Without advantage they enjoyed in presenting

reiterating our prior discussion on their evidence ex parte. Not in every

this point, we stress that entitlement case of default by the defendant is

to actual and compensatory damages the complainant entitled to win

must be proved even under Section 3 automatically.

of Rule 9 of the Rules of Court. The

same is true with regard to awards

for moral damages and attorneys

fees, which were also granted by the WHEREFORE, this Petition is

trial court. hereby DENIED and the assailed

Decision and

In sum, petitioners have failed to Resolution AFFIRMED. Costs

convince this Court of the cogency of against petitioners.

their position, notwithstanding the

154
SO ORDERED.

ARTEMIO V. PANGANIBAN
Chief Justice
Chairman, First Division

155

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 101256. March 8, 1993.
SPOUSES PEPITO AND LORETO LAUS, petitioners, vs. HON.
COURT OF APPEALS, HON. SALVADOR C. CEGUERA, in his
capacity as Presiding Judge of the Regional Trial Court of
Quezon City, Branch 82; NILO SM. CABANG, in his capacity as
Deputy Sheriff of Quezon City and CONSUELO P. TORRES,
respondents.
Alberto E. Venturanza for petitioners.
Leonardo Byron R. Perez, Jr. for private respondent.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; JURISDICTION; HOW
JURISDICTION OVER PERSON OF DEFENDANT ACQUIRED;
EFFECT OF INVALID SERVICE OF SUMMONS; CASE AT BAR.
The focal issue is whether or not the trial court acquired
jurisdiction over the persons of the petitioners by virtue of the
substituted service of summons effected by Deputy Sheriff Cruz.
Since the petitioners did not voluntarily submit to the jurisdiction
of the trial court, proper service of summons became imperative.
If the service effected in the case at bar was, as claimed by the
petitioners, invalid, the trial court acquired no jurisdiction over
their persons. In such an instance, the order of default, judgment
156
by default and writ of execution issued by the trial court would be
null and void. . . . Since the substituted service of summons in
this case was not validly effected, the trial court did not acquire
jurisdiction over the persons of the petitioners. The order of
default, the judgment by default, the writ of execution issued by it,
as well as the auction sale of the petitioners' properties levied on
execution are, therefore, all null and void.
2. ID.; ID.; SUMMONS; PERSONAL SERVICE; GENERAL RULE;
SUBSTITUTED SERVICE NATURE THEREOF; PHRASE
"WITHIN A REASONABLE TIME" CONSTRUED. The general
rule in this jurisdiction is that summons must be personally
served; pursuant to Section 7, Rule 14 of the Revised Rules of
Court, such personal service is to be accomplished by "handing a
copy thereof to the defendant in person, or, if he refuses to
receive it, by tendering it to him." However, if this mode of service
cannot be effected within a reasonable time, substituted service
may be resorted to under Section 8 of the same Rule. Section 8
provides: "SEC. 8. Substituted Service. If the defendant cannot
be served within a reasonable time as provided in the preceding
section, service may be effected (a) by leaving copies of the
summons at the defendant's dwelling house or residence with
some person of suitable age and discretion then residing therein,
or (b) by leaving the copies at defendant's office or regular place
of business with some competent person in charge thereof." This
provision is a reproduction of Section 8, Rule 7 of the 1940 Rules
of Court except that inter alia, "promptly" in the latter was
changed to "within a reasonable time" in the former. "Within a
reasonable time" contemplates a period of time longer than that
demarcated by the word "prompt," and presupposes that a prior
attempt at personal service, within a justifiable time frame as
would be necessary to bring the defendant within the jurisdiction
of the court, had failed. Since substituted service is in derogation
of the common law and is extraordinary in character, it must be
used only as prescribed and in the circumstances authorized by
statute. Statutes prescribing modes other than personal service of
summons must be strictly complied with to give the court
jurisdiction, and such compliance must appear affirmatively in the
return.
3. ID.; ID.; ID.; HOW IMPOSSIBILITY OF PROMPT PERSONAL
SERVICE SHOWN; CASE AT BAR. In Keister vs. Navarro, this
Court described how the impossibility of personal service should
be shown: "Impossibility of prompt service should be shown by
stating the efforts made to find the defendant personally and the
fact that such efforts failed. This statement should be made in the
proof of service (I Moran, Comments on the Rules of Court, 1970
Ed., p. 444). This is necessary because substituted service is in
derogation of the usual method of service. It has been held that
this method of service is `in derogation of the common law; it is a
method extraordinary in character, and hence may be used only
as prescribed and in the circumstances authorized by statute.' . . .
(72 C.J.S. 1053)." A perusal of the sheriff's return in the case at
bar readily reveals that it does not (a) indicate the impossibility of
service of summons within a reasonable time, (b) specify the
efforts exerted to locate the petitioners and (c) state that it was
served on a person of sufficient age and discretion residing
therein. The fact of the matter is that as disclosed in his testimony
taken in connection with the motion for reconsideration, and the
affidavit he prepared in conjunction with such hearing. Deputy
Sheriff Cruz resorted to a substituted service on his first and
only attempt to effect a personal service. Upon being informed
that the petitioners were not around at that time, he immediately
resorted to a substituted service through Josephine Areola, a
person whose age he did not even know or attempt to discover.
He did not even inquire about the whereabouts of the petitioners,
the time they were expected to return home, the hours of the day
they could be contacted at their house or the location of their
offices, if any, in order that he could faithfully comply with the
requirement of personal service.
4. ID.; ID.; ID.; SERVICE OF SUMMONS MAY BE MADE AT
NIGHT, DURING THE DAY, ON A SUNDAY OR A HOLIDAY;
REASON THEREFOR; CASE AT BAR. It is all too obvious that
no earnest efforts were exerted by Deputy Sheriff Cruz to effect
157
the personal service of summons. His testimony thus attests to an
undue, if not indecent, haste to serve the summons at the first
attempt without making sure that personal service was, by then
and even thereafter, an impossibility because either the
petitioners had left for a foreign country or an unknown
destination with not definite date of returning within a reasonable
period or had gone into hiding to avoid service of any process
from the courts. If he had only made the inquiries suggested
above, he could have returned in the evening of 10 October 1989
or on any of the succeeding days including the following
Saturday and Sunday. Service of summons may be made at night
as well as during the day, or even on a Sunday or holiday
because of its ministerial character.
5. ID.; ID.; MOTION TO DISMISS ON GROUND OF LACK OF
JURISDICTION OVER DEFENDANT'S PERSON; PERIOD FOR
FILING DOES NOT COMMENCE TO RUN UNTIL DEFENDANT
VOLUNTARILY SUBMITS TO COURT'S JURISDICTION;
REASON THEREFOR; CASE AT BAR. Some further
comments, en passant, on the ratiocination of the respondent
Court are in order. It is not accurate for the latter to have said that
the petitioners' motion to dismiss was not filed seasonably
because it was filed beyond the reglementary period provided in
the Revised Rules of Court. Such a conclusion would doubtless
be correct if there was a valid service of summons. If, however, a
defendant has not been properly summoned, the period to file a
motion to dismiss for lack of jurisdiction over his person does not
commence to run until he voluntarily submits to the jurisdiction of
the court, since the court has no jurisdiction to adjudicate the
controversy as to him until such time. In this case, petitioners did
not voluntarily submit to the jurisdiction of the trial court.
Consequently, the period to file a responsive pleading did not
even commence to run.
6. ID.; SPECIAL CIVIL ACTIONS; CERTIORARI; WHEN
INTERLOCUTORY ORDER MAY BE THE SUBJECT THEREOF;
CASE AT BAR. Nor are We persuaded by the respondent
Court's declaration that even if the motion to dismiss had been
filed on time, the trial court's order denying the same, being evidence to support the motion to reconsider the Order of 5
interlocutory, still cannot be the subject of a petition for certiorari. March 1990 denying the motion to dismiss. It would certainly not
To be sure, this rule admits of an exception, as when the trial have gone that far if it thought otherwise for by then, the decision
court clearly acted outside of its jurisdiction or with grave abuse of had already become final.
discretion in denying the motion to dismiss. This is exactly what
happened in the case while it was pending before the trial court; DECISION
the denial of the motion to dismiss was based solely on the
ground that a judgment by default had already been entered. DAVIDE, JR., J p:
Certainly, this does not constitute a valid ground for the denial
because the motion raises a fundamental and prejudicial issue
Petitioners seek the review and reversal of the 30 May 1991
affecting the validity of the decision by default.
Decision 1 of respondent Court of Appeals in CA-G.R. SP No.
22232 2 and the 30 July 1991 Resolution denying their motion to
7. ID.; EVIDENCE DISPUTABLE PRESUMPTIONS; reconsider the said decision. The challenged decision dismissed,
PRESUMPTION OF REGULARITY IN PERFORMANCE OF for lack of merit, their petition for certiorari, prohibition and
OFFICIAL FUNCTIONS; DOES NOT APPLY WHERE SHERIFF'S injunction to annul the Orders dated 5 March 1990 and 9 July
RETURN IS PATENTLY DEFECTIVE. Finally, respondent 1990 of Branch 82 of the Regional Trial Court (RTC) of Quezon
Court's reliance on the presumption of regularity in the City in Civil Case No. Q-89-3327 which, respectively, declared
performance of official functions is misplaced. We have held that them in default and denied their motion to reconsider such
such a presumption does not apply where it is patent that the declaration.
sheriff's return is defective.
The antecedents of this case are not controverted.
8. ID.; VOID JUDGMENT CAN NEVER BECOME FINAL AND
EXECUTORY; ACTION TO DECLARE NULLITY OF VOID
On 24 August 1989, private respondent Consuelo P. Torres filed
JUDGMENT IMPRESCRIPTIBLE; CASE AT BAR. Equally
against "Loredo (sic) Alfaro-Laus and John Doe" a complaint,
unmeritorious is the respondent Court's statement that the failure
docketed as Civil Case No. Q-89-3327, for the collection of a sum
of the petitioners to appeal from the judgment by default rendered
of money. The defendants in the said case are the petitioners in
such judgment final and unassailable. In the first place, it is
the instant petition. The complaint alleges that petitioner Loreto
axiomatic that a void judgment can never become final and
Alfaro-Laus executed a promissory note in favor of the private
executory and may even be assailed or impugned at any time. An
respondent under which the former undertook to pay the latter the
action to declare the nullity of a void judgment does not prescribe.
amount of Sixty-Six Thousand Pesos (P66,000.00) after three (3)
Secondly, the motion to dismiss in this case was filed before the
months from the date thereof. Upon maturity of the said
petitioners received a copy of the decision by default. Since the
promissory note, however, only Eleven Thousand Pesos
said motion is based on the lack of jurisdiction over the persons
(P11,000.00) was paid; despite the receipt of a demand letter
of the petitioners which, if true in fact, We have found it to be
from the private respondent, petitioners made no further
so would result in the nullification not only of the default order
payments. Thus, the former filed the aforementioned complaint
but of the decision as well, then for all legal intents and purposes,
praying for the payment of the unpaid balance of P55,000.00
the latter was covered by the motion. This was precisely the
"plus interest at the rate of ten per cent (10%), compounded
orientation of the trial court when it allowed the parties to submit

158
monthly beginning February 21, 1989, and twenty-five per cent
(25%) of the entire amount due for and as attorney's fees, such
being in accordance with the terms and conditions set forth in the
promissory note." 3
On 10 October 1989, Deputy Sheriff Romero S. Cruz proceeded
to the petitioners' address at 122 Molave Park Subdivision,
Paraaque, Metro Manila to serve the summons and a copy of
the complaint. Failing to serve the summons personally upon the
petitioners after waiting for ten (10) minutes, he resorted to a
substituted service through one Josephine Areola, who
purportedly represented herself to be the maid of the said
petitioners. 4 On the same date, Deputy Sheriff Cruz executed
and filed a return 5 which reads:
"Respectfully returned to the REGIONAL TRIAL COURT Branch
82, QUEZON CITY, the attached original copy of the summons
issued in connection with Civil Case No. 89-3327 entitled
CONSUELO P. TORRES versus LOREDO (sic) LAUS & JOHN
DOE with the information that duplicate copy of the same
together with the complaint and its annexes was duly served
upon defendant Loredo (sic) Laus of 122 Molave Park Subd.
Paraaque M. M. thru JOSEPHINE AREOLA, maid of Loredo
Daus (sic) of same address, received as evidenced by her
signature appearing thereon."
The petitioners did not file any answer. Consequently, upon
motion of the private respondent, the trial court 6 issued on 29
December 1989 an order declaring the former in default and
setting the ex parte presentation of the private respondent's
evidence for 16 January 1990. 7 The petitioners claim that they
received this 29 December 1989 Order only on 22 January 1990.
On 24 January 1990, the trial court rendered a judgment by
default against the petitioners; it ordered the latter "[T]o pay the
plaintiff (private respondent) the amount of FIFTY-FIVE Thousand
Pesos (P55,000.00) at the rate of ten per cent (10%),
compounded monthly beginning February 21, 1989 up to the
159
present; and . . . [T]o pay attorney's fees equivalent to twenty-five
percent (25%) of the entire amount due" to the private
respondent. 8
On 2 February 1990, before receiving a copy of the 22 January
1990 decision, petitioners, by way of a special appearance, filed a
motion to dismiss the case for lack of jurisdiction over their
persons. They allege that the service of summons was ineffective
because it was not indicated in the return that the sheriff had first
exerted efforts to serve the same personally before resorting to
substituted service. 9
In its Order of 5 March 1990, the trial court denied the motion to
dismiss for lack of merit on the ground that it had already
rendered a judgment by default on 24 January 1990. 10
Petitioners received a copy of this order on 24 March 1990. In the
meantime, the trial court issued a writ of execution.
On 30 March 1990, public respondent Deputy Sheriff Nilo
Cabang, pursuant to a writ of execution issued by the trial court,
levied upon petitioners' properties consisting of a 1983 Mitsubishi
Galant Sedan and a men's ring.
On 3 April 1990, petitioners filed a motion to reconsider the Order
of 5 March 1990; 11 they reiterated therein the contention that the
trial court did not acquire jurisdiction over their persons because
of the defective service of summons, and further aver that:
"Josephine Areola, the person who supposedly received the
summons is not even known to the defendants. It turned out from
their investigation that said Josephine Areola was just a guest of
one of their maid (sic) who stayed for only about a week.
Furthermore Josephine Areola was just a child of about ten to
eleven years old and would not be expected to know what to do
with the documents handed to her. With all due respect it would
not be fair for the defendant if the summons would be served
upon the defendants through a person who is not of sufficient age
and discretion at the time the summons was served, and a
transcient (sic) at that." 12
A hearing on the motion for reconsideration was held and the
parties presented evidence on the issue of service of summons.
Petitioner Loreto Alfaro-Laus testified that Josephine Areola, who
was 11 to 12 years old at that time, was just a guest of her maid
and thus stayed in the house for a week. Private respondent, on
the other hand, presented evidence to show that Josephine had
been staying in the petitioners' house since July 1990 for she was
the person who received the demand letter sent to the petitioners
on 3 July 1989. 13 Deputy Sheriff Cruz also took the witness
stand, identified the affidavit he executed on 27 April 1990 14 and
further asserted that he found no one in the house of the
petitioners when he arrived on 10 October 1989; he claimed that
he waited for ten (10) minutes. Thereupon, two (2) women
arrived; the said women told him, upon his inquiry, that the
petitioners were not around. He then served the summons
through one of them, Josephine Areola. 15
In its Order of 9 July 1990, 16 the trial court denied the
petitioners' motion for reconsideration and held that there was a
proper service of summons because contrary to Loreto Alfaro-
Laus' statement that Areola was a guest of their maid for a week,
it was proven that Areola was in fact the very person who, on 3
July 1989, received the demand letter sent by the private
respondent.
On 17 July 1990, petitioners filed with the Court of Appeals a
petition for certiorari, prohibition and injunction with application for
a restraining order 17 to set aside the trial court's Orders of 5
March 1990 and 9 July 1990, and to dismiss Civil Case No. Q-89-
3327. The petition was docketed as CA-G.R. SP No. 22232.
Petitioners insisted therein that the trial court committed grave
abuse of discretion and a grave error in denying their motion to
dismiss and the motion to reconsider said denial despite the lack
of jurisdiction over their persons. They likewise challenged the
160
denial of such motion to dismiss which was based solely on the
ground that a judgment by default had already been rendered. 18
On 30 May 1991, the respondent Court of Appeals promulgated
its decision 19 denying the petition for lack of merit. It made the
following disqualifications:
" . . . it was the defendants-petitioners who erred in filing a motion
to dismiss at that late stage of the proceedings. A motion to
dismiss on the ground that the Court has no jurisdiction over the
person of the defendants is proper only when made within the
reglementary period for filing a responsive pleading and before
such responsive pleading is filed (Rule 16, Sec. 1[a]). In this
case, the defendants-petitioners' motion to dismiss was filed five
(5) months after the complaint was filed and only after a default
judgment had already been rendered by the respondent Court.
Thus, it was rather too late in the day for the defendants-
petitioners' motion to dismiss to be considered by the respondent
Court. In the proper exercise of its sound judicial discretion, the
respondent Court did not err in denying the motion to dismiss on
the ground that a judgment by default had already been rendered.
Besides, even if the motion to dismiss was filed on time, and yet,
was still denied by the respondent Court, the order of the court
denying the motion to dismiss is interlocutory and cannot be the
subject of a petition for certiorari, such as this instant petition
(National Investment and Development Corp. vs. Aquino, 163
SCRA 153). The denial of a motion to dismiss cannot be
questioned in a petition for certiorari, which is an extra-ordinary
writ that is not allowed as a substitute for ordinary appeal (Tan vs.
Intermediate Appellate Court, 164 SCRA 130).
Be that as it may, the defendants-petitioners had other remedies
available to them, but which they failed to avail of. In a long line of
cases decided by the Supreme Court, it has been repeatedly
provided that the remedies of a defaulted defendant are:
(a) The defendant in default may, at any time after discovery
thereof and before judgment, file a motion, under oath, to set
aside the order of default on the ground that his failure to answer
was due to fraud, accident, mistake, excusable negligence, and
that he has a meritorious defense;
(b) If the judgment has already been rendered when the
defendant discovered the default, but before the same has
become final and executory, he may file a Motion for New Trial
under Section 1[a] of Rule 37;
(c) If the defendant discovered the default after the judgment has
become final and executory, he may file a petition for relief under
Sec. 2 of Rule 38; and
(d) He may also appeal from the judgment rendered against him
as contrary to the evidence or to law, even if no petition to set
aside the order of default has been presented by him (Sec. 2,
Rule 41). (Lina vs. Court of Appeals, 135 SCRA 637; Tiburcio vs.
Castro, 161 SCRA 583).
As it is, the defendants-petitioners failed, after they received
notice of the order declaring them in default and before the
default judgment was rendered, to file a motion, under oath, to set
aside the order of default on the ground that they failed to file a
timely answer due to fraud, accident, mistake, or excusable
negligence, and showing (sic) that they had a meritorious
defense.
The other applicable remedy which they failed to employ is the
remedy of appeal from the judgment rendered against them as
contrary to the evidence or the law, even in the absence of a
motion/petition to set aside the order of default. This instant
petition for certiorari cannot be a substitute for the remedy of
appeal, which the defendants-petitioners did not pursue, as they
must first exhaust the remedies available to them (Lina vs. Court
of Appeals, supra.). That the judgment by default had already
161
become final and is about to be executed is the result of the
defendants-petitioners' failure to file a timely appeal. As such, the
default judgment may no longer be challenged (Tiburcio vs.
Castro, supra.)
Lastly, We find that the respondent Court was liberal enough in
hearing the defendants-petitioners' motion for reconsideration of
the denial of their motion to dismiss. As the pivotal issue therein,
the defendant-petitioners were given their day in court to prove
that the service of summons to them was both improper and
invalid. After weighing the evidence and testimonies of the parties
and other persons involved, the respondent Court ruled that there
was valid service of summons. We find no compelling reason to
rule otherwise.
There is such a presumption of regularity in the performance of
official functions by the sheriff, and it was up to the defendants-
petitioners to convince the respondent Court that there was,
indeed, invalid service of summons. This they failed to do. They
could not substantiate their claim that Josephine Areola was a
child of 10 to 11 years who would not know what to do with the
court documents received by her. The defendants-petitioners'
contention that Josephine Areola stayed with them for only a few
days backfired when the private respondent presented
documentary evidence to show that Josephine Areola was
already residing in the defendants-petitioners' house at least
three (3) months before the summons was served. No other proof
was presented by the defendants-petitioners to bolster their
allegations apart from their self-serving, and sometimes
conflicting, testimonies. Thus, We find no error or grave abuse of
discretion on the part of the respondent Court in denying the
defendants-petitioners' motion for reconsideration." 20
Meanwhile, on 13 June 1991, respondent sheriff Nilo Cabang
sold at a public auction the levied men's ring - on oval diamond
set in yellow gold to the private respondent for P140,000.00,
and the Galant car to Atty. Leonardo Perez, Jr., counsel for the
latter, for P180,000.00. Both were the highest bidders. 21
Their motion for the reconsideration of the aforesaid decision
having been denied in the respondent Court's Resolution of 30
July 1991, 22 petitioners availed of this recourse under Rule 45 of
the Revised Rules of Court and raise the following issues:
"1. WHETHER OR NOT THE COURT A QUO ACQUIRED
JURISDICTION OVER THE REASONS OF THE PETITIONERS
BY VIRTUE OF THE SUBSTITUTED SERVICE OF SUMMONS
EFFECTED BY DEPUTY SHERIFF ROMEO CRUZ;
2. WHETHER OR NOT THE REMEDY OF CERTIORARI CAN
BE AVAILED OF BY A PARTY IMPROVIDENTLY DECLARED IN
DEFAULT TO CHALLENGE THE ORDER OF DEFAULT AND
THE SUBSEQUENT JUDGMENT BY DEFAULT." 23
On 10 February 1992, after the filing of the private respondent's
comment and the petitioners' reply thereto, We resolved to give
due course to the petition and required the parties to file their
respective memoranda which they subsequently complied with.
We find merit in this petition.
The focal issue is whether or not the trial court acquired
jurisdiction over the persons of the petitioners by virtue of the
substituted service of summons effected by Deputy Sheriff Cruz.
Since the petitioners did not voluntarily submit to the jurisdiction
of the trial court, proper service of summons became imperative.
If the service effected in the case at bar was, as claimed by the
petitioners, invalid, the trial court acquired no jurisdiction over
their persons. 24 In such an instance, the order of default,
judgment by default and writ of execution issued by the trial court
would be null and void. 25
The general rule in this jurisdiction is that summons must be
personally served; pursuant to Section 7, Rule 14 of the Revised
Rules of Court, such personal service is to be accomplished by
"handing a copy thereof to the defendant in person, or, if he
162
refuses to receive it, by tendering it to him." However, if this mode
of service cannot be effected within a reasonable time,
substituted service may be resorted to under Section 8 of the
same Rule. Section 8 provides:
"SECTION 8. Substituted Service. If the defendant cannot be
served within a reasonable time as provided in the preceding
section, service may be effected (a) by leaving copies of the
summons at the defendant's dwelling house or residence with
some person of suitable age and discretion then residing therein,
or (b) by leaving the copies at defendant's office or regular place
of business with some competent person in charge thereof."
This provision is a reproduction of Section 8, Rule 7 of the 1940
Rules of Court except that inter alia, "promptly" in the latter was
changed to "within a reasonable time" in the former. "Within a
reasonable time" contemplates a period of time longer than that
demarcated by the word "prompt," and presupposes that a prior
attempt at personal service, within a justifiable time frame as
would be necessary to bring the defendant within the jurisdiction
of the court, had failed. 26 Since substituted service is in
derogation of the common law and is extraordinary in character, it
must be used only as prescribed and in the circumstances
authorized by statute. 27 Statutes prescribing modes other than
personal service of summons must be strictly complied with to
give the court jurisdiction, and such compliance must appear
affirmatively in the return. 28
In Keister vs. Navarro, 29 this Court described how the
impossibility of personal service should be shown:
"Impossibility of prompt service should be shown by stating the
efforts made to find the defendant personally and the fact that
such efforts failed. This statement should be made in the proof of
service (I Moran, Comments on the Rules of Court, 1970 Ed., p.
444). This is necessary because substituted service is in
derogation of the usual method of service. It has been held that
this method of service is 'in derogation of the common law; it is a
method extraordinary in character, and hence may be used only
as prescribed and in the circumstances authorized by statute.' . . .
(72 C.J.S. 1053)."
Emphasizing the need for strict compliance with the requirements
of substituted service, this Court issued Administrative Circular
No. 59, the pertinent portions of which read as follows:
"SUBJECT: Service of Summons.
Delays in court proceedings have been caused by faulty and
erroneous implementation of Section 8, Rule 14, Rules of Court
on Substituted Service of Summons.
The Trial Judges of all lower courts, as well as the Clerks of Court
in their capacity as Ex-Officio Sheriffs together with the Deputy
Sheriffs are reminded of the provision of Section 8, Rule 14,
Rules of Court on substituted service as follows:
xxx xxx xxx
The manner of effecting substituted service as prescribed in
Venturanza v. Court of Appeals, 156 SCRA 305, must be strictly
complied with, thus:
'The substituted service should be availed only when the
defendant cannot be served promptly in person. Impossibility of
prompt service should be shown by stating the efforts made to
find the defendant personally and the failure of such efforts. The
statement should be made in the proof of service. This is
necessary because substituted service is in derogation of the
usual method of service.
Substituted service is a method extraordinary in character, and
hence may be used only as prescribed in the circumstances
authorized by statute. Thus, the statutory requirements of
substituted service must be followed strictly, faithfully, and any
163
substituted service other than that authorized by the statute is
considered ineffective.'
For immediate compliance."
A perusal of the sheriff's return in the case at bar readily reveals
that it does not (a) indicate the impossibility of service of
summons within a reasonable time, (b) specify the efforts exerted
to locate the petitioners and (c) state that it was served on a
person of sufficient age and discretion residing therein. The fact
of the matter is that as disclosed in his testimony taken in
connection with the motion for reconsideration, and the affidavit
he prepared in conjunction with such hearing. Deputy Sheriff Cruz
resorted to a substituted service on his first and only
attempt to effect a personal service. Upon being informed that the
petitioners were not around at that time, he immediately resorted
to a substituted service through Josephine Areola, a person
whose age he did not even know or attempt to discover. He did
not even inquire about the whereabouts of the petitioners, the
time they were expected to return home, the hours of the day
they could be contacted at their house or the location of their
offices, if any, in order that he could faithfully comply with the
requirement of personal service. Thus, he declared and admitted:
"Q In this case, you went to the residence of the defendant once
as you stated on paragraph 3 30 on October 10, 1989?
A Yes, sir.
Q And you did not wait the (sic) defendant to come because
according to you in paragraph 4, you were informed that the
defendant was not around, is that correct?
A According to the maid.
Q So upon being informed that the defendant was not around you
served the summons, according to paragraph 4 to one Josephine
Ariola, is that correct?
A Yes, sir.
Q In other words, you relied on the information given to you by
somebody that the defendant was not around?
A: I waited there for around ten (10) minutes and then two (2)
women arrived in the tricycle and I waited them (sic) to get inside
and I asked them if Mr. and Mrs. Laus will be coming.
Q And they answered they were not around at that time?
A Yes, sir.
Q So, you immediately served the summons upon the persons
arriving (sic)?
A Yes, sir.
Q And who were these persons who arrived?
A Josephine Ariola.
Q And who is her companion?
A I did not ask anymore?
xxx xxx xxx
Q Who is older, is this Josephine Ariola or her companion?
A Josephine Ariola, she was the one who signed the summons.
164
Q Did you ask her age?
A I did not ask anymore because she look already (sic) of
sufficient age.
Q That's your conclusion?
A Yes because she was the maid there and she was the older
one." 31
As it turns out, the unrebutted evidence for the petitioners
establishes that Areola (or Ariola) was only 11 to 12 years old at
the time substituted service was attempted. 32
It is all too obvious that no earnest efforts were exerted by Deputy
Sheriff Cruz to effect the personal service of summons. His
testimony thus attests to an undue, if not indecent, haste to serve
the summons at the first attempt without making sure that
personal service was, by then and even thereafter, an
impossibility because either the petitioners had left for a foreign
country or an unknown destination with not definite date of
returning within a reasonable period or had gone into hiding to
avoid service of any process from the courts. If he had only made
the inquiries suggested above, he could have returned in the
evening of 10 October 1989 or on any of the succeeding days
including the following Saturday and Sunday. Service of
summons may be made at night as well as during the day, or
even on a Sunday or holiday because of its ministerial character.
33
Since the substituted service of summons in this case was not
validly effected, the trial court did not acquire jurisdiction over the
persons of the petitioners. The order of default, the judgment by
default, the writ of execution issued by it, as well as the auction
sale of the petitioners' properties levied on execution are,
therefore, all null and void.
There is more in this case which further unmasks the nullity of the
decision of the trial court. Both parties agree that the petitioners
were the defendants in Civil Case No. Q-89-3327. However,
petitioner Loreto Alfaro-Laus is erroneously mentioned in the
complaint as Loredo. On the other hand, petitioner Pepito Laus,
the husband of Loreto, is merely designated as JOHN DOE. The
latter was impleaded as a co-defendant presumably on the theory
that the liability sought to be enforced is a conjugal partnership
liability. In short, Loreto's husband was sued as an indispensable
party; it is clear that the trial court treated him as such when in its
decision, ordered the defendants, not just Loreto, to pay the
adjudged amounts.
The sheriff's return of service indisputably discloses that no
summons was even attempted to be served on petitioner Pepito
Laus. Sheriff Cruz unequivocally states therein that the "duplicate
copy of the same together with the complaint and its annexes
was duly served upon defendant Loredo (sic) Laus of 122 Molave
Park Subd. Paraaque M. M. thru JOSEPHINE AREOLA, maid of
Loredo Daus (sic) of same address, . . . ." 34
Neither Deputy Sheriff Cruz nor the private respondent had
volunteered additional information to the effect that at some other
time, summons was in fact served on Pepito Laus. Accordingly,
the trial court never acquired jurisdiction over his person. And yet,
while it concedes in its 29 December 1989 Order that the
substituted service of summons was valid only for Loreto, it
declared the defendants and not only her in default. The
court could have easily avoided this misdoing if it only examined
the records before issuing the order. On this score alone, the
judgment by default is fatally flawed.
There is still another fact which betrays the trial court's unusual
haste in rendering the judgment by default. In the dispositive
portion of the decision, the defendants were ordered, inter alia:
"1. To pay the plaintiff the amount of FIFTY-FIVE Thousand
Pesos (P55,000.00) at the rate of ten per cent (10%),
165
compounded monthly beginning February 21, 1989 up to the
present;" 35
While this rate of ten per cent (10%) could only refer to the
imposable interest, the court failed to state whether its application
shall be on a monthly or yearly basis. The body of the decision,
however, speaks of ten per cent (10%) interest PER MONTH; 36
this seems to have been the basis relied on by respondent sheriff
Cabang in computing for the petitioners' alleged liability for
purposes of execution. 37 This award of interest in effect
amounting to one hundred twenty per cent (120%) per annum
and the additional twenty-five per cent (25%) of the total amount
due ordered paid as attorney's fees, are unreasonable and
unconscionable.
Since the trial court's default order and judgment by default are
null and void, the respondent Court gravely erred in affirming
them.
Some further comments, en passant, on the ratiocination of the
respondent Court are in order. It is not accurate for the latter to
have said that the petitioners' motion to dismiss was not filed
seasonably because it was filed beyond the reglementary period
provided in the Revised Rules of Court. Such a conclusion would
doubtless be correct if there was a valid service of summons. If,
however, a defendant has not been properly summoned, the
period to file a motion to dismiss for lack of jurisdiction over his
person does not commence to run until he voluntarily submits to
the jurisdiction of the court, since the court has no jurisdiction to
adjudicate the controversy as to him until such time. 38 In this
case, petitioners did not voluntarily submit to the jurisdiction of the
trial court. Consequently, the period to file a responsive pleading
did not even commence to run.
Nor are We persuaded by the respondent Court's declaration that
even if the motion to dismiss had been filed on time, the trial
court's order denying the same, being interlocutory, still cannot be
the subject of a petition for certiorari. To be sure, this rule admits
of an exception, as when the trial court clearly acted outside of its
jurisdiction or with grave abuse of discretion in denying the
motion to dismiss. 39 This is exactly what happened in the case
while it was pending before the trial court; the denial of the motion
to dismiss was based solely on the ground that a judgment by
default had already been entered. Certainly, this does not
constitute a valid ground for the denial because the motion raises
a fundamental and prejudicial issue affecting the validity of the
decision by default.
Equally unmeritorious is the respondent Court's statement that
the failure of the petitioners to appeal from the judgment by
default rendered such judgment final and unassailable. In the first
place, it is axiomatic that a void judgment can never become final
and executory and may even be assailed or impugned at any
time. 40 An action to declare the nullity of a void judgment does
not prescribe. 41 Secondly, the motion to dismiss in this case was
filed before the petitioners received a copy of the decision by
default. Since the said motion is based on the lack of jurisdiction
over the persons of the petitioners which, if true in fact, We
have found it to be so would result in the nullification not only
of the default order but of the decision as well, then for all legal
intents and purposes, the latter was covered by the motion. This
was precisely the orientation of the trial court when it allowed the
parties to submit evidence to support the motion to reconsider the
Order of 5 March 1990 denying the motion to dismiss. It would
certainly not have gone that far if it thought otherwise for by then,
the decision had already become final.
Finally, respondent Court's reliance on the presumption of
regularity in the performance of official functions is misplaced. We
have held that such a presumption does not apply where it is
patent that the sheriff's return is defective. 42
WHEREFORE, the Decision of the respondent Court of Appeals
of 30 May 1991 and the Resolution dated 30 July 1991 in CA-
G.R. SP No. 22232 are hereby REVERSED and SET ASIDE. The
Order of Branch 82 of the Regional Trial Court of Quezon City of
29 December 1989 (Civil Case No. Q-89-3327) declaring
petitioners in default, its Decision of 24 January 1990, Orders of 5
March 1990 and 9 July 1990 and the writ of execution issued
therein, as well as all proceedings had pursuant to the writ of
execution, are declared NULL and VOID. The case is hereby
remanded to the court of origin for further proceedings which shall
include the valid service of summons.
SO ORDERED.
Feliciano, Bidin, Romero and Melo, JJ ., concur.
Gutierrez, Jr., J ., on terminal leave.

Its suggestion that the petitioners should have filed a motion to

set aside the order of default on the ground that they had failed to
file the answer on grounds of fraud, accident, mistake or
excusable negligence or a motion for new trial or a petition for
relief from judgment, is untenable for it begs the question.
Besides, as shown above, petitioners' failure to file the answer
was not based on any of these grounds, but stood on the void
service of summons.

166
 Before us is a Petition for Review under Rule 45 of
THIRD DIVISION
the Rules of Court, assailing the February 17, 1998
Decision[1] of the Court of Appeals (CA) in CA-GR CV
No. 42971. The dispositive portion of the CA Decision
[G.R. No. 135384. April 4, 2001] reads as follows:

WHEREFORE, without anymore touching on the merit

MARIANO DE GUIA and APOLONIA DE
GUIA, petitioners, vs. CIRIACO, LEON,
VICTORINA, TOMASA and PABLO, all
surnamed DE GUIA, respondents.
DECISION
PANGANIBAN, J.:
Under the pre-1997 Rules of Civil Procedure, a
notice of pretrial must be served separately on the
counsel and the client. If served only on the counsel, the
notice must expressly direct the counsel to inform the
client of the date, the time and the place of the pretrial
conference. The absence of such notice renders the
proceedings void, and the judgment rendered therein
cannot acquire finality and may be attacked directly or
collaterally.
of the judgment, we hereby SET ASIDE the default
Order of June 18, 1992 which the lower court had
improvidently issued as well as the ensuing judgment
which suffers from the same fatal infirmity. Let the case
be remanded to the lower court, which is directed to
promptly set the case for pre-trial conference in
accordance with the present Rules, and for further
proceedings.[2]
Also assailed is the September 11, 1998 CA
Resolution[3] which denied petitioners Motion for
Reconsideration.
The Facts
The appellate court summarized the antecedents of
the case as follows:

The Case The record shows that on October 11, 1990, plaintiffs
Mariano De Guia, Apolonia De Guia, Tomasa De Guia
and Irene Manuel filed with the court below a complaint
for partition against defendants Ciriaco, Leon, Victorina

167
and Pablo De Guia. They alleged x x x that the real
properties therein described were inherited by plaintiffs
and defendants from their predecessors-in-interest, and
that the latter unjustly refused to have the properties
subdivided among them. Shortly after defendants filed
their traverse, an amended complaint was admitted by
the lower court, in which plaintiff Tomasa De Guia was
impleaded as one of the defendants for the reason that
she had become an unwilling co-plaintiff.
It is further shown in the record that on June 11, 1992,
the Branch Clerk of Court issued a Notice setting the
case for pre-trial conference on June 18, 1992 at 8:30
a.m. Copies of said notices were sent by registered mail
to parties and their counsel. It turned out that both
defendants and counsel failed to attend the pre-trial
conference. Hence, upon plaintiffs motion, defendants
were declared as in default and plaintiffs were allowed
to present their evidence ex-parte.
It appears that on July 6, 1992, defendants filed their
Motion for Reconsideration of the June 16, 1992 Order
which declared them as in default. They explained
therein that they received the Notice of pre-trial only in
the afternoon of June 18, 1992, giving them no chance
to appear for such proceeding in the morning of that
day. The Motion was opposed by plaintiffs who pointed
out that per Postal Delivery Receipt, defendants counsel
actually received his copy of the Notice on June 17,
1992 or one day before the date of pre-trial. Citing
168
Section 2, Rule 13 of the Rules of Court, plaintiffs
further urged that counsels receipt of the said notice on
June 17, 1992 was sufficient to bind defendants who
received said notice on the next day. Finally, they
faulted defendants for failing to support their Motion for
Reconsideration with an affidavit of merit showing
among others that they had a meritorious defense.
In an Order dated August 19, 1992, plaintiffs motion for
reconsideration was denied and on June 11, 1993,
judgment was rendered ordering the partition of the
controverted parcels of land.[4]
The CA Ruling
The CA sustained respondents claim that the trial
court had improperly declared them in default. It held
that the Notice of pretrial received by their counsel a
day before the hearing did not bind the clients, because
the Rules of Court in effect at the time mandated
separate service of such Notice upon the parties and
their counsel. Said the appellate court:
In fine, we hold that the lower court committed a
reversible error in declaring appellants as in default for
their failure to attend the pre-trial conference [of] which
they were not properly served x x x notice and in
subsequently rendering the herein appealed
judgment. And while we commend the lower court for
its apparent interest in disposing of the case with
dispatch, the imperatives of procedural due process
constrain us to set aside the default order and the
appealed judgment, both of which were entered in
violation of appellants right to notice of pre-trial as
required by the Rules.[5]
Hence, this Petition.[6]
Issues
Petitioners impute the following alleged errors to
the CA:
I declaring respondents in default; and (2) petitioners
The Respondent Court of Appeals, with grave abuse of
discretion, erred in not finding private respondents as in
default despite the existence of fraud, for being contrary
to law, and for being contrary to the findings of the trial
court.
II
The Respondent Court, with grave abuse of discretion,
erred in reversing the trial courts Decision
notwithstanding private respondents violations of Rule
15, Sections 4 and 5 and Administrative Circular No.
04-94 and Revised Circular No. 28-91.
169
III
The Respondent Court of Appeals, with grave abuse of
discretion, erred in not affirming the compromise
agreement which has the effect and authority of res
judicata even if not judicially approved.
IV
The Respondent Court gravely erred in not applying
Rule 135, Section 8 as warranted by the facts, admission
and the evidence of the parties.[7]
In the main, petitioners raise the following core
issues: (1) the propriety of the trial courts order
allegation of procedural prejudice.
The Courts Ruling
The Petition has no merit.
First Issue: The Propriety of the Default Order
When the present dispute arose in 1992, the
applicable rule was Section 1, Rule 20 of the pre-1997
Rules of Civil Procedure, which provided as follows:
SECTION 1. Pre-trial mandatory. -- In any action after
the last pleading has been filed, the court shall direct the
parties and their attorneys to appear before it for a
conference to consider:
x x x x x x x x x.
This provision mandated separate service of the
notice of pretrial upon the parties and their lawyers.
[8]
In Taroma v. Sayo,[9] the Court explained:
For the guidance of the bench and bar, therefore, the
Court in reaffirming the ruling that notice of pre-trial
must be served separately upon the party and his
counsel of record, restates that while service of such
notice to party may be made directly to the party, it is
best that the trial courts uniformly serve such notice to
party through or care of his counsel at counsels
address with the express imposition upon counsel of the
obligation of notifying the party of the date, time and
place of the pre-trial conference and assuring that the
party either appear thereat or deliver counsel a written
authority to represent the party with power to
compromise the case, with the warning that a party who
fails to do so may be non-suited or declared in default.
(emphasis supplied)
Hence, before being declared non-suited or
considered in default, parties and their counsel must be
shown to have been served with notice of the pretrial
conference.[10] Moreover, if served only on the counsel,
170
the notice must expressly direct him or her to inform the
client of the date, the time and the place of the pretrial
conference. The absence of such notice renders the
proceedings void, and the judgment rendered therein
cannot acquire finality and may be attacked directly or
collaterally.[11]
In this case, respondents received the notice on
the afternoon of June 18, 1992, or after the pretrial
scheduled on the morning of that day. Moreover,
although the Notice was also sent to their counsel, it did
not contain any imposition or directive that he inform
his clients of the pretrial conference. The Notice merely
stated: You are hereby notified that the above-entitled
case will be heard before this court on the 18 day of
th
June, 1992, at 8:30 a.m. for pre-trial.[12]
Such belated receipt of the notice, which was not
attributable to respondents, amounted to a lack of
notice. Thus, the lower court erred in declaring them in
default and in denying them the opportunity to fully
ventilate and defend their claim in court.
Of course, this situation would not have arisen
under Section 3,[13] Rule 18 of the 1997 Rules of Civil
Procedure. It specifically provides that notice of pretrial
shall be served on counsel, who is charged with the duty
of notifying the client. Considering the milieu of the
present case, however, such amended proviso is not
applicable.
 Second Issue: Allegation of Procedural Bias
inherent power of the Court to suspend its own rules in
a particular case in order to do justice. [14]
Petitioners allege that, to their detriment, the One last point. Petitioners fault the CA for
appellate court disregarded established procedural remanding the case to the trial court, arguing that the
precepts in resolving the case, and that it did so for three appellate court should have resolved the case on its
reasons. First, respondents Manifestation and Motion to merit.
Lift the Order of Default, filed with the trial court, was
We understand petitioners apprehension at the
merely pro forma because the former lacked the
prospect of re-hearing the case; after all, it has been nine
requisite notice of hearing. Second, it also lacked an
years since the filing of the Complaint. However, their
affidavit of merit. Third, respondents Appeal Brief did
claim and the evidence supporting it -- and respondents
not contain a certificate of non-forum shopping.
as well -- can be best threshed out and justly resolved in
Granting that respondents Manifestation and Motion the lower court. In this regard, we cannot pass upon the
to Lift the Order of Default was pro forma, this issue validity of the Agreement of Partition between Mariano
has become moot, not only because the trial court had de Guia and Ciriaco de Guia, for such action would
denied such Motion, but also because what was amount to a prejudgment of the case.
appealed was the judgment rendered by the lower
WHEREFORE, the Petition is DENIED and the
court. For the same reason, we must also reject
assailed Decision and Resolution AFFIRMED. No
petitioners insistence that an affidavit of merit was
pronouncement as to costs.
absent. In any case, there was no need to attach an
affidavit of merit to the Motion, as the defenses of SO ORDERED.
respondents had been set out in their Answer.
Melo, (Chairman), Vitug, Gonzaga-
With regard to the absence of a certification of non- Reyes, and Sandoval-Gutierrez, JJ., concur.
forum shopping, substantial justice behooves us to agree
with the disquisition of the appellate court. We do not
condone the shortcomings of respondents counsel, but
we simply cannot ignore the merits of their
claim. Indeed, it has been held that [i]t is within the

171

THIRD DIVISION
[G.R. No. 139884. February 15, 2001]
SPOUSES OCTAVIO and EPIFANIA
LORBES, petitioners, vs. COURT OF
APPEALS, RICARDO DELOS REYES and
JOSEFINA CRUZ, respondents.
DECISION
GONZAGA-REYES, J.:
This petition for review on certiorari arose from an action
for reformation of instrument and damages originally filed with
the Regional Trial Court of Antipolo, Rizal, Branch 74, the
decision on which was reviewed and reversed by the Third
Division of the Court of Appeals.
Petitioners were the registered owners of a 225-square
meter parcel of land located in Antipolo, Rizal covered by
Transfer Certificate of Title No. 165009. Sometime in August
1991, petitioners mortgaged this property to Florencio and
Nestor Carlos in the amount of P150,000.00.
About a year later, the mortgage obligation had increased
to P500,000.00 and fearing foreclosure of the property,
petitioners asked their son-in-law, herein private respondent
Ricardo delos Reyes, for help in redeeming their
property. Private respondent delos Reyes agreed to redeem the
172
property but because he allegedly had no money then for the
purpose he solicited the assistance of private respondent
Josefina Cruz, a family friend of the delos Reyeses and an
employee of the Land Bank of the Philippines.
It was agreed that petitioners will sign a deed of sale
conveying the mortgaged property in favor of private
respondent Cruz and thereafter, Cruz will apply for a housing
loan with Land Bank, using the subject property as collateral. It
was further agreed that out of the proceeds of the loan,
P500,000.00 will be paid to the Carloses as mortgagees, and
any such balance will be applied by petitioners for capital gains
tax, expenses for the cancellation of the mortgage to the
Carloses, transfer of title to Josefina Cruz, and registration of a
mortgage in favor of Land Bank.[1] Moreover, the monthly
amortization on the housing loan which was supposed to be
deducted from the salary of private respondent Cruz will be
reimbursed by private respondent delos Reyes.
On September 29, 1992, the Land Bank issued a letter of
guarantee in favor of the Carloses, informing them that Cruzs
loan had been approved. On October 22, 1992, Transfer
Certificate of Title No. 165009 was cancelled and Transfer
Certificate of Title No. 229891 in the name of Josefina Cruz
was issued in lieu thereof.[2] On November 25, 1992, the
mortgage was discharged.
Sometime in 1993, petitioners notified private respondent
delos Reyes that they were ready to redeem the property but
the offer was refused. Aggrieved, petitioners filed on July 22,
1994 a complaint for reformation of instrument and damages
with the RTC of Antipolo, Rizal, docketed as Civil Case No.
94-3296.
 In the complaint, petitioners claimed that the deed was
merely a formality to meet the requirements of the bank for the
housing loan, and that the real intention of the parties in
securing the loan was to apply the proceeds thereof for the
payment of the mortgage obligation.[3] They alleged that the
deed of sale did not reflect the true intention of the parties, and
that the transaction was not an absolute sale but an equitable
mortgage, considering that the price of the sale was inadequate
considering the market value of the subject property and
because they continued paying the real estate taxes thereto
even after the execution of the said deed of sale. Petitioners
averred that they did not see any reason why private
respondents would retract from their original agreement other
than that they (petitioners) and the members of their family
resigned en masse from the Mahal Namin Organization, of
which private respondent delos Reyes was the president and
chairman of the board of directors, and private respondent Cruz
was the treasurer. In the same complaint, they demanded moral
damages, exemplary damages, and attorneys fees.
On July 29, 1996, the trial court issued a temporary
restraining order enjoining private respondents from ejecting
petitioners from the premises of the disputed property; this was
soon replaced by a writ of preliminary injunction.
Summons and a copy of the complaint were served upon
private respondents on August 1, 1994. Private respondents
filed their answer beyond the reglamentary period, or only on
September 1, 1994.Thus, on September 5, 1994, petitioners
filed a motion to declare private respondents in default, which
the trial court granted in an order dated September 16,
1994. On September 30 of the same year, petitioners presented
their evidence ex parte before the trial court. The principal
173
witness presented was petitioner Octavio Lorbes, whose
testimony was corroborated by his son, Atty. Salvador Lorbes.
On October 12, 1994, private respondents filed a motion to
lift order of default and to strike out evidence presented ex
parte, which the court denied in an order dated October 26,
1994.
On June 20, 1995, the trial court rendered judgment in
favor of petitioners, upon finding that: (1) the Deed of Absolute
Sale dated October 21, 1992 did not reflect the true intention of
the parties, and (2) the transaction entered into between
petitioners and Cruz was not an absolute sale but an equitable
mortgage, considering that the price stated in the Deed of
Absolute Sale was insufficient compared to the value of the
property, petitioners are still in possession of the property, and
petitioners had continued to pay the real estate taxes thereon
after the execution of the said deed of sale. As explained by the
trial court in its decision:
The foregoing uncontroverted facts clearly show that
the transaction entered into between the plaintiffs and
the defendants is not an absolute sale but merely an
equitable mortgage as the sale was executed in order to
secure a loan from a certain bank to save the property
from the danger of foreclosure and to use it as collateral
thereof for bank loan purposes and that the same does
not reflect the real intention of the parties in executing
the said Deed of Sale. The court notes that at the time
the transaction and the Deed of Absolute Sale was
executed by the plaintiffs sometime in 1992, the
prevailing market value of the lot alone was
P400,000.00 per square meter such that the lot alone
consisting of 255 square meters, excluding the house
and improvements thereon would already cost more
than a million pesos already hence, the consideration of
P600,000.00 in the said Deed of Sale is considerably
insufficient compared to the value of the
property. Further, the plaintiffs are still in possession of
the subject property and had been paying the realty
taxes thereon even after the execution of the sale and the
transfer of the title from the plaintiffs to defendant
Josephine Cruz which clearly evinces the true badge of
the transaction which occurred between the plaintiffs
and defendants as that of an equitable mortgage and not
an absolute sale and that the plaintiffs were only
compelled to enter into the said transaction of sale with
the defendants as the former were in extreme need of
money in order to redeem their only conjugal property
and to save it from being foreclosed for non-payment of
the mortgage obligation and that it was never the
intention of the plaintiffs to sell the property to the
defendants, as it was their agreement that plaintiffs can
redeem the property or any member of the family
thereof, when they become financially stable. [4]
The dispositive portion of the trial courts decision thus
provides:
WHEREFORE, in view of the foregoing, judgment is
hereby rendered in favor of the plaintiffs and against the
defendants, ordering the latter jointly and severally, as
follows:
174
1. To reconvey the subject property to the plaintiffs upon
payment of the price stipulated in the contract of sale;
2. To pay plaintiffs the sum of P50,000.00 as moral
damages;
3. To pay plaintiffs the sum of P50,000.00 as and by way of
attorneys fees plus P1,000.00 per court appearance;
4. To pay the costs of suit.
SO ORDERED.[5]
The Court of Appeals reversed the above decision, finding
that private respondents were denied due process by the refusal
of the trial court to lift the order of default against them, and
that the transaction between petitioners and Cruz was one of
absolute sale, not of equitable mortgage. It also held the RTC
decision to be constitutionally infirm for its failure to clearly
and distinctly state the facts and the law on which it is based.
The Court of Appeals held that the reformation of the
Deed of Absolute Sale in the instant case is improper because
there is no showing that such instrument failed to express the
true intention of the parties by reason of mistake, fraud,
inequitable conduct, or accident in the execution thereof.[6] To
the Court of Appeals, the transaction was unmistakably a
contract of sale, as evidenced by the numerous supporting
documents thereto, such as the Contract to Sell dated June
1992, Affidavit of Waiver/Assignment dated August 14, 1992,
Receipt of Partial Advance Payment dated September 9, 1992,
and Transfer Certificate of Title No. 229891 issued in the name
of private respondent Cruz. Going over the indicators giving
rise to a presumption of equitable mortgage cited in the
decision of the RTC, the Court of Appeals held: (1) inadequacy
of price is material only in a sale with right to repurchase,
which is not the case with herein petitioners and Cruz;
moreover, the estimate of the market value of the property
came only from the bare testimony of petitioner Octavio
Lorbes, (2) petitioners remaining in possession of the property
resulted only from their refusal to vacate the same despite the
lawful demands of private respondent Cruz, and (3) there was
no documentary evidence that petitioners continued paying the
taxes on the disputed property after the execution of the Deed
of Absolute Sale.
In its decision, the Court of Appeals also pointed out that
under the usual arrangement of pacto de retro the vendor of the
property is a debtor of the vendee, and the property is used as
security for his obligation. In the instant case, the mortgage
creditors (the Carloses) are third persons to the Deed of
Absolute Sale.
This petition raises three issues before the Court: (1)
whether respondent court erred in ruling that the Deed of
Absolute Sale dated October 21, 1992 was an equitable
mortgage, (2) whether respondent court erred in ruling that by
declaring private respondents in default they were denied due
process of law, and (3) whether respondent court erred in ruling
that the trial courts decision violates the constitutional
requirement that it should clearly and distinctly state the facts
and the law on which it is based.[7]
We shall first deal with the second and third issues, these
being preliminary matters.
Well-settled is the rule that courts should be liberal in
setting aside orders of default for judgments of default are
frowned upon, unless in cases where it clearly appears that the
reopening of the case is intended for delay.[8] The issuance of
orders of default should be the exception rather than the rule, to
175
be allowed only in clear cases of obstinate refusal by the
defendant to comply with the orders of the trial court.[9]
Under the factual milieu of this case, the RTC was indeed
remiss in denying private respondents motion to lift the order
of default and to strike out the evidence presented by
petitioners ex parte, especially considering that an answer was
filed, though out of time. We thus sustain the holding of the
Court of Appeals that the default order of the RTC was
immoderate and in violation of private respondents due process
rights. However, we do not think that the violation was of a
degree as to justify a remand of the proceedings to the trial
court, first, because such relief was not prayed for by private
respondents, and second, because the affirmative defenses and
evidence that private respondents would have presented before
the RTC were capably ventilated before respondent court, and
were taken into account by the latter in reviewing the
correctness of the evaluation of petitioners evidence by the
RTC and ultimately, in reversing the decision of the RTC. This
is evident from the discussions in the decision of the Court of
Appeals, which cited with approval a number of private
respondents arguments and evidence, including the documents
annexed to their opposition to the issuance of a writ of
preliminary injunction filed with the RTC. [10] To emphasize, the
reversal of respondent court was not simply on due process
grounds but on the merits, going into the issue of whether the
transaction was one of equitable mortgage or of sale, and so we
find that we can properly take cognizance of the substantive
issue in this case, while of course bearing in mind the
inordinate manner by which the RTC issued its default order.
As regards the third issue, we reverse for being unfounded
the holding of the Court of Appeals since the RTC decision,
some parts of which we even reproduced in our earlier
discussions, clearly complied with the constitutional Thus, under Article 1602 of the Civil Code, a contract
requirement to state clearly and distinctly the facts and the law shall be presumed to be an equitable mortgage when --- (a) the
on which it was based. price of a sale with right to repurchase is unusually inadequate;
(b) the vendor remains in possession as lessee or otherwise; (c)
Thus, the one issue essential to the resolution of this case
upon or after the expiration of the right of repurchase another
is the nature of the transaction between petitioners and private
instrument extending the period of redemption or granting a
respondent Cruz concerning the subject parcel of land. Did the
new period is executed; (d) the purchaser retains for himself a
parties intend for the contested Deed of Absolute Sale to be
part of the purchase price; (e) the vendor binds himself to pay
a bona fide and absolute conveyance of the property, or merely
the taxes on the thing sold; and, (f) in any other case where it
an equitable mortgage?
may be fairly inferred that the real intention of the parties is
On the outset, it must be emphasized that there is no that the transaction shall secure the payment of a debt or the
conclusive test to determine whether a deed absolute on its face performance of any other obligation.
is really a simple loan accommodation secured by a mortgage.
Applying the foregoing considerations to the instant case,
[11]
The decisive factor in evaluating such agreement is the
the Court finds that the true intention between the parties for
intention of the parties, as shown not necessarily by the
executing the Deed of Absolute Sale was not to convey
terminology used in the contract but by all the surrounding
ownership of the property in question but merely to secure the
circumstances, such as the relative situation of the parties at
housing loan of Cruz, in which petitioners had a direct interest
that time, the attitude, acts, conduct, declarations of the parties,
since the proceeds thereof were to be immediately applied to
the negotiations between them leading to the deed, and
their outstanding mortgage obligation to the Carloses.
generally, all pertinent facts having a tendency to fix and
determine the real nature of their design and understanding. As It is not disputed that before the execution of the Deed of
such, documentary and parol evidence may be submitted and Absolute Sale petitioners mortgage obligation to the Carloses
admitted to prove the intention of the parties.[12] was nearing maturity and they were in dire need of money to
meet the same.Hence, they asked for the help of their son-in-
The conditions which give way to a presumption of
law delos Reyes who in turn requested Cruz to take out a
equitable mortgage, as set out in Article 1602 of the Civil
housing loan with Land Bank. Since collateral is a standard
Code, apply with equal force to a contract purporting to be one
requirement of banks in giving out loans, it was made to appear
of absolute sale.[13]Moreover, the presence of even one of the
that the subject property was sold to Cruz so she can declare
circumstances laid out in Article 1602, and not a concurrence
the same as collateral for the housing loan. This was simply in
of the circumstances therein enumerated, suffices to construe a
line with the basic requirement in our laws that the mortgagor
contract of sale to be one of equitable mortgage. [14] This is
be the absolute owner of the property sought to be mortgaged.
simply in consonance with the rule that the law favors the least [16]
Consistent with their agreement, as soon as the housing loan
transmission of property rights.[15]
was approved, the full amount of the proceeds were

176
immediately turned over to petitioners, who promptly paid
P500,000.00 therefrom to the Carloses in full satisfaction of
their mortgage obligation. The balance was spent by petitioners
in transferring title to the property to Cruz and registering the
new mortgage with Land Bank.
Understandably, the Deed of Absolute Sale and its
supporting documents do not reflect the true arrangement
between the parties as to how the loan proceeds are to be
actually applied because it was not the intention of the parties
for these documents to do so. The sole purpose for preparing
these documents was to satisfy Land Bank that the requirement
of collateral relative to Cruzs application for a housing loan
was met.
Were we to accept, as respondent court had, that the loan
that Cruz took out with Land Bank was indeed a housing loan,
then it is rather curious that Cruz kept none of the loan
proceeds but allowed for the bulk thereof to be immediately
applied to the payment of petitioners outstanding mortgage
obligation. It also strains credulity that petitioners, who were
exhausting all means to save their sole conjugal real property
from being foreclosed by the Carloses, would concurrently part
with the same in favor of Cruz.
Such urgent prospect of foreclosure helps to explain why
petitioners would subscribe to an agreement like the Deed of
Absolute Sale in the herein case, which on its face represents
their unconditional relinquishment of ownership over their
property. Passing upon previous similar situations the Court
has declared that while it was true that plaintiffs were aware of
the contents of the contracts, the preponderance of the evidence
showed however that they signed knowing that said contracts
did not express their real intention, and if they did so
notwithstanding this, it was due to the urgent necessity of
177
obtaining funds. Necessitous men are not, truly speaking, free
men; but to answer a present emergency, will submit to any
terms that the crafty may impose upon them.[17]
The facts further bear out that petitioners remained in
possession of the disputed property after the execution of the
Deed of Absolute Sale and the transfer of registered title to
Cruz in October 1992. Cruz made no demand on petitioners to
vacate the subject premises until March 19, 1994;
[18]
interestingly, this was two days after petitioners signified
their intention to redeem the property by paying the full
amount of P600,000.00.[19] On this basis, the finding of
respondent court that petitioners remained in possession of the
property only because they refused to vacate on Cruzs demand
is not accurate because the records reflect that no such demand
was made until more than a year since the purported sale of the
property.
Copies of realty tax receipts attached to the record also
show that petitioners continued paying for the taxes on the
property for the period 1992 to 1994, [20] or after the property
was supposed to have been sold to Cruz.
From the above, the Court is satisfied that enough of the
circumstances set out in Article 1602 of the Civil Code are
attendant in the instant case, as to show that the true
arrangement between petitioners and private respondent Cruz
was an equitable mortgage.
That a transfer certificate of title was issued in favor of
private respondent Cruz also does not import conclusive
evidence of ownership or that the agreement between the
parties was one of sale. As was stated in Oronce vs. Court of
Appeals,[21] citing Macapinlac vs. Gutierrez Repide[22]
xxx it must be borne in mind that the equitable doctrine
xxx to the effect that any conveyance intended as
security for a debt will be held in effect to be a
mortgage, whether so actually expressed in the
instrument or not, operates regardless of the form of the
agreement chosen by the contracting parties as the
repository of their will. Equity looks through the form
and considers the substance; and no kind of engagement
can be adopted which will enable the parties to escape
from the equitable doctrine to which reference is
made. In other words, a conveyance of land,
accompanied by registration in the name of the
transferee and the issuance of a new certificate, is no
more secured from the operation of the equitable
doctrine than the most informal conveyance that could
be devised.
Before we fully set aside this issue, it will be recalled that
the instant petition originated as a complaint for reformation
filed before the RTC of Antipolo, Rizal. The Court of Appeals
found petitioners action for reformation unmeritorious because
there was no showing that the failure of the deed of sale to
express the parties true intention was because of mistake,
fraud, inequitable conduct, or accident. [23]Indeed, under the
facts of the present case, reformation may not be proper for
failure to fully meet the requisites in Article 1359 of the Civil
Code, and because as the evidence eventually bore out the
contested Deed of Absolute Sale was not intended to reflect the
true agreement between the parties but was merely to comply
with the collateral requirements of Land Bank. However, the
fact that the complaint filed by petitioners before the trial court
178
was categorized to be one for reformation of instrument should
not preclude the Court from passing upon the issue of whether
the transaction was in fact an equitable mortgage as the same
has been squarely raised in the complaint and had been the
subject of arguments and evidence of the parties. Thus we have
held that it is not the caption of the pleading but the allegations
therein that determine the nature of the action, and the Court
shall grant relief warranted by the allegations and the proof
even if no such relief is prayed for.[24]
Finally, on the award of damages. Considering the due
process flaws that attended the default judgment of the RTC,
and applying the rule adopted by this Court that in instances
where no actual damages are adjudicated the awards for moral
and exemplary damages may be reduced,[25] we reduce the
award for moral damages in the instant case from P50,000.00
to P30,000.00. At the same time, we sustain the award of
attorneys fees in the amount of P50,000.00, it being clear that
petitioners were compelled to incur expenses and undergo the
rigors of litigation to recover their property.
WHEREFORE, the decision of the Court of Appeals is
REVERSED and SET ASIDE. The decision of the Regional
Trial Court of Antipolo, Rizal is REINSTATED, with the
MODIFICATION that the award of moral damages is reduced
to P30,000.00, and in all other respects AFFIRMED. Costs
against private respondents.
SO ORDERED.
Melo (Chairman), Vitug, Panganiban, and Sandoval-
Gutierrez, JJ., concur.
 THIRD DIVISION
x-------------------------------
---------------x
A. M. No. MTJ-05-1610
DR. JOSE S. LUNA, [formerly OCA IPI No. 04-1548-
MTJ]
DECISION
Complainant,
Present:

CARPIO MORALES, J.:

PANGANIBAN,

-versus- SANDOVAL- GUTIERREZ,

CORONA,
Judge Eduardo H. Mirafuente of the
CARPIO MORALES, and
Municipal Trial Court of Buenavista,
Marinduque, respondent, is charged with
GARCIA, JJ.
Grave Misconduct and Conduct Prejudicial
JUDGE EDUARDO H. to the Best Interest of the Service,
MIRAFUENTE, Munici Violation of the Rules on Summary
Promulgated:
pal Trial Court, Procedure in Special Cases and Gross
Buenavista, Ignorance of the Law by Dr. Jose S. Luna
September 26, 2005 (Dr. Luna) arising from respondents act of
Marinduque,
giving due course to the belatedly filed and
Respondent. unverified answer of the defendants in a
complaint for unlawful detainer.

179
 Dr. Luna later filed an Urgent
Manifestation relative to the said order of
[3]
In May 2003, Dr. Luna filed a complaint for
respondent which the latter treated as a
unlawful detainer, docketed as Civil Case
motion for reconsideration and which he
No. Y2K3-01, against Florencio Sadiwa and
denied.
Alex Sadiwa (the defendants) with the
Municipal Trial Court of Buenavista,
Marinduque presided by respondent.
Hence, arose the present administrative
complaint[4] against respondent, Dr. Luna
asserting that as the defendants answer
As adverted to above, the defendants filed
was unverified and belatedly filed,
an unverified answer to the complaint,
respondent should have motu proprio or on
seven (7) days beyond the reglementary
motion of the plaintiffs rendered judgment
period of ten (10) days from the service of
as warranted by the facts alleged in the
the summons on them.
complaint, following Section 6 of the
Revised Rule on Summary Procedure.

In mid July 2003, Dr. Lunas counsel filed a

Motion for Judgment,[1] invoking Section 6
In his Comment[5] dated April 16, 2004,
of the Revised Rule on Summary
respondent explains that his admission of
Procedure, to which motion the defendants
the defendants unverified, belatedly filed
did not file any opposition. By Order [2] of
answer was premised on the spirit of
August 28, 2003 respondent denied the
justice and fair play, which underlie[s]
motion.
every court litigation and serves as the
bedrock to preserve the trust and faith of

180
parties litigants in the judicial system; that
the admission was proper because the
delay was negligible, it involving only four
(4) days as June 13 to 15, 2003 were non-
working holidays (per presidential
proclamation in connection with the
Independence Day celebration); that the
defendants might have believed that the
period to file answer was 15 days, which is
the usual or common period to file an
answer; and that the delay was also
excusable as defendants acted pro
se, without the benefit of legal assistance,
and not dilatory.
At any rate, respondent contends that,
assuming arguendo that he erred in
denying Dr. Lunas Motion for Judgment, a
judge may not be held administratively
liable for every erroneous order or
decision, for to hold otherwise would
render judicial office untenable as no one
called upon to try the facts or interpret the
law in the process of administering the law
181
can be infallible in his judgment. Besides,
respondent adds, there is a judicial remedy
to correct the error.
For ignorance of the law, the Office of the
Court Administrator, by Report and
Recommendation[6] dated December 21,
2004, recommends that respondent be
faulted and ordered to pay a fine in the
amount of P11,000.00, with stern warning
that a repetition of the same or similar act
shall be dealt with more severely.
The office of a judge exists for one solemn
end to promote the ends of justice by
administering it speedily and impartially. A
judge is the visible representation of the
law and justice. These are self-evident
dogmas which do not even have to be
emphasized, but to which this Court is
wont to advert when members of the
judiciary commit legal faux pas, hopefully
only through unwitting error or inattention. Sections 5 and 6 of the 1991 Revised Rule
[7]
on Summary Procedure provide:

Delay in the disposition of cases Sec. 5. Answer. Within ten (10)

undermines the peoples faith and days from service of summons,
confidence in the judiciary. Hence, judges the defendant shall file his
are enjoined to decide cases with dispatch. answer to the complaint and
[8]
Such a requirement is especially serve a copy thereof on the
demanded in forcible entry and unlawful plaintiff. xxx
detainer cases.

Sec. 6. Effect of failure to

For forcible entry and unlawful detainer answer. Should the defendant
cases involve perturbation of social order, fail to answer the complaint
which must be restored as promptly as within the period above
possible, such that technicalities or details provided, the court, motu
of procedure which may cause proprio, or on motion of the
unnecessary delays should carefully be plaintiff, shallrender judgment
avoided.[9] That explains why the Revised as may be warranted by the
Rule on Summary Procedure which governs facts alleged in the complaint
ejectment, among other cases, lays down and limited to what is prayed
procedural safeguards to guarantee for therein: Provided, however,
expediency and speedy resolution. That the court may in its
discretion reduce the amount of

182
 damages and attorneys fees
claimed for being excessive or
otherwise unconscionable. This is
without prejudice to the
applicability of Section 4, Rule 18
of the Rules of Court, if there are
two or more defendants. (Italics in
the original, emphasis and
underscoring supplied)
The word shall in the above-quoted
sections of the 1991 Revised Rule on
Summary Procedure underscores their
mandatory character.[10] Giving the
provisions a directory application would
subvert the nature of the Rule and defeat
its objective of expediting the adjudication
of the suits covered thereby. To admit a
late answer is to put a premium on dilatory
maneuvers the very mischief that the Rule
seeks to redress.
183
In the present case, respondent gave a
liberal interpretation of the above-said
Rule. Liberal interpretation or construction
of the law or rules, however, is not a free
commodity that may be availed of in all
instances under the cloak of rendering
justice. Liberality in the interpretation and
application of Rules applies only in proper
cases and under justifiable causes and
circumstances. While it is true that
litigation is not a game of technicalities, it
is equally true that every case must be
prosecuted in accordance with the
prescribed procedure to insure an orderly
and speedy administration of justice. [11]
Respondents act, albeit a disregard of
procedural rules, does not, however,
constitute grave misconduct.
Neither does it constitute gross ignorance
of the law. Gross ignorance transcends a
simple error in the application of legal
provisions. In the absence of fraud,
dishonesty or corruption, the acts of a
judge in his judicial capacity are generally
not subject to disciplinary action, even
though such acts are erroneous.[12]
For liability for ignorance of the law to
attach, the assailed order, decision or
actuation of the judge in the performance
of official duties must not only be found to
be erroneous but, most importantly, it
must be established that the issuance
thereof was actuated by bad faith,
dishonesty, hatred or some other like
motive.[13] Any of such circumstances does
not obtain in the instant case.
That respondent granted complainants
motion for inhibition[14] just to erase any
nagging doubts on his impartiality and
fairness negates malice or any like motive
on his part.
184
Respondents act of admitting the belated
answer violated Section 6 of the above-
quoted Revised Rule on Summary
Procedure, however, which violation is
classified as less serious charge[15] under
Section 9 of Rule 140, as amended by A.M.
No. 01-8-10-SC[16] (Violation of Supreme
Court rules, directives and circulars).
In Ruperto v. Banquerigo[17] wherein the
therein respondent Judge was charged also
for violation of some provisions of the
Revised Rule on Summary Judgment, he
was severely reprimanded after taking into
account the fact that he was not only
detailed to the court where the cases
therein involved were pending, but also to
other courts. Such multiple assignments
were seen to affect his efficient handling of
cases. Additionally, lack of showing of
malice, corrupt motives or improper
considerations on the part of the judge was
appreciated.
Respecting respondents admission of the WHEREFORE, for violation of Section 6 of
unverified answer of the defendants, while the Revised Rule on Summary Procedure,
paragraph (B) of Section 3 of the Revised respondent Judge Eduardo H. Mirafuente is
Rule on Summary Procedure requires that hereby SEVERELY REPRIMANDED[19]with
all pleadings shall be verified, the a warning that a repetition of the same or
requirement is formal, not jurisdictional. similar acts shall be dealt with more
The court may order the correction of the strictly.
pleading if the verification is lacking or act
on the pleading although it is not verified,
if the attending circumstances are such
SO ORDERED.
that strict compliance with the rules may
be dispensed with in order that the end of
justice may thereby be served.[18]
CONCHITA CARPIO MORALES
Associate Justice
After considering the appreciation by
respondent of the fact that the defendants WE CONCUR:
filed a belated and unverified answer
without the assistance of counsel, and the
lack of showing of malice, corrupt motives
or the like on his part, this Court finds that,
as in the above-cited Ruperto case, the
penalty may be as it is hereby mitigated to ARTEMIO V. PANGANIBAN
severe reprimand.
Associate Justice

185
 Chairman

CANCIO C. GARCIA

Associate Justice

ANGELINA SANDOVAL-GUTIERREZ

Associate Justice

RENATO C. CORONA

Associate Justice

186
 THIRD DIVISION Respondent. November 29, 2005

x----------------------------------------------------------
--------------------------------------x
RAFAEL BAUTISTA G.R. No. 148361
and LIGAYA
ROSEL,
Present:
Petitioners,
RESOLUTION

PANGANIBAN, J., Chairman,

SANDOVAL-GUTIERREZ,
SANDOVAL GUTIERREZ, J.:
- versus - CORONA,

CARPIO MORALES, and

GARCIA, JJ.
For our resolution is the instant petition for
review on certiorari assailing the
Decision[1] and Resolution of the Court of
Appeals, dated November 24, 2000 and
MAYA-MAYA Promulgated:
May 30, 2001, respectively, in CA-G.R. SP
COTTAGES, INC.,
No. 43574.

187
The facts are: means, petitioners were able to obtain OCT
No. P-1436 in their names.
Spouses Rafael and Ligaya Bautista,
petitioners herein, are the registered On May 29, 1996, petitioners filed a motion
owners of a 3,856-square meter lot located to dismiss the complaint on the ground
at Natipuan, Nasugbu, Batangas, as that it does not state a cause of action.
evidenced by Original Certificate of Title They averred that respondent is a private
(OCT) No. P-1436 issued in their names on corporation, hence, disqualified under the
January 15, 1989 by the Register of Deeds, Constitution[2] from acquiring public
same province. alienable lands except by lease.
Respondent cannot thus be considered a
On May 13, 1996, Maya-Maya Cottages,
real party in interest.
Inc. (MMCI), respondent, filed with the
Regional Trial Court (RTC) of Nasugbu, In its Order dated August 30, 1996, the
Batangas a complaint for cancellation of trial court granted the motion to dismiss,
petitioners title and damages, with holding that since the property is an
application for a preliminary injunction, alienable public land, respondent is not
docketed as Civil Case No. 371. qualified to acquire it except by lease.
Respondent alleged inter alia that without Thus, it has no cause of action.
any color of right and through dubious

188
Respondent then filed a motion
reconsideration with motion for leave to
file an amended complaint for quieting of
title. Respondent alleged that the technical
description in petitioners title does not
cover the disputed lot.
Thereupon, petitioners filed
opposition, contending that the amended
complaint does not also state a cause of
action and if admitted, respondents theory
of the case is substantially modified.
On November 18, 1996, the trial court
issued an Order denying petitioners motion
to dismiss, thus, reversing its Order of
August 30, 1996 dismissing the complaint
in Civil Case No. 371.
Petitioners then filed with the Court of
Appeals a special civil
for for certiorari and prohibition, docketed as
CA-G.R. SP No. 43574. They alleged that
the amended complaint does not cure the
defect in the original complaint which does
not state a cause of action. Clearly, in
admitting respondents amended
complaint, the trial court committed grave
their
abuse of discretion amounting to lack or
excess of jurisdiction.
On November 24, 2000, the Court of
Appeals rendered a Decision dismissing
the petition for certiorari and prohibition.
Petitioners filed a motion for
reconsideration but was denied by the
Appellate Court in its Resolution of May 30,
2001.
Hence, the instant petitioner for review
action on certiorari.
189
The sole issue for our resolution is whether
the Court of Appeals erred in holding that
the trial court did not commit grave abuse
of discretion amounting to lack or excess
of jurisdiction in admitting respondents
amended complaint.
Section 2, Rule 10 of the 1997 Rules of
Civil Procedure, as amended, provides:
SEC. 2. Amendments as a matter of
right. A party may amend his pleading
once as a matter of right at any time
before a responsive pleading is
served or, in the case of a reply, at
any time within ten (10) days after it is
served.
The above provision clearly shows
that before the filing of any responsive
pleading, a party has the absolute
right to amend his pleading, regardless of
190
whether a new cause of action or change
in theory is introduced. It is settled that a
motion to dismiss is not the responsive
pleading contemplated by the Rule.
[3]
Records show that petitioners had not
yet filed a responsive pleading to the
original complaint in Civil Case No. 371.
What they filed was a motion to dismiss. It
follows that respondent, as a plaintiff, may
file an amended complaint even after the
original complaint was ordered dismissed,
provided that the order of dismissal is not
yet final,[4] as in this case.
Verily, the Court of Appeals correctly held
that in issuing the assailed Order admitting
the amended complaint, the trial court did
not gravely abuse its discretion. Hence,
neither certiorari nor prohibition would lie.
 Associate Justice

As to petitioners contention that

respondent corporation is barred from
acquiring the subject lot, suffice it to say
that this is a matter of defense which can
only be properly determined during the
full-blown trial of the instant case.

WHEREFORE, the petition is DENIED. The

challenged Decision and Resolution of the
Court of Appeals in CA-G.R. SP No. 43574
are AFFIRMED IN TOTO. Costs against
petitioners.

SO ORDERED.

ANGELINA SANDOVAL-
GUTIERREZ

191
SECOND DIVISION Respondent.
x
---------------------------------------------------------------------------
--- x
ALPINE LENDING INVESTORS G.R. No. 157107

and/or ROGELIO L. ONG, DECISION

Present:
Petitioners,

SANDOVAL-GUTIERREZ, J.:
PUNO, J., Chairperson,

SANDOVAL-GUTIERREZ,

CORONA,
For our resolution is the instant petition for
AZCUNA, and review on certiorari assailing the Order
- versus -
GARCIA, JJ. dated December 13, 2002 of the Regional
Trial Court (RTC), Branch
121, Caloocan City in Civil Case No. C-
20124.
Promulgated:

This case stemmed from a complaint

ESTRELLA CORPUZ, for replevin filed with the said court
by Estrella Corpuz, respondent, against
November 24, 2006

192
Alpine Lending Investors (Alpine), one of Forthwith, respondent informed Alpine
the petitioners herein, and Zenaida Lipata, about the spurious mortgage and
docketed as Civil Case No. C-20124. The demanded the release of her
complaint alleges that Zenaida was vehicle. Alpine promised to comply with
respondents former neighbor. Pretending her request on condition that Zenaida
to help respondent in securing a Garage should first be charged criminally.
Franchise from the Land Transportation
Office (LTO), Zenaida took from her the
original registration papers of her vehicle, Respondent then caused the filing with
a Toyota Tamaraw FX with Plate No. UMR the Metropolitan Trial Court of Caloocan Cit
660. Zenaida, using respondents y complaints for falsification of private
registration papers in representing herself document and estafa against
as the owner of the vehicle, was able to Zenaida. Eventually, a warrant of arrest
retrieve it was issued against her. Respondent
from Richmond Auto Center where it was informed Alpine about these
being repaired. Thereafter, Zenaida developments, but the latter still refused
disappeared with the vehicle. Respondent to turn over the vehicle to her.
then reported the incident to the LTO
Muntinlupa City Branch. There, she was
informed that Zenaida mortgaged her Instead of filing an answer to respondents
vehicle with petitioner Alpine. The LTO complaint, Alpine submitted to the RTC a
showed respondent the Chattel Mortgage motion to dismiss on the ground that it is
Contract bearing her forged signature. not a juridical person, hence, not a proper
party in the case.

193
In an Order dated September 2, 2002, the In her Comment on Alpines motion to
RTC denied Alpines motion to dismiss. expunge, respondent averred that her
contested motion need not be
accompanied by a notice of hearing as it is
Alpine then filed a motion for a non-litigated motion.
reconsideration, but it was denied. The RTC
then directed respondent to file her
amended complaint within ten (10) days. On January 24, 2003, the RTC denied
Alpines motion to expunge for lack of
merit. Alpine moved for a reconsideration,
However, respondent filed her Amended but this was denied in an Order
Complaint with an accompanying Motion to dated January 28, 2003.
Admit Amended Complaint two (2) days
late. Nonetheless, in an Order
dated December 13, 2002, the RTC Hence, this petition.
admitted the amended complaint.

The core issue here is whether the

On January 3, 2003, Alpine filed a Motion trial court erred in admitting respondents
to Expunge respondents motion to admit amended complaint.
amended complaint on the ground that the
latter motion was not accompanied by a
notice of hearing. The question is not novel.

194
 Sections 1 and 2, Rule 10 of the 1997 before a responsive pleading
Rules of Civil Procedure, as amended, is served or, in the case of a
provide: reply, at any time within ten (10)
days after it is served.

SEC. 1. Amendments in
general. Pleadings may be
amended by adding or striking an
allegation or the name of any As earlier mentioned, what petitioner
party, or by correcting a mistake Alpine filed in Civil Case No. C-20124 was a
in the name of a party or a motion to dismiss, not an answer. Settled
mistaken or inadequate is the rule that a motion to dismiss is not a
allegation or description in any
responsive pleading for purposes of
other respect, so that the actual
Section 2, Rule 10.[1] As no responsive
pleading had been filed, respondent could
merits of the controversy may
amend her complaint in Civil Case No. C-
speedily be determined, without
20124 as a matter of right. Following
regard to technicalities, and in
this Courts ruling
the most expeditious and
in Breslin v. Luzon Stevedoring Co., consi
[2]
inexpensive manner.
dering that respondent has the right to
amend her complaint, it is the correlative
duty of the trial court to accept the
SEC. 2. Amendments as a
amended complaint; otherwise, mandamus
matter of right. A party may
would lie against it. In other words, the
amend his pleading once as a
trial courts duty to admit the amended
matter of right at any time
complaint was purely ministerial. In fact,

195
respondent should not have filed a motion Associate Justice
to admit her amended complaint.

WE CONCUR:
It has always been the policy of this
Court to be liberal in allowing amendments
to pleadings in order that the real
controversies between or among the
parties may be presented and cases be REYNATO S. PUNO
decided on the merits without delay. Associate Justice
Chairperson

WHEREFORE, the petition

is DENIED. The challenged Order of the
RTC, Branch
121, Caloocan City dated December 13,
2002, in Civil Case No. C-20124 RENATO C. ADOLFO S. AZCUNA
is AFFIRMED. Costs against petitioners.
CORONA
Associate Justice
Associate Justice
SO ORDERED.

ANGELINA SANDOVAL GUTIERREZ

CANCIO C. GARCIA

196
Associate Justice

197

Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 158401 January 28, 2008
PHILIPPINE PORTS AUTHORITY, petitioner,
vs.
WILLIAM GOTHONG & ABOITIZ (WG&A), INC., respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
This resolves the Petition for Review on Certiorari filed by the
Philippine Ports Authority (petitioner) seeking the reversal of the
Decision1 of the Court of Appeals (CA) promulgated on October
24, 2002 and its Resolution dated May 15, 2003.
The antecedent facts are accurately narrated by the CA as
follows:
Petitioner William Gothong & Aboitiz, Inc. (WG&A for
brevity), is a duly organized domestic corporation
engaged in the shipping industry. Respondent Philippine
Ports Authority (PPA for brevity), upon the other hand, is a
government-owned and controlled company created and
existing by virtue of the provisions of P.D. No. 87 and
mandated under its charter to operate and administer the
country's sea port and port facilities.
After the expiration of the lease contract of Veterans
Shipping Corporation over the Marine Slip Way in the
North Harbor on December 31, 2000, petitioner WG&A
198
requested respondent PPA for it to be allowed to lease
and operate the said facility. Thereafter, then President
Estrada issued a memorandum dated December 18,
2000 addressed to the Secretary of the Department of
Transportation and Communication (DOTC) and the
General Manager of PPA, stating to the effect that in its
meeting held on December 13, 2000, the Economic
Coordinating Council (ECC) has approved the request of
petitioner WG&A to lease the Marine Slip Way from
January 1 to June 30, 2001 or until such time that
respondent PPA turns over its operations to the winning
bidder for the North Harbor Modernization Project.
Pursuant to the said Memorandum, a Contract of Lease
was prepared by respondent PPA containing the following
terms:
1. The lease of the area shall take effect on
January 1 to June 30, 2001 or until such time that
PPA turns over its operation to the winning bidder
for the North Harbor modernization;
2. You shall pay a monthly rental rate of P12.15
per square meter or an aggregate monthly rental
amount of P886,950.00;
3. All structures/improvements introduced in the
leased premises shall be turned over to PPA;
4. Water, electricity, telephone and other utility
expenses shall be for the account of William,
Gothong & Aboitiz, Inc.;
5. Real Estate tax/insurance and other
government dues and charges shall be borne by
WG&A.
The said contract was eventually conformed to and
signed by the petitioner company, through its
President/Chief Executive Officer Endika Aboitiz, Jr.
Thereafter, in accordance with the stipulations made in
the lease agreement, PPA surrendered possession of the
Marine Slip Way in favor of the petitioner.
However, believing that the said lease already expired on
June 30, 2001, respondent PPA subsequently sent a
letter to petitioner WG&A dated November 12, 2001
directing the latter to vacate the contested premises not
later than November 30, 2001 and to turnover the
improvements made therein pursuant to the terms and
conditions agreed upon in the contract.
In response, petitioner WG&A wrote PPA on November
27, 2001 urging the latter to reconsider its decision to
eject the former. Said request was denied by the PPA via
a letter dated November 29, 2001.
On November 28, 2001, petitioner WG&A commenced an
Injunction suit before the Regional Trial Court of Manila.
Petitioner claims that the PPA unjustly, illegally and
prematurely terminated the lease contract. It likewise
prayed for the issuance of a temporary restraining order
to arrest the evacuation. In its complaint, petitioner also
sought recovery of damages for breach of contract and
attorney's fees.
On December 11, 2001, petitioner WG&A amended its
complaint for the first time. The complaint was still
denominated as one for Injunction with prayer for TRO. In
the said amended pleading, the petitioner incorporated
statements to the effect that PPA is already estopped from
denying that the correct period of lease is "until such time
that the North Harbor Modernization Project has been
bidded out to and operations turned over to the winning
bidder. It likewise included, as its third cause of action, the
199
additional relief in its prayer, that should the petitioner be
forced to vacate the said facility, it should be deemed as
entitled to be refunded of the value of the improvements it
introduced in the leased property.
Following the first amendment in the petitioner's
complaint, respondent PPA submitted its answer on
January 23, 2002. Meanwhile, the TRO sought by the
former was denied by the trial court by way of an order
dated January 16, 2002.
Petitioner later moved for the reconsideration of the said
Order on February 11, 2002. Shortly thereafter, petitioner
filed a Motion to Admit Attached Second Amended
Complaint. This time, however, the complaint was already
captioned as one for Injunction with Prayer for Temporary
Restraining Order and/or Writ of Preliminary Injunction
and damages and/or for Reformation of Contract. Also, it
included as its fourth cause of action and additional relief
in its prayer, the reformation of the contract as it failed to
express or embody the true intent of the contracting
parties.
The admission of the second amended complaint met
strong opposition from the respondent PPA. It postulated
that the reformation sought for by the petitioner
constituted substantial amendment, which if granted, will
substantially alter the latter's cause of action and theory of
the case.
On March 22, 2002, the respondent judge issued an
Order denying the Admission of the Second Amended
Complaint. Petitioner filed a motion for reconsideration of
the aforesaid order but the same was again denied in an
order dated April 26, 2002.2
Herein respondent WG&A then filed a petition for certiorari with
the CA seeking the nullification of the aforementioned RTC
orders.
In its Decision dated October 24, 2002, the CA granted
respondent's petition, thereby setting aside the RTC orders and
directing the RTC to admit respondent's second amended
complaint pursuant to Section 3, Rule 10 of the 1997 Rules of
Civil Procedure. Petitioner moved for reconsideration but the
same was denied per Resolution dated May 15, 2003.
Hence, the present petition where the only issue raised is
whether the CA erred in ruling that the RTC committed grave
abuse of discretion when it denied the admission of the second
amended complaint.
The Court finds the petition without merit.
The CA did not err in finding that the RTC committed grave abuse
of discretion in issuing the Order dated March 22, 2002 denying
the admission of respondent's second amended complaint.
The RTC applied the old Section 3, Rule 10 of the Rules of Court:
Section 3. Amendments by leave of court. after the case
is set for hearing, substantial amendments may be made
only upon leave of court. But such leave may be refused if
it appears to the court that the motion was made with
intent to delay the action or that the cause of action or
defense is substantially altered. Orders of the court upon
the matters provided in this section shall be made upon
motion filed in court, and after notice to the adverse party,
and an opportunity to be heard.
instead of the provisions of the 1997 Rules of Civil Procedure,
amending Section 3, Rule 10, to wit:
200
SECTION 3. Amendments by leave of court. Except as
provided in the next preceding section, substantial
amendments may be made only upon leave of court.
But such leave may be refused if it appears to the
court that the motion was made with intent to
delay. Orders of the court upon the matters provided in
this section shall be made upon motion filed in court, and
after notice to the adverse party, and an opportunity to be
heard.
The Court has emphasized the import of Section 3, Rule 10 of the
1997 Rules of Civil Procedure in Valenzuela v. Court of
Appeals,3 thus:
Interestingly, Section 3, Rule 10 of the 1997 Rules of Civil
Procedure amended the former rule in such manner that
the phrase "or that the cause of action or defense is
substantially altered" was stricken-off and not retained in
the new rules. The clear import of such amendment in
Section 3, Rule 10 is that under the new rules, "the
amendment may (now) substantially alter the cause
of action or defense." This should only be true, however,
when despite a substantial change or alteration in the
cause of action or defense, the amendments sought to be
made shall serve the higher interests of substantial
justice, and prevent delay and equally promote the
laudable objective of the rules which is to secure a "just,
speedy and inexpensive disposition of every action and
proceeding."4
The application of the old Rules by the RTC almost five years
after its amendment by the 1997 Rules of Civil Procedure patently
constitutes grave abuse of discretion.
WHEREFORE, the petition is DENIED for lack of merit. The
Decision of the Court of Appeals promulgated on October 24,
2002 and its Resolution dated May 15, 2003 are
hereby AFFIRMED in toto.
 SO ORDERED.

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

RENATO C. CORONA
*
ANTONIO EDUARDO B. NACHURA
Associate Justice Associate Justice

RUBEN T. REYES
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been

reached in consultation before the case was assigned to the
writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division

201

SECOND DIVISION
[G. R. No. 138085. November 11, 2004]
AZOLLA FARMS and FRANCISCO R.
YUSECO, petitioners, vs. COURT OF
APPEALS and SAVINGS BANK OF
MANILA, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
This is an appeal by certiorari under Rule 45 of
the Rules of Court seeking the reversal of the
Decision dated February 19, 1999 rendered by the
Court of Appeals in CA-G.R. CV No. 53076, which
[1]
reversed and set aside the decision of the trial
court in Civil Case No. 83-20514, and the
Resolution dated March 31, 1999, denying
petitioners motion for reconsideration.
Petitioner Francis R. Yuseco, Jr., is the
Chairman, President and Chief Operating Officer of
petitioner Azolla Farms International Philippines
(Azolla Farms), a corporation duly organized under
existing laws and engaged in the development,
exploitation, production, manufacturing, promotion,
202
marketing, and sale of natural, organic minerals,
including its by-products, with the ultimate
objective of utilizing said products for the
promotion of food production. [2]
In 1982, Azolla Farms undertook to participate
in the National Azolla Production Program wherein
it will purchase all the Azolla produced by the
Azolla beneficiaries in the amount not exceeding
the peso value of all the inputs provided to them.
The project also involves the then Ministry of
Agriculture, the Kilusang Kabuhayan at Kaunlaran,
and the Kiwanis. To finance its participation,
petitioners applied for a loan with Credit Manila,
Inc., which the latter endorsed to its sister
company, respondent Savings Bank of Manila
(Savings Bank). The Board of Directors of Azolla
Farms, meanwhile, passed a board resolution on
August 31, 1982, authorizing Yuseco to borrow
from Savings Bank in an amount not
exceeding P2,200,000.00. [3]
The loan having been approved, Yuseco
executed a promissory note on September 13,
1982, promising to pay Savings Bank the sum
of P1,400,000.00 on or before September 13,
1983. The net proceeds of P1,225,443.31 was
[4]
released to FNCB Finance, the mortgagee of a
548- square meter lot with residential house owned
by Yuseco. With the release of the proceeds,
FNCB Finance released the mortgage, and in
[5]
turn, the property was mortgaged to Savings Bank
as collateral for the loan. Yuseco and Francisco
[6]
Bargas also executed an assignment of their
shares of stock in Azolla Farms as additional
security. Yuseco then executed two other
[7]
promissory notes on September 27, 1982 and [8]
January 4, 1983, both for the amount
[9]
of P300,000.00.
However, the Azolla Farms project collapsed.
Blaming Savings Bank, petitioners Yuseco and
Azolla Farms filed on October 3, 1983 with the
Regional Trial Court of Manila (Branch 25), a
complaint for damages. In essence, their complaint
alleges that Savings Bank unjustifiably refused to
promptly release the remaining P300,000.00 which
impaired the timetable of the project and inevitably
affected the viability of the project resulting in its
collapse, and resulted in their failure to pay off the
loan. Thus, petitioners pray for P1,000,000.00 as
actual damages, among others. [10]
Respondent Savings Bank filed its Answer
denying the allegations in the complaint. It
contends that there was evidence that Yuseco was
using the loan proceeds for expenses totally
unrelated to the project and they decided to
withhold the remaining amount until Yuseco gave
the assurance that the diversion of the funds will
be stopped. Respondent bank believed that the
90-day interval between the two tranches could not
203
have impaired the operation of the project, and
petitioners subsequent receipt of the proceeds
confirmed their agreement to the terms of the loan.
Trial ensued. After respondent, as defendant,
rested its case, petitioners filed a Motion to Admit
Amended Complaint alleging that the testimony of
defense witness Jesus Venturina raised the issue
of the invalidity of the promissory notes and the
real estate mortgage. Petitioners sought the
[11]
amendment of the complaint to conform to the
issues and evidence presented. Their Amended
Complaint contains the following amendments:
That defendant bank acts in unilaterally reducing
the agreed amount of FOUR MILLION PESOS
(P4,000,000.00) to TWO MILLION PESOS
(P2,000,000.00) and in unreasonably delay (sic)
the release of THREE HUNDRED THOUSAND
PESOS (P300,000.00) novated the promissory
notes nos. 2491, 2510 and 2669 and also novated
the real estate mortgage dated 6 September 1982
executed by plaintiff Francis R. Yuseco, Jr.; [12]
and in their prayer, petitioners seek that the
promissory notes and real estate mortgage be
declared novated, invalid and unenforceable.
Petitioners also amended the actual damages
sought, increasing it to P5,000,000.00.[13]
 Respondent objected to petitioners motion,
but the trial court nevertheless admitted the
[14]
Amended Complaint. [15]
On June 17, 1994, the trial court rendered its
decision annulling the promissory notes and real
estate mortgage, and awarding damages to
petitioners. The dispositive portion of the decision
reads:
WHEREFORE, judgment is hereby rendered:
DECLARING --
(a) the promissory notes and real estate mortgage
executed by plaintiff Yuseco novated, if not
unenforceable; (b) any subsequent foreclosure or
sale of the real estate property, without any binding
effect;
ORDERING --
(1) the defendants to return full, uninterrupted and
complete possession and ownership of the subject
real estate property to plaintiff Francis R. Yuseco,
Jr.; (2) the defendant to pay plaintiffs:
(a) P1,000,000.00 as actual damages;
(b) P200,000.00, as moral damages for the
personal sufferings, mental anguish, serious
anxiety, social humiliation of plaintiff Yuseco;
(c) P50,000.00, as reasonable attorneys fees; and
204
(d) legal interest on the actual damages herein
awarded from date of filing the Complaint until fully
paid.
The Counterclaim interposed by the defendant in
its Answer is hereby dismissed, for lack of merit.
Costs against the defendant. [16]
Aggrieved, respondent elevated the case to the
Court of Appeals.
Finding merit in respondents appeal, the Court
of Appeals reversed and set aside the trial courts
decision per its Decision dated February 19, 1999,
the decretal portion of which reads:
WHEREFORE, premises considered, the decision
of the trial court in Civil Case No. 83-20514 is
hereby REVERSED and SET ASIDE and judgment
is hereby entered declaring the promissory notes
and real estate mortgage executed in favor of
defendant-appellant, as well as the extrajudicial
foreclosure and sale of the mortgaged property, as
valid and binding. Defendant-appellant is hereby
ordered to pay plaintiff Azolla Farms International
Philippines, Inc. the amount of fifty thousand pesos
(P50,000.00) as nominal damages. No costs.
SO ORDERED. [17]
 Hence, the herein petition filed before the
Court, alleging that:
THE COURT OF APPEALS COMMITTED A
REVERSIBLE ERROR WHEN IT REVERSED
AND SET ASIDE THE DECISION OF THE COURT
A QUO. [18]
Two issues are involved in this case: first,
whether the trial court erred in admitting petitioners
amended complaint; and second, whether the trial
court erred in nullifying the promissory notes, the
real estate mortgage, and its extrajudicial
foreclosure.
In their motion to amend complaint, petitioners
allege that:
2. During the direct examination of defendant
banks witness Jesus Venturina, he testified and
identified various documents relating to the invalid
and illegal foreclosure on plaintiff Francis R.
Yuseco, Jr.s real property subject of the real estate
mortgage dated September 7, 1982 and marked
and adopted as Exhibit N for the plaintiffs.
Moreover, he testified and identified the promissory
notes, marked and adopted as Exhibits L, M and Q
for the plaintiffs evidencing the incomplete and
invalid consideration of the said mortgage. As a
result of the testimony thus given and the
205
documents adduced during said hearing, the issue
of the foreclosure on said property has been raised
which, therefore, necessitates that the pleadings in
this case, the complaint, be amended to conform
to the issues raised and the evidence presented; [19]
The trial court granted the motion and admitted
the Amended Complaint. The Court of Appeals,
however, ruled that the trial court should not have
admitted the Amended Complaint because it
altered petitioners cause of action. Apparently, the
Court of Appeals treated petitioners amendment of
the complaint as one involving amendments after
the case is set for hearing under Section 3, Rule
10 of the Rules of Court, which is not however
[20]
applicable to the present case.
The amendment of the complaint was made
pursuant to Section 5, Rule 10 of the Rules of
Court, governing amendment of pleadings to
conform to evidence, to wit:
SEC. 5. Amendment to conform to or authorize
presentation of evidence .When issues not raised
by the pleadings are tried by express or implied
consent of the parties, they shall be treated in all
respects, as if they had been raised in the
pleadings. Such amendment of the pleadings as
may be necessary to cause them to conform to the
evidence and to raise these issues may be made
upon motion of any party at any time, even after
judgment; but failure so to amend does not affect
the result of the trial of these issues. If evidence is
objected to at the trial on the ground that it is not
within the issues made by the pleadings, the court
may allow the pleadings to be amended and shall
do so freely when the presentation of the merits of
the action will be subserved thereby and the
objecting party fails to satisfy the court that the
admission of such evidence would prejudice him in
maintaining his action or defense upon the merits.
The court may grant a continuance to enable the
objecting party to meet such evidence.
In Mercader vs. Development Bank of the
Phils. (Cebu Branch), the Court explained that the
[21]
foregoing provision envisions two scenarios -- first,
when evidence is introduced on an issue not
alleged in the pleadings and no objection was
interjected and second, when evidence is offered
on an issue not alleged in the pleadings but this
time an objection was interpolated. In cases where
an objection is made, the court may nevertheless
admit the evidence where the adverse party fails to
satisfy the court that the admission of the evidence
would prejudice him in maintaining his defense
upon the merits, and the court may grant him a
continuance to enable him to meet the new
situation created by the evidence.
206
As can be gleaned from the records, it was
petitioners belief that respondents evidence
justified the amendment of their complaint. The trial
court agreed thereto and admitted the amended
complaint. On this score, it should be noted that
courts are given the discretion to allow
amendments of pleadings to conform to the
evidence presented during the trial. Thus, in Bank
of America, NT and SA vs. American Realty
Corporation, the Court stated:
[22]
There have been instances where the Court has
held that even without the necessary amendment,
the amount proved at the trial may be validly
awarded, as in Tuazon v. Bolanos (95 Phil. 106),
where we said that if the facts shown entitled
plaintiff to relief other than that asked for, no
amendment to the complaint was
necessary, especially where defendant had
himself raised the point on which recovery was
based. The appellate court could treat the
[23]
pleading as amended to conform to the evidence
although the pleadings were actually not amended.
Amendment is also unnecessary when only clerical
error or non substantial matters are involved, as
we held in Bank of the Philippine Islands vs.
Laguna (48 Phil. 5). In Co Tiamco vs. Diaz (75
Phil. 672), we stressed that the rule on amendment
need not be applied rigidly, particularly where no
surprise or prejudice is caused the objecting party.
And in the recent case of National Power
Corporation vs. Court of Appeals (113 SCRA 556),
we held that where there is a variance in the
defendants pleadings and the evidence adduced
by it at the trial, the Court may treat the pleading
as amended to conform with the evidence. [24]
Verily, the trial court cannot be faulted for
admitting the amended complaint as it had the
discretion to do so.
However, whether the evidence introduced by
respondent, indeed, supported the finding that the
promissory notes, the real estate mortgage and the
foreclosure sale, are invalid, is a different matter
altogether.
As alleged by petitioners, the testimony of
respondents witness, Jesus Venturina, established
the novation of the promissory notes and the real
estate mortgage, and the illegality of the
foreclosure of petitioner Yusecos property. The [25]
trial court agreed with petitioners, ruling that there
was a novation of the promissory notes and real
estate mortgage, which rendered them
unforceable, to wit:
The promissory notes and real estate mortgage
executed by plaintiff Yuseco appears to have been
novated and, therefore, rendered to be
unenforceable since there was a change in the
207
parties (from Credit Manila, Inc. to Savings Bank of
Manila) and, of course, in the amount of the loan
applied for (from P5 Million to P2 Million) which,
upon instruction of Mr. de Guzman -- was applied
as follows:
It would, therefore, be imporper (sic) to consider
and treat the promissory notes and the real estate
mortgage as relating to the separate loan of
plaintiff Yuseco so made and pursued for the same
purpose and nature, all inuring to a specific project
-- the Azolla Project!
[26]
The Court of Appeals disagreed with the trial
court and held that there was no novation, hence,
the promissory notes and the real estate mortgage
are valid and binding.
We agree with the appellate court.
Novation is the extinguishment of an obligation
by the substitution or change of the obligation by a
subsequent one which extinguishes or modifies the
first, either by changing the object or principal
conditions, or, by substituting another in place of
the debtor, or by subrogating a third person in the
rights of the creditor. In order for novation to take
[27]
place, the concurrence of the following requisites is
indispensable:[28]
1. there must be a previous valid obligation,
 2. there must be an agreement of the
parties concerned to a new contract,
3. there must be the extinguishment of the
old contract, and
4. there must be the validity of the new
contract.
All these requisites are patently lacking in this
case. In the first place, there is no new obligation
that supposedly novated the promissory notes or
the real estate mortgage, or a pre-existing
obligation that was novated by the promissory
notes and the real estate mortgage. In fact, there is
only one agreement between the parties in this
case, i.e., petitionersP2,000,000.00 loan with
respondent, as evidenced by the 3 promissory
notes dated September 13 and 27, 1982, and
January 4, 1983, and the real estate mortgage. As
the Court of Appeals held:
There was only one single loan agreement in the
amount of P2 million between the parties as
evidenced by the promissory notes and real estate
mortgage - how can it be possibly claimed by
plaintiffs that these notes and mortgage were
novated when no previous notes or mortgage or
loan agreement had been executed? What
transpired was an application for loan was filed by
208
plaintiffs with Credit Manila in an amount greater
than the P2 million eventually granted. This loan
application was endorsed to defendant Savings
Bank of Manila, processed by the latter and
eventually approved by it in the amount of P2
million.
It cannot be said that the loan application of
plaintiffs or their initial representations with Credit
Manilas Michael de Guzman was already in itself a
binding original contract that was later novated by
defendant. Plaintiff Yuseco being himself a banker,
cannot pretend to have been unaware of banking
procedures that normally recognize a loan
application as just that, a mere application. Only
upon the banks approval of the loan application in
the amount and under such terms it deems viable
and acceptable, that a binding and effective loan
agreement comes into existence. Without any such
first or original loan agreement as approved in the
amount and under specified terms by the
bank, there can be nothing whatsoever that can be
subsequently novated. [29]
Moreover, records show that petitioners were
well aware of the conditions of the loan application.
In its August 31, 1982 Board Resolution, the Board
of Directors of Azolla Farms authorized Yuseco
to borrow from the SAVINGS BANK OF MANILA,
Head Office, sums of money in an amount not
exceeding P2,200,000.00. The promissory notes
[30]

signed by Yuseco were respondent Savings Banks

promissory notes, and the real estate mortgage
was likewise respondent Savings Banks standard
real estate mortgage form. Obviously, this case is
an attempt by petitioners to extricate themselves
from their obligations; but they cannot be allowed
to have their cake and eat it, too.
WHEREFORE, the petition is DENIED for lack
of merit. The Court of Appeals Decision dated
February 19, 1999, together with its Resolution
dated March 31, 1999, in CA-G.R. CV No. 53076,
is AFFIRMED.
Costs against petitioners.
SO ORDERED.
Callejo, Sr., and Chico-Nazario, JJ., concur.
Puno, J., on official leave.
Tinga, J., on leave.

209
 with an interest of 15% per annum payable every
FIRST DIVISION
three months. In a letter dated 16 December
[1]

1998, Christian informed the petitioner corporation

that he was terminating the loans and demanded
[G.R. No. 161135. April 8, 2005] from the latter payment in the total amount of
US$150,000 plus unpaid interests in the total
amount of US$13,500. [2]

SWAGMAN HOTELS AND TRAVEL, On 2 February 1999, private respondent

INC., petitioner, vs. HON. COURT OF
APPEALS, and NEAL B.
CHRISTIAN, respondents.
DECISION
DAVIDE, JR., C.J.:
May a complaint that lacks a cause of action at
the time it was filed be cured by the accrual of a
cause of action during the pendency of the case?
This is the basic issue raised in this petition for the
Courts consideration.
Sometime in 1996 and 1997, petitioner
Swagman Hotels and Travel, Inc., through Atty.
Leonor L. Infante and Rodney David Hegerty, its
president and vice-president, respectively,
obtained from private respondent Neal B. Christian
loans evidenced by three promissory notes dated 7
August 1996, 14 March 1997, and 14 July 1997.
Each of the promissory notes is in the amount of
US$50,000 payable after three years from its date
Christian filed with the Regional Trial Court of
Baguio City, Branch 59, a complaint for a sum of
money and damages against the petitioner
corporation, Hegerty, and Atty. Infante. The
complaint alleged as follows: On 7 August 1996,
14 March 1997, and 14 July 1997, the petitioner,
as well as its president and vice-president obtained
loans from him in the total amount of US$150,000
payable after three years, with an interest of 15%
per annum payable quarterly or every three
months. For a while, they paid an interest of 15%
per annum every three months in accordance with
the three promissory notes. However, starting
January 1998 until December 1998, they paid him
only an interest of 6% per annum, instead of 15%
per annum, in violation of the terms of the three
promissory notes. Thus, Christian prayed that the
trial court order them to pay him jointly and
solidarily the amount of US$150,000 representing
the total amount of the loans; US$13,500
representing unpaid interests from January 1998

210
until December 1998; P100,000 for moral
damages; P50,000 for attorneys fees; and the cost
of the suit.
[3]
The petitioner corporation, together with its
president and vice-president, filed an Answer
raising as defenses lack of cause of action and
novation of the principal obligations. According to
them, Christian had no cause of action because
the three promissory notes were not yet due and
demandable. In December 1997, since the
petitioner corporation was experiencing huge
losses due to the Asian financial crisis, Christian
agreed (a) to waive the interest of 15% per annum,
and (b) accept payments of the principal loans in
installment basis, the amount and period of which
would depend on the state of business of the
petitioner corporation. Thus, the petitioner paid
Christian capital repayment in the amount of
US$750 per month from January 1998 until the
time the complaint was filed in February 1999. The
petitioner and its co-defendants then prayed that
the complaint be dismissed and that Christian be
ordered to pay P1 million as moral
damages; P500,000 as exemplary damages;
and P100,000 as attorneys fees. [4]
In due course and after hearing, the trial court
rendered a decision on 5 May 2000 declaring the
[5]
first two promissory notes dated 7 August 1996
and 14 March 1997 as already due and
211
demandable and that the interest on the loans had
been reduced by the parties from 15% to 6% per
annum. It then ordered the petitioner corporation to
pay Christian the amount of $100,000 representing
the principal obligation covered by the promissory
notes dated 7 August 1996 and 14 March 1997,
plus interest of 6% per month thereon until fully
paid, with all interest payments already paid by the
defendant to the plaintiff to be deducted therefrom.
The trial court ratiocinated in this wise:
(1) There was no novation of defendants obligation to
the plaintiff. Under Article 1292 of the Civil Code, there
is an implied novation only if the old and the new
obligation be on every point incompatible with one
another.
The test of incompatibility between the two obligations
or contracts, according to an imminent author, is
whether they can stand together, each one having an
independent existence. If they cannot, they are
incompatible, and the subsequent obligation novates the
first (Tolentino, Civil Code of the Philippines, Vol. IV,
1991 ed., p. 384). Otherwise, the old obligation will
continue to subsist subject to the modifications agreed
upon by the parties. Thus, it has been written that
accidental modifications in an existing obligation do not
extinguish it by novation. Mere modifications of the
debt agreed upon between the parties do not constitute
novation. When the changes refer to secondary
agreement and not to the object or principal conditions
of the contract, there is no novation; such changes will
produce modifications of incidental facts, but will not
extinguish the original obligation. Thus, the acceptance
of partial payments or a partial remission does not
involve novation (id., p. 387). Neither does the
reduction of the amount of an obligation amount to a
novation because it only means a partial remission or
condonation of the same debt.
In the instant case, the Court is of the view that the
parties merely intended to change the rate of interest
from 15% per annum to 6% per annum when the
defendant started paying $750 per month which
payments were all accepted by the plaintiff from
January 1998 onward. The payment of the principal
obligation, however, remains unaffected which means
that the defendant should still pay the plaintiff $50,000
on August 9, 1999, March 14, 2000 and July 14, 2000.
(2) When the instant case was filed on February 2, 1999,
none of the promissory notes was due and demandable.
As of this date however, the first and the second
promissory notes have already matured. Hence,
payment is already due.
Under Section 5 of Rule 10 of the 1997 Rules of Civil
Procedure, a complaint which states no cause of action
may be cured by evidence presented without objection.
212
Thus, even if the plaintiff had no cause of action at the
time he filed the instant complaint, as defendants
obligation are not yet due and demandable then, he may
nevertheless recover on the first two promissory notes in
view of the introduction of evidence showing that the
obligations covered by the two promissory notes are
now due and demandable.
(3) Individual defendants Rodney Hegerty and Atty.
Leonor L. Infante can not be held personally liable for
the obligations contracted by the defendant corporation
it being clear that they merely acted in representation of
the defendant corporation in their capacity as General
Manager and President, respectively, when they signed
the promissory notes as evidenced by Board Resolution
No. 1(94) passed by the Board of Directors of the
defendant corporation (Exhibit 4). [6]
In its decision of 5 September 2003, the Court
[7]
of Appeals denied petitioners appeal and
affirmed in toto the decision of the trial court,
holding as follows:
In the case at bench, there is no incompatibility because
the changes referred to by appellant Swagman consist
only in the manner of payment. . . .
Appellant Swagmans interpretation that the three (3)
promissory notes have been novated by reason of
appellee Christians acceptance of the monthly payments
of US$750.00 as capital repayments continuously even
after the filing of the instant case is a little bit strained
considering the stiff requirements of the law on
novation that the intention to novate must appear by
express agreement of the parties, or by their acts that are
too clear and unequivocal to be mistaken. Under the
circumstances, the more reasonable interpretation of the
act of the appellee Christian in receiving the monthly
payments of US$750.00 is that appellee Christian
merely allowed appellant Swagman to pay whatever
amount the latter is capable of. This interpretation is
supported by the letter of demand dated December 16,
1998 wherein appellee Christian demanded from
appellant Swagman to return the principal loan in the
amount of US$150,000 plus unpaid interest in the
amount of US$13,500.00
...
Appellant Swagman, likewise, contends that, at the time
of the filing of the complaint, appellee Christian ha[d]
no cause of action because none of the promissory notes
was due and demandable.
Again, We are not persuaded.
...
In the case at bench, while it is true that appellant
Swagman raised in its Answer the issue of prematurity
213
in the filing of the complaint, appellant Swagman
nonetheless failed to object to appellee Christians
presentation of evidence to the effect that the
promissory notes have become due and demandable.
The afore-quoted rule allows a complaint which states
no cause of action to be cured either by evidence
presented without objection or, in the event of an
objection sustained by the court, by an amendment of
the complaint with leave of court (Herrera, Remedial
Law, Vol. VII, 1997 ed., p. 108).
[8]
Its motion for reconsideration having been
denied by the Court of Appeals in its Resolution of
4 December 2003, the petitioner came to this
[9]
Court raising the following issues:
I. WHERE THE DECISION OF THE TRIAL COURT
DROPPING TWO DEFENDANTS HAS BECOME
FINAL AND EXECUTORY, MAY THE
RESPONDENT COURT OF APPEALS STILL
STUBBORNLY CONSIDER THEM AS
APPELLANTS WHEN THEY DID NOT APPEAL?
II. WHERE THERE IS NO CAUSE OF ACTION, IS
THE DECISION OF THE LOWER COURT VALID?
III. MAY THE RESPONDENT COURT OF APPEALS
VALIDLY AFFIRM A DECISION OF THE LOWER
COURT WHICH IS INVALID DUE TO LACK OF
CAUSE OF ACTION?
IV. WHERE THERE IS A VALID NOVATION, MAY
THE ORIGINAL TERMS OF CONTRACT WHICH
HAS BEEN NOVATED STILL PREVAIL? [10]
The petitioner harps on the absence of a cause
of action at the time the private respondents
complaint was filed with the trial court. In
connection with this, the petitioner raises the issue
of novation by arguing that its obligations under the
three promissory notes were novated by the
renegotiation that happened in December 1997
wherein the private respondent agreed to waive
the interest in each of the three promissory notes
and to accept US$750 per month as installment
payment for the principal loans in the total amount
of US$150,000. Lastly, the petitioner questions the
act of the Court of Appeals in considering Hegerty
and Infante as appellants when they no longer
appealed because the trial court had already
absolved them of the liability of the petitioner
corporation.
On the other hand, the private respondent
asserts that this petition is a mere ploy to continue
delaying the payment of a just obligation. Anent the
fact that Hegerty and Atty. Infante were considered
by the Court of Appeals as appellants, the private
214
respondent finds it immaterial because they are
not affected by the assailed decision anyway.
Cause of action, as defined in Section 2, Rule
2 of the 1997 Rules of Civil Procedure, is the act or
omission by which a party violates the right of
another. Its essential elements are as follows:
1. A right in favor of the plaintiff by whatever means
and under whatever law it arises or is created;
2. An obligation on the part of the named defendant to
respect or not to violate such right; and
3. Act or omission on the part of such defendant in
violation of the right of the plaintiff or constituting a
breach of the obligation of the defendant to the
plaintiff for which the latter may maintain an action
for recovery of damages or other appropriate relief.
[11]
It is, thus, only upon the occurrence of the last
element that a cause of action arises, giving the
plaintiff the right to maintain an action in court for
recovery of damages or other appropriate relief.
It is undisputed that the three promissory notes
were for the amount of P50,000 each and
uniformly provided for (1) a term of three years; (2)
an interest of 15 % per annum, payable quarterly;
and (3) the repayment of the principal loans after
three years from their respective dates. However,
both the Court of Appeals and the trial court found
that a renegotiation of the three promissory notes
indeed happened in December 1997 between the
private respondent and the petitioner resulting in
the reduction not waiver of the interest from 15% to
6% per annum, which from then on was payable
monthly, instead of quarterly. The term of the
principal loans remained unchanged in that they
were still due three years from the respective dates
of the promissory notes. Thus, at the time the
complaint was filed with the trial court on 2
February 1999, none of the three promissory notes
was due yet; although, two of the promissory notes
with the due dates of 7 August 1999 and 14 March
2000 matured during the pendency of the case
with the trial court. Both courts also found that the
petitioner had been religiously paying the private
respondent US$750 per month from January 1998
and even during the pendency of the case before
the trial court and that the private respondent had
accepted all these monthly payments.
With these findings of facts, it has become
glaringly obvious that when the complaint for a
sum of money and damages was filed with the trial
court on 2 February 1999, no cause of action has
as yet existed because the petitioner had not
committed any act in violation of the terms of the
three promissory notes as modified by the
renegotiation in December 1997. Without a cause
of action, the private respondent had no right to
maintain an action in court, and the trial court
should have therefore dismissed his complaint.
215
Despite its finding that the petitioner
corporation did not violate the modified terms of
the three promissory notes and that the payment of
the principal loans were not yet due when the
complaint was filed, the trial court did not dismiss
the complaint, citing Section 5, Rule 10 of the 1997
Rules of Civil Procedure, which reads:
Section 5. Amendment to conform to or authorize
presentation of evidence. When issues not raised by the
pleadings are tried with the express or implied consent
of the parties, they shall be treated in all respects as if
they had been raised in the pleadings. Such amendment
of the pleadings as may be necessary to cause them to
conform to the evidence and to raise these issues may be
made upon motion of any party at any time, even after
judgment; but failure to amend does not affect the result
of the trial of these issues. If evidence is objected to at
the trial on the ground that it is not within the issues
made by the pleadings, the court may allow the
pleadings to be amended and shall do so with liberality
if the presentation of the merits of the action and the
ends of substantial justice will be subserved thereby.
The court may grant a continuance to enable the
amendment to be made.
According to the trial court, and sustained by
the Court of Appeals, this Section allows a
complaint that does not state a cause of action to
be cured by evidence presented without objection
during the trial. Thus, it ruled that even if the
private respondent had no cause of action when
he filed the complaint for a sum of money and
damages because none of the three promissory
notes was due yet, he could nevertheless recover
on the first two promissory notes dated 7 August
1996 and 14 March 1997, which became due
during the pendency of the case in view of the
introduction of evidence of their maturity during the
trial.
Such interpretation of Section 5, Rule 10 of the
1997 Rules of Civil Procedure is erroneous.
Amendments of pleadings are allowed under
Rule 10 of the 1997 Rules of Civil Procedure in
order that the actual merits of a case may be
determined in the most expeditious and
inexpensive manner without regard to
technicalities, and that all other matters included in
the case may be determined in a single
proceeding, thereby avoiding multiplicity of suits.
Section 5 thereof applies to situations wherein
[12]
evidence not within the issues raised in the
pleadings is presented by the parties during the
trial, and to conform to such evidence the
pleadings are subsequently amended on motion of
a party. Thus, a complaint which fails to state a
cause of action may be cured by evidence
presented during the trial.
216
However, the curing effect under Section 5 is
applicable only if a cause of action in fact exists at
the time the complaint is filed, but the complaint is
defective for failure to allege the essential facts.
For example, if a complaint failed to allege the
fulfillment of a condition precedent upon which the
cause of action depends, evidence showing that
such condition had already been fulfilled when the
complaint was filed may be presented during the
trial, and the complaint may accordingly be
amended thereafter. Thus, in Roces v. Jalandoni,
[13]
this Court upheld the trial court in taking
[14]
cognizance of an otherwise defective complaint
which was later cured by the testimony of the
plaintiff during the trial. In that case, there was in
fact a cause of action and the only problem was
the insufficiency of the allegations in the complaint.
This ruling was reiterated in Pascua v. Court of
Appeals. [15]
It thus follows that a complaint whose cause of
action has not yet accrued cannot be cured or
remedied by an amended or supplemental
pleading alleging the existence or accrual of a
cause of action while the case is pending. Such
[16]
an action is prematurely brought and is, therefore,
a groundless suit, which should be dismissed by
the court upon proper motion seasonably filed by
the defendant. The underlying reason for this rule
is that a person should not be summoned before
the public tribunals to answer for complaints which
are immature. As this Court eloquently said
in Surigao Mine Exploration Co., Inc. v. Harris: [17]
It is a rule of law to which there is, perhaps, no
exception, either at law or in equity, that to recover at
all there must be some cause of action at the
commencement of the suit. As observed by counsel for
appellees, there are reasons of public policy why there
should be no needless haste in bringing up litigation,
and why people who are in no default and against whom
there is yet no cause of action should not be summoned
before the public tribunals to answer complaints which
are groundless. We say groundless because if the action
is immature, it should not be entertained, and an action
prematurely brought is a groundless suit.
It is true that an amended complaint and the answer
thereto take the place of the originals which are thereby
regarded as abandoned (Reynes vs. Compaa General de
Tabacos [1912], 21 Phil. 416; Ruyman and Farris vs.
Director of Lands [1916], 34 Phil., 428) and that the
complaint and answer having been superseded by the
amended complaint and answer thereto, and the answer
to the original complaint not having been presented in
evidence as an exhibit, the trial court was not authorized
to take it into account. (Bastida vs. Menzi & Co. [1933],
58 Phil., 188.) But in none of these cases or in any other
case have we held that if a right of action did not exist
when the original complaint was filed, one could be
217
created by filing an amended complaint. In some
jurisdictions in the United States what was termed an
imperfect cause of action could be perfected by suitable
amendment (Brown vs. Galena Mining & Smelting Co.,
32 Kan., 528; Hooper vs. City of Atlanta, 26 Ga. App.,
221) and this is virtually permitted in Banzon and
Rosauro vs. Sellner ([1933], 58 Phil., 453); Asiatic
Potroleum [sic] Co. vs. Veloso ([1935], 62 Phil., 683);
and recently in Ramos vs. Gibbon (38 Off. Gaz.,
241). That, however, which is no cause of action
whatsoever cannot by amendment or supplemental
pleading be converted into a cause of action: Nihil de re
accrescit ei qui nihil in re quando jus accresceret habet.
We are therefore of the opinion, and so hold, that unless
the plaintiff has a valid and subsisting cause of
action at the time his action is commenced, the defect
cannot be cured or remedied by the acquisition or
accrual of one while the action is pending, and a
supplemental complaint or an amendment setting up
such after-accrued cause of action is not permissible.
(Emphasis ours).
Hence, contrary to the holding of the trial court
and the Court of Appeals, the defect of lack of
cause of action at the commencement of this suit
cannot be cured by the accrual of a cause of action
during the pendency of this case arising from the
alleged maturity of two of the promissory notes on
7 August 1999 and 14 March 2000.
 Anent the issue of novation, this Court
observes that the petitioner corporation argues the
existence of novation based on its own version of
what transpired during the renegotiation of the
three promissory notes in December 1997. By
using its own version of facts, the petitioner is, in a
way, questioning the findings of facts of the trial
court and the Court of Appeals.
As a rule, the findings of fact of the trial court
and the Court of Appeals are final and conclusive
and cannot be reviewed on appeal to the Supreme
Court as long as they are borne out by the record
[18]
or are based on substantial evidence. The [19]
Supreme Court is not a trier of facts, its jurisdiction
being limited to reviewing only errors of law that
may have been committed by the lower courts.
Among the exceptions is when the finding of fact of
the trial court or the Court of Appeals is not
supported by the evidence on record or is based
on a misapprehension of facts. Such exception
obtains in the present case. [20]
This Court finds to be contrary to the evidence
on record the finding of both the trial court and the
Court of Appeals that the renegotiation in
December 1997 resulted in the reduction of the
interest from 15% to 6% per annum and that the
monthly payments of US$750 made by the
petitioner were for the reduced interests.
218
It is worthy to note that the cash voucher dated
January 1998 states that the payment of US$750
[21]
represents INVESTMENT PAYMENT. All the
succeeding cash vouchers describe the payments
from February 1998 to September 1999 as
CAPITAL REPAYMENT. All these cash vouchers
[22]
served as receipts evidencing private respondents
acknowledgment of the payments made by the
petitioner: two of which were signed by the private
respondent himself and all the others were signed
by his representatives. The private respondent
even identified and confirmed the existence of
these receipts during the hearing. Significantly,
[23]
cognizant of these receipts, the private respondent
applied these payments to the three consolidated
principal loans in the summary of payments he
submitted to the court.[24]
Under Article 1253 of the Civil Code, if the debt
produces interest, payment of the principal shall
not be deemed to have been made until the
interest has been covered. In this case, the private
respondent would not have signed the receipts
describing the payments made by the petitioner as
capital repayment if the obligation to pay the
interest was still subsisting. The receipts, as well
as private respondents summary of payments,
lend credence to petitioners claim that the
payments were for the principal loans and that the
interests on the three consolidated loans were
waived by the private respondent during the
undisputed renegotiation of the loans on account
of the business reverses suffered by the petitioner
at the time.
There was therefore a novation of the terms of
the three promissory notes in that the interest was
waived and the principal was payable in monthly
installments of US$750. Alterations of the terms
and conditions of the obligation would generally
result only in modificatory novation unless such
terms and conditions are considered to be the
essence of the obligation itself. The resulting
[25]
novation in this case was, therefore, of the
modificatory type, not the extinctive type, since the
obligation to pay a sum of money remains in force.
Thus, since the petitioner did not renege on its
obligation to pay the monthly installments
conformably with their new agreement and even
continued paying during the pendency of the case,
the private respondent had no cause of action to
file the complaint. It is only upon petitioners default
in the payment of the monthly amortizations that a
cause of action would arise and give the private
respondent a right to maintain an action against
the petitioner.
Lastly, the petitioner contends that the Court of
Appeals obstinately included its President Infante
and Vice-President Hegerty as appellants even if
219
they did not appeal the trial courts decision since
they were found to be not personally liable for the
obligation of the petitioner. Indeed, the Court of
Appeals erred in referring to them as defendants-
appellants; nevertheless, that error is no cause for
alarm because its ruling was clear that the
petitioner corporation was the one solely liable for
its obligation. In fact, the Court of Appeals
affirmed in toto the decision of the trial court, which
means that it also upheld the latters ruling that
Hegerty and Infante were not personally liable for
the pecuniary obligations of the petitioner to the
private respondent.
In sum, based on our disquisition on the lack of
cause of action when the complaint for sum of
money and damages was filed by the private
respondent, the petition in the case at bar is
impressed with merit.
WHEREFORE, the petition is hereby
GRANTED. The Decision of 5 September 2003 of
the Court of Appeals in CA-G.R. CV No. 68109,
which affirmed the Decision of 5 May 2000 of the
Regional Trial Court of Baguio, Branch 59, granting
in part private respondents complaint for sum of
money and damages, and its Resolution of 4
December 2003, which denied petitioners motion
for reconsideration are hereby REVERSED and
SET ASIDE. The complaint docketed as Civil Case
No. 4282-R is hereby DISMISSED for lack of
cause of action.
No costs.
SO ORDERED.
Quisumbing, Ynares-Santiago,
Carpio, and Azcuna, JJ., concur.

220
 The Petition under G.R. No. 157955 (Re: Supplemental
Republic of the Philippines Complaint) challenges the Decision dated November 18, 2002 1 of
SUPREME COURT the Court of Appeals (CA) in CA-G.R. SP No. 65629 affirming the
Manila Orders dated December 28, 2000 and April 6, 2001 of the
Regional Trial Court, San Pablo City, Branch 32, in Civil Case No.
FIRST DIVISION SP-5703 (2000) (RTC) which denied the admission of petitioner's
Supplemental Complaint; and the CA Resolution dated April 2,
20032which denied the petitioner's Motion for Reconsideration.
G.R. No. 157745 September 26, 2006
(CA-G.R. SP No. 70610)
The Petition under G.R. No. 157745 (Re: Non-Suit) questions the
Decision dated November 29, 20023 of the CA in CA-G.R. SP No.
GENALYN D. YOUNG, petitioner,
70610 which affirmed the Orders of the RTC dated August 30,
vs.
2001, January 4, 2002 and January 16, 2002 (RTC Orders), all of
SPOUSES MANUEL SY and VICTORIA SY, respondents.
which in effect dismissed the Complaint for non-suit; and the CA
Resolution dated March 21, 20034 which denied the petitioner's
x---------------------x Motion for Reconsideration.

G.R. No. 157955 September 26, 2006 Both petitions originated from a Complaint for Nullification of
(CA-G.R. SP No. 65629) Second Supplemental Extra-judicial Settlement, Mortgage,
Foreclosure Sale and Tax Declaration filed by the petitioner on
GENALYN D. YOUNG, petitioner, May 2, 2000 with the RTC. Genalyn D. Young (petitioner), in her
vs. Complaint, alleged that the extra-judicial partition executed by her
SPOUSES MANUEL SY and VICTORIA SY, respondents. natural mother, Lilia Dy Young which adjudicated an unregistered
parcel of land solely in favor of the latter, is unenforceable, since
DECISION at the time of the execution, she (petitioner) was only 15 years old
and no court approval had been procured; that the partition had
AUSTRIA-MARTINEZ, J.: been registered with the Register of Deeds; that Lilia Dy obtained
a loan from spouses Manuel Sy and Victoria Sy (respondents)
The Cases and mortgaged the subject property; that the property was
foreclosed and sold to the highest bidder, respondent Manuel Sy;
Before this Court are two Petitions for Review on Certiorari under that a Certificate of Sale for this purpose had been registered with
Rule 45 of the Rules of Court. Since the two cases are the Register of Deeds; and that, thereafter, respondents obtained
interdependent and originate from the same proceeding, and for in their name a tax declaration over the property in question.
the sake of expediency, they have been consolidated by this
Court. The Antecedents

G.R. No. 157955 (Re: Supplemental Complaint)

221
On July 20, 2000, the petitioner filed with the RTC a Motion to
Admit Supplemental Complaint, attaching the Supplemental
Complaint wherein petitioner invoked her right, as co-owner, to
exercise the legal redemption. The RTC denied the Motion in an
Order dated December 28, 2000. Petitioner, on July 16, 2001,
filed a Petition for Certiorari and Mandamus under Rule 65 of the
Rules of Court, docketed as CA-G.R. SP No. 65629, and raised
the following grounds:
THE HONORABLE RESPONDENT COURT ACTED
WITHOUT OR IN EXCESS OF JURISDICTION OR WITH
GRAVE ABUSE OF DISCRETION IN ISSUING THE
ORDERS DATED 28 DECEMBER 2000 AND 06 APRIL
2001 SINCE:
A.
THE RELIEFS IN THE SUPPLEMENTAL COMPLAINT
MERELY DEVELOP OR EXTEND THE ORIGINAL
CAUSES OF ACTION. PLAINTIFF'S CAUSE OF ACTION
FOR LEGAL REDEMPTION ARISES DIRECTLY FROM
AND IS A NATURAL EXTENSION OR CONSEQUENCE
OF HER RIGHTS AS CO-OWNER OF THE PROPERTY
SUBJECT OF THE CASE.
B.
THE SUPERVENING EVENT WHICH IS THE
CONSOLIDATION OF TITLE TO THE SUBJECT
PROPERTY IN THE NAME OF MANUEL SY,
OCCURRED AFTER 21 JUNE 2000; SUCH DATE IS
PLAINLY SUBSEQUENT TO THE FILING OF THE
COMPLAINT ON 02 MAY 2000.5
On November 18, 2002, the CA promulgated its Decision denying
the Petition for Certiorari and Mandamus and held that the cause
of action of the petitioner in the Supplemental Complaint is
222
entirely different from the original complaint; that the
Supplemental Complaint did not merely supply its deficiencies;
and that, at any rate, in the event the trial court issues an adverse
ruling, the petitioner can still appeal the same, hence, the petition
under Rule 65 is not proper.
Hence, the present Petition for Review on Certiorari under Rule
45, raising the following issues:
A.
WHETHER OR NOT THE RTC ACTED WITHOUT OR IN
EXCESS OF JURISDICTION OR WITH GRAVE ABUSE
OF DISCRETION AMOUNTING TO LOSS OF
JURISDICTION IN ISSUING THE ORDERS DATED 28
DECEMBER 2000 AND 06 APRIL 2001.
1.
WHETHER OR NOT THE RELIEFS IN THE
SUPPLEMENTAL COMPLAINT MERELY DEVELOP OR
EXTEND THE ORIGINAL CAUSES OF ACTION.
2.
WHETHER OR NOT THE SUPERVENING EVENT
WHICH IS THE CONSOLIDATION OF TITLE TO THE
SUBJECT PROPERTY IN THE NAME OF MANUEL SY,
OCCURRED AFTER 21 JUNE 2000 OR SUBSEQUENT
TO THE FILING OF THE COMPLAINT ON 02 MAY 2000.
B.
WHETHER OR NOT THE COURT OF APPEALS
GRAVELY ERRED IN HOLDING THAT NO GRAVE
ABUSE OF DISCRETION WAS COMMITTED BY THE
RTC AND THAT THERE WAS NO NEED TO FILE A
 "PETITION" TO EXERCISE THE RIGHT OF LEGAL 1) the motion is in violation of the three-day notice
REDEMPTION. rule;

C. 2) the ground stated in the motion is too shallow

to be appreciated because it merely states that a
WHETHER OR NOT THE INSTANT PETITION IS MOOT witness is indisposed without stating the
AND ACADEMIC. indisposition and there is no Medical Certificate
attached to the motion;
D.
3) the instant motion for postponement is one of
WHETHER OR NOT PETITIONER COMMITTED the several postponements filed by Atty. Lotilla
FORUM-SHOPPING.6 and this is confirmed by the records of this case
showing that last minute postponements and
other postponements were filed by Atty. Lotilla;
G.R. No. 157745 (Re: Non-Suit)
4) that damages are being suffered by defendants
I. Appeal to the CA
in paying the legal services of their counsel and
that defendants are unduly deprived of the
While the Petition for Certiorari and Mandamus (re: Supplemental possession and enjoyment of the subject property.
Complaint) was pending in the CA, trial in the RTC continued. On
August 29, 2001, a day before the hearing slated for August 30,
The Court is constrained to sustain the objection to the
2001, the petitioner filed a Motion to Cancel Hearing, alleging that
Motion for Postponement by Atty. Sison. The Court has
she was indisposed. On the day of the hearing, respondents,
also been quite liberal with the Motions for Postponement
through counsel, objected to the postponement and moved for
filed by Atty. Lotilla by granting the same. The Court holds
the dismissal of the case for non-suit. The RTC sustained the
that somehow the practice of filing several
objection and issued the assailed August 30, 2001 Order
postponements must be discouraged.
dismissing the Complaint. This Order reads in full:
Atty. Sison therefore moved for the dismissal of the case
ORDER
for non-suit. The Court finds merit on the Motion to
Dismiss.
Atty. Raul S. Sison and his client arrived on time. When
the case was called for hearing, the Court found attached
WHEREFORE, the Motion to Dismiss is granted and this
to the records a last minute Motion to Cancel Hearing
case is ordered DISMISSED without costs.
from Atty. Perpetuo M. Lotilla, Jr. The Court invited the
attention of Atty. Sison on the said motion. Atty. Sison
vehemently objected to the postponement on the SO ORDERED.7
following grounds:

223
On January 4, 2002, the RTC denied the petitioner's Motion for
Reconsideration. The dispositive portion of this Order states:
WHEREFORE, the Motion for Reconsideration is
DENIED. The resolution on the pending incident of
execution pendente lite is now considered moot and
academic.8
On January 16, 2002, the RTC issued an Order correcting the
January 4, 2002 Order due to a typographical error. This Order
reads in full:
ORDER
Finding merit on the Motion, the same is granted. The
Court is sure that only typographical error was committed.
The dispositive portion of the Order should therefore read
as follows:
"WHEREFORE, the Motion for Reconsideration is
DENIED. The resolution on the pending incident of Motion
for Writ of Possession, pendente lite, is now considered
moot and academic.
SO ORDERED. 9 based on the records before the Court, this case is still pending in
On January 31, 2002, the petitioner filed a Notice of Appeal
questioning the foregoing RTC Orders. The case was eventually
docketed as C.A.-G.R. CV No. 74045. In said appeal, the
petitioner assigned the following errors:
A.
THE TRIAL COURT GRAVELY ERRED IN ISSUING THE
ORDERS DATED 30 AUGUST 2001, 04 JANUARY 2002
AND 16 JANUARY 2002, SINCE THERE WAS NO
224
FACTUAL OR LEGAL BASIS TO DISMISS THE
COMPLAINT FOR NON-SUIT.
B.
THE TRIAL COURT GRAVELY ERRED IN NOT
HOLDING THAT PLAINTIFF-APPELLANT HAD A JUST
AND VALID GROUND TO MOVE FOR THE
CANCELLATION OF THE HEARING SET ON 30
AUGUST 2001.10
The CA rendered a Decision dated March 30, 2005 11 in favor of
the petitioner, reversing and setting aside the RTC Orders, the
dispositive portion of this Decision reads:
WHEREFORE, premises considered, the Orders, dated
August 30, 2001, January 4, 2002 and January 16, 2002,
issued by Branch 32 of the Regional Trial Court of San
Pablo City are hereby REVERSED and SET ASIDE. The
record/case is hereby remanded to the court of origin for
further proceedings.
SO ORDERED.12
The respondents filed their Motion for Reconsideration, and
the CA.
II. Petition for Certiorari filed with the CA
On top of the foregoing appeal, the petitioner, four months after
filing her Notice of Appeal to the CA, or on May 28, 2002, filed
with the CA a Petition for Certiorari under Rule 65, docketed as
CA-G.R. SP No. 70610 to annul the same RTC Orders that
comprise the subject matter of the ordinary appeal. Predictably,
the petitioner raised essentially the same issues:
 THE HONORABLE RESPONDENT COURT ACTED
WITHOUT OR IN EXCESS OF JURISDICTION OR WITH
GRAVE ABUSE OF DISCRETION AMOUNTING TO
LOSS OF JURISDICTION IN ISSUING THE ORDERS
DATED AUGUST 30, 2001, JANUARY 4, 2002, AND
JANUARY 16, 2002, SINCE:
A.
THERE WAS NO FACTUAL OR LEGAL BASIS FOR
DISMISSAL OF THE COMPLAINT ON THE GROUNDS
OF NON-SUIT;
B.
PETITIONER HAD A JUST AND VALID GROUND TO
MOVE FOR THE CANCELLATION OF THE HEARING
SET ON AUGUST 30, 2001.13
On November 29, 2002, ahead of the Decision dated March 30,
2005 rendered in the appealed case, the CA denied14 the Petition
for Certiorari and held that the dismissal of the case by the RTC
on the ground of non prosequitur has the effect of an adjudication
upon the merits; that an order of dismissal, whether right or
wrong, is a final order that may constitute an error of judgment
correctible by ordinary appeal and not by certiorari; that the
petitioner actually chose the mode of ordinary appeal by filing a
Notice of Appeal on January 31, 2000; and that since the remedy
of appeal was available, then the petition for certiorari, being an
extraordinary remedy, must fail.
Hence, the present Petition for Review under Rule 45, with the
following issues that are likewise similar to the appealed case in
the CA:
A.
225
WHETHER OR NOT THE REGIONAL TRIAL COURT
ACTED WITHOUT OR IN EXCESS OF JURISDICTION
OR WITH GRAVE ABUSE OF DISCRETION
AMOUNTING TO LOSS OF JURISDICTION IN ISSUING
THE ORDERS DATED AUGUST 30, 2001, JANUARY 4,
2002, AND JANUARY 16, 2002, DISMISSING THE
COMPLAINT.
1.
WHETHER OR NOT THERE WAS FACTUAL OR LEGAL
BASIS FOR DISMISSAL OF THE COMPLAINT ON THE
GROUNDS OF NON-SUIT.
2.
WHETHER OR NOT PETITIONER HAD A JUST AND
VALID GROUND TO MOVE FOR THE CANCELLATION
OF THE HEARING SET ON AUGUST 30, 2001.
B.
WHETHER OR NOT THE COURT OF APPEALS
GRAVELY ERRED IN HOLDING THAT NO GRAVE
ABUSE OF DISCRETION WAS COMMITTED BY THE
RTC AND THAT ORDINARY APPEAL IS PETITIONER'S
REMEDY FROM THE DISMISSAL OF THE COMPLAINT
BY THE RTC.15
The Ruling of the Court
The Petition (re: Supplemental Complaint) is meritorious; but the
Petition (re: Non-Suit) must fail.
On the denial of the Motion to Admit Supplemental Complaint:
The courts a quo held that the Supplemental Complaint
constituted a substantial amendment of the original complaint;
that the relief prayed for in the former is inconsistent with the
latter; and that the causes of action of both are likewise different.
This is incorrect.
Section 6, Rule 10 of the Revised Rules of Court provides:
SECTION 6. Supplemental Pleadings. - Upon motion of a
party the court may, upon reasonable notice and upon
such terms as are just, permit him to serve a
supplemental pleading setting forth transactions,
occurrences or events which have happened since the
date of the pleading sought to be supplemented. The
adverse party may plead thereto within ten (10) days from
notice of the order admitting the supplemental pleading.
As its very name denotes, a supplemental pleading only serves to
bolster or add something to the primary pleading. A supplement
exists side by side with the original. It does not replace that which
it supplements.16Moreover, a supplemental pleading assumes that
the original pleading is to stand and that the issues joined with the
original pleading remained an issue to be tried in the action. 17 It is
but a continuation of the complaint. Its usual office is to set up
new facts which justify, enlarge or change the kind of relief with
respect to the same subject matter as the controversy referred to
in the original complaint.18
The purpose of the supplemental pleading is to bring into the
records new facts which will enlarge or change the kind of relief to
which the plaintiff is entitled; hence, any supplemental facts which
further develop the original right of action, or extend to vary the
relief, are available by way of supplemental complaint even
though they themselves constitute a right of action. 19
In Leobrera v. Court of Appeals,20 the Court ruled that when the
cause of action stated in the supplemental complaint is different
226
from the causes of action mentioned in the original complaint, the
court should not admit the supplemental complaint; the parties
may file supplemental pleadings only to supply deficiencies in aid
of an original pleading, but not to introduce new and independent
causes of action. However, in Planters Development Bank v. LZK
Holdings and Development Co.,21 the Court held that a broad
definition of causes of action should be applied: while a matter
stated in a supplemental complaint should have some relation to
the cause of action set forth in the original pleading, the fact that
the supplemental pleading technically states a new cause of
action should not be a bar to its allowance but only a factor to be
considered by the court in the exercise of its discretion; and of
course, a broad definition of "cause of action" should be applied
here as elsewhere.22
In this case, the consolidation of title over the subject property in
the name of respondent Manuel Sy and the issue as to whether it
precluded petitioner as alleged co-owner from exercising the right
of legal redemption, are new matters that occurred after the filing
of the original complaint. The relief prayed for in the
Supplemental Complaint, which is the exercise of the right of
legal redemption accorded to co-owners of property, is germane
to and intertwined with the cause of action in the Complaint for
the nullification of the "Second Supplemental to the Extrajudicial
Partition" on the ground that it lacked the approval of a
guardianship court.
The petitioner's right to redeem the property is dependent on the
nullification of the partition which is the subject of the original
complaint. Unless the partition is nullified or declared without any
force or effect, the petitioner will not be considered a co-owner of
the property and, consequently, she will be unable to exercise
any right of legal redemption under Article 1620 23 of the Civil Code
granted to co-owners of property.
The right of legal redemption as co-owner is conferred by law and
is merely a natural consequence of co-ownership. Hence, the
petitioner's cause of action for legal redemption as embodied in
her Supplemental Complaint stems directly from and is an
extension of her rights as co-owner of the property subject of the
Complaint.
Furthermore, the evidence required to prove petitioner's right of
legal redemption in the Supplemental Complaint will be exactly
the same evidence required to prove the nullification of the
partition in the Complaint.
If a separate action is filed for the subject covered by the
Supplemental Complaint, there will be multiplicity of suits. Should
a separate complaint be filed before the nullification of the
partition, the same would be dismissed for being premature
pending the resolution of the Complaint for nullification.
After all, the respondents have the right to file a supplemental
answer to the Supplemental Complaint, conformably with Section
7, Rule 11 of the Rules of Court which reads:
SEC. 7. Answer to supplemental complaint. - A
supplemental complaint may be answered within ten (10)
days from notice of the order admitting the same, unless
a different period is fixed by the court. The answer to the
complaint shall serve as the answer to the supplemental
complaint if no new or supplemental answer is filed.
In affirming the RTC's denial of the admission of the
Supplemental Complaint, the CA rationalized that "[i]n the event
that the lower court rules in favor of petitioner, then there is no
need for her to file a petition to exercise the right of redemption.
On the other hand, should the trial court issue[ ] an adverse ruling
then petitioner can still appeal the same. The petition for certiorari
is therefore not proper."24
This, too, is incorrect.
227
As the petitioner correctly pointed out, even if the trial court
decides in her favor, the redemption period would have lapsed
and would not form a part of the decision since it was not prayed
for, much less alleged in the original complaint. In such a case,
the respondents could oppose the exercise of the right to redeem
since it would not have been included in the decision over the
original complaint. And should the trial court issue an adverse
ruling, the petitioner can only appeal what is included in the ruling
which is limited to the denial of the prayer for the nullification of
the partition. Naturally, such a decision would not concern any
right of redemption.
Besides, as in Planters Development Bank,25 the admission of the
petitioner's Supplemental Complaint will better serve the ends of
justice. The Rules of Court were designed to facilitate the
administration of justice to the rival claims of the parties in a just,
speedy and inexpensive manner.
Thus, the courts a quo erred in denying the admission of
petitioner's Supplemental Complaint and the Petition (G.R. No.
157955) should be granted.
On the alleged Forum Shopping:
This Court is now concerned with the question of whether the
petitioner has engaged in forum shopping in appealing the RTC
Orders which dismissed her complaint for non-suit and in filing a
Petition for Certiorari under Rule 65 with the CA involving the
same RTC Orders.
Forum shopping consists of filing multiple suits involving the
same parties for the same cause of action, either simultaneously
or successively, for the purpose of obtaining a favorable
judgment.26
There is forum shopping where there exist: (a) identity of parties,
or at least such parties as represent the same interests in both
actions; (b) identity of rights asserted and relief prayed for, the
relief being founded on the same facts; and (c) the identity of the
two preceding particulars is such that any judgment rendered in
the pending case, regardless of which party is successful would
amount to res judicata.27
Ineluctably, the petitioner, by filing an ordinary appeal and a
petition for certiorari with the CA, engaged in forum shopping.
When the petitioner commenced the appeal, only four months
had elapsed prior to her filing with the CA the Petition
for Certiorari under Rule 65 and which eventually came up to this
Court by way of the instant Petition (re: Non-Suit). The elements
of litis pendentia are present between the two suits. As the CA,
through its Thirteenth Division, correctly noted, both suits are
founded on exactly the same facts28 and refer to the same subject
matterthe RTC Orders which dismissed Civil Case No. SP-
5703 (2000) for failure to prosecute. In both cases, the petitioner
is seeking the reversal of the RTC orders. The parties, the rights
asserted, the issues professed, and the reliefs prayed for, are all
the same. It is evident that the judgment of one forum may
amount to res judicata in the other.
But it is the proposition of the petitioner that between these two
cases, the one that is "proper" is the petition for certiorari filed
with the CA, since the RTC, according to her, acted with grave
abuse of discretion; and that her appeal in the CA "has proven to
be not a speedy remedy" and had only been instituted as a
"precautionary measure." As proof of the averment that the
appeal was not speedy enough, she points out the fact that while
the CA had just promulgated a Decision on March 30, 2005 with
respect to the appealed case, that case, however, is still pending
to this day in the CA by virtue of a motion for reconsideration
recently filed by the respondents, whereas, in the proceedings
that led to the present Petition (re: Non-Suit), the CA had
rendered a Decision dated November 29, 2000 over four years
ahead of its counterpart. From these premises, she proceeds to
cite jurisprudence invoking the exceptional instances where a
228
party may directly resort to the extraordinary remedy of certiorari,
because the appeal, in those cases, is not speedy enough. 29
This is completely unacceptable.
The Court begins with the unassailable premise that the RTC
orders dismissing the case for failure to prosecute are final
orders, because such orders of dismissal operate as a judgment
on the merits.30 This principle is now an express provision in
Section 3, Rule 17 of the Rules of Court, to wit:
Section 3. Dismissal due to fault of plaintiff. If, for no
justifiable cause, the plaintiff fails to appear on the date of
the presentation of his evidence in chief on the complaint,
or to prosecute his action for an unreasonable length of
time, or to comply with these Rules or any order of the
court, the complaint may be dismissed upon motion of the
defendant or upon the court's own motion, without
prejudice to the right of the defendant to prosecute his
counterclaim in the same or in a separate action. This
dismissal shall have the effect of an adjudication
upon the merits, unless otherwise declared by the
court. (emphasis supplied)
It is firmly established, and with very few exceptions, that the
remedy against such final order is appeal and not certiorari.31
The general rule is that a writ of certiorari will not issue where the
remedy of appeal is available to the aggrieved party. The
remedies of appeal in the ordinary course of law and that
of certiorari under Rule 65 are mutually exclusive and not
alternative or cumulative.32 Hence, the special civil action
of certiorari under Rule 65 cannot be a substitute for an appeal
where the latter remedy is available.
While indeed there are exceptions to the foregoing rule, and
assuming further that the case of the petitioner falls under any of
those exceptions which allows her to elect Rule 65, the No. 65629 are REVERSED AND SET ASIDE. The Regional Trial
jurisprudence which she calls upon does not sanction the Court, San Pablo City, Branch 32, is DIRECTED to ADMIT the
successive or cumulative filing of both an appeal and a special petitioner's Supplemental Complaint dated July 20, 2000.
civil action of certiorari. Quite the opposite, these cases set down
the exceptional circumstances where certiorari can be directly No costs.
invoked in lieu of appeal.
SO ORDERED.
The remedies of appeal and certiorari under Rule 65 are mutually
exclusive and not alternative or cumulative. 33This is a firm judicial Panganiban, C.J., Chairperson, Ynares-Santiago, Callejo, Sr.,
policy. The petitioner cannot hedge her case by wagering two or Chico-Nazario, J.J., concur.
more appeals, and, in the event that the ordinary appeal lags
significantly behind the others, she cannot post facto validate this
circumstance as a demonstration that the ordinary appeal had not
been speedy or adequate enough, in order to justify the recourse
to Rule 65. This practice, if adopted, would sanction the filing of
multiple suits in multiple fora, where each one, as the petitioner
couches it, becomes a "precautionary measure" for the rest,
thereby increasing the chances of a favorable decision. This is
the very evil that the proscription on forum shopping seeks to put
right. In Guaranteed Hotels, Inc. v. Baltao,34 the Court stated that
the grave evil sought to be avoided by the rule against forum
shopping is the rendition by two competent tribunals of two
separate and contradictory decisions. Unscrupulous party
litigants, taking advantage of a variety of competent tribunals,
may repeatedly try their luck in several different fora until a
favorable result is reached. To avoid the resultant confusion, the
Court adheres strictly to the rules against forum shopping, and
any violation of these rules results in the dismissal of the case. 35

Thus, the CA correctly dismissed the petition for certiorari and the
petition for review (G.R. No. 157745) filed with this Court must be
denied for lack of merit.

WHEREFORE, the Petition for Review in G.R. No. 157745

is DENIED for lack of merit.

The Petition for Review in G.R. No. 157955 is GRANTED. The

Decisions and Resolutions of the Court of Appeals in CA-G.R. SP

229