General v. Hon. Franco T.
Falcon, in his
1. RP vs. MERALCO, G.R. No. 201715, Dec.
11, 2013;
2. Aguilar vs. Lightbringers Credit
Cooperative, G.R. No. 209605, Jan. 12, 2015;
3. Eastern Shipping Lines, Inc. vs. BPI/MS
Insurance Corp. G.R. No. 182864, Jan. 12,
2015;
4. Absolute Mgt. Corp. vs. Metrobank, G.R.
No. 190277, July 23, 2014; and
5. Aznar Brothers Realty vs. Sps. Ybañez, G.R.
No. 161380, April 21, 2014
FIRST DIVISION
G.R. No. 201715 December 11, 2013
REPUBLIC OF THE PHILIPPINES, Petitioner,
vs.
MANILA ELECTRIC COMPANY (MERALCO),
and NATIONAL POWER CORPORATION
(NPC), Respondents.
DECISION
BERSAMIN, J.:
The intervening rendition by the trial court of
a decision on the merits of the case renders
moot and academic the resolution of any
issue raised on certiorari against
interlocutory orders setting the pre-trial and
declaring the petitioner to have waived its
right to present its evidence. The resolution
of the issue, having been pre-empted by
the decision in the main action, ceased to
have any practical value.
The Case
Under appeal via petition for review on
certiorari is the decision promulgated on
October 14, 2011 in C.A.-G.R. SP No. 116863
entitled Republic of the Philippines,
represented by the Office of the Solicitor
capacity as the Presiding Judge of Branch
71, Regional Trial Court, National Capital
Region, Pasig City, Manila Electric Company
and National Power Corporation,1 whereby
the Court of Appeals (CA) dismissed the
original and the supplemental petitions for
certiorari, prohibition and mandamus of
herein petitioner Republic of the
Philippines,and in effect upheldthe assailed
interlocutory orders ofNovember 3,
20102 and November 4, 2010,3 and the pre-
trial order of November 24, 2010,4 all issued
by the Regional Trial Court (RTC), Branch 71,
in Pasig Cityin Special Civil Action No.
3392,an action for declaratory relief entitled
Manila Electric Company v. National Power
Corporation, et al. The CA further ordered
the RTC, Branch 71, in Pasig City to
proceedwith the trial in Special Civil Action
No. 3392, and to resolve the case with
dispatch.
Additionally, the petitioner prays that
respondents Manila Electric Company
(MERALCO) and National Power
Corporation (NAPOCOR) be directed to
resolve their dispute through
arbitrationpursuant to the arbitration clause
of their contract for the sale of electricity
(CSE).5
Antecedents
Thedecision of the CA sums up thefollowing
uncontested material antecedents.
MERALCO and NAPOCOR had entered into
the CSE on November 21, 1994. The CSE
would be effective for 10 years starting from
January 1, 1995. Under the CSE, NAPOCOR
was obliged to supply and MERALCO was
obliged to purchase a minimum volume of
electric power and energy from 1995 until
2004 at the rates approved by the Energy
Regulatory Board (ERB), now the Energy
Regulatory Commission (ERC). A provision of
the CSE required MERALCO to pay minimum
monthly charges even if the actual volume
of the power and energy drawn from
NAPOCOR fell below the stated minimum
quantities.
In the years 2002, 2003 and 2004, due to
circumstances beyond the reasonable
control of the parties, MERALCO drew from
NAPOCOR electric power and energy less
than the minimum quantities stipulated in
the CSE for those years. MERALCO did not
pay the minimum monthly charges but only
the charges for the electric power and
energy actually taken. Thus, NAPOCOR
served on MERALCO a claim for the
contracted but undrawn electric power and
energy starting the billing month of January
2002.
MERALCO objected to the claimof
NAPOCOR, and served its notice of
termination of the CSE. MERALCO submitted
its own claim to NAPOCOR for, among
others: (a) losses suffered due to the delay in
the construction of NAPOCOR’s transmission
lines, which prevented it from fully
dispatching the electricity contracted with
independent power producers (IPPs) at their
respective minimum energy quantities; and
(b) unrealized revenues owing to
NAPOCOR’s continuing to supply electricity
to directly-connected customers within
MERALCO’s franchise area in violation of the
MERALCO franchise and the CSE.
Recognizing that any delays in the resolution
of their dispute was inimical to public
interest, MERALCO and NAPOCOR
agreedto submit their dispute to
mediation.6 They appointed the late
Ambassador Sedfrey A.Ordoñez and
Antonio V. del Rosario as their mediators,
and the mediation required about 20
meetings, during which NAPOCOR and the
Government were represented by high-level
officials (includingthen Energy Secretary
Vincent S. Perez, Jr. and PSALM President
Edgardo M. del Fonso).The mediation
resulted in the execution on July 15, 2003 of
a settlement (entitled An Agreement
Resolving The Issues In Mediation Between
The National Power Corporation And The
Manila Electric Company In Regard To The
1994 Contract For The Sale Of
Electricity),7hereafter referred to as
Settlement Agreementfor brevity.
The Settlement Agreement coveredthe
charges being imposed by NAPOCOR and
the National Transmission Corporation
(TRANSCO) under Section 2.1 (Contract
Demand and Contract Energy of
MERALCO) in relation to Section 5.2
(Transmission Service) and Section 7 (Direct
Connection within MERALCO’s franchise
area), all of the CSE. MERALCO therein
agreed to pay to NAPOCOR
₱27,515,000,000.00(i.e., the equivalentof
18,222 gigawatt hours valued at ₱1.51per
kilowatt hour), which amount represented
the value of the difference between the
aggregate contracted energy for the years
2002, 2203 and 2004, on the one hand, and
the total amount of energy MERALCO
actually purchasedfrom NAPOCOR from
January 2002 until April 30, 2003 and the
amount of energy MERALCO was scheduled
to purchase thereafter and until December
31, 2004, on the other. NAPOCOR
reciprocated by agreeing to give credit to
MERALCO for the delayed completion of
the transmission facilities as well as for the
energy corresponding to NAPOCOR’s sales
to directly-connected customers located
within MERALCO’s franchise area. The
credit, valued at ₱7,465,000,000.00,
reducedthe net amount payable by
MERALCO to NAPOCOR under the
Settlement Agreement to
₱20,050,000,000.00.
Mediators Amb.Ordoñez and del Rosario
rendered their jointattestationto the
Settlement Agreement, as follows:
We, Ambassador Sedfrey A. Ordoñezand
Antonio V. del Rosario, do hereby attest
andcertify that we have been duly
appointed by the Parties and acted as
Mediators in the foregoing Settlement and
that the agreements contained therein are
the results of the painstaking efforts exerted
by the Parties to resolve the issues and
differences between them through
reasonable, fair and just solution that places
above all considerations the highest
concern for the welfare of the consumers. x
xx8
It is noted that from the time the Settlement
Agreement was executed on June 15,2003
until December 31,2004, MERALCO took
further electricity from NAPOCOR, and
made payments toward the total Minimum
chargeunder the CSE that exceeded the
parties’ estimate. As a result, the net amount
due to NAPOCORunder the Settlement
Agreement was further reduced to about
₱14,000,000,000.00.
The Settlement Agreement containeda
pass-through provision
thatallowedMERALCO to pay NAPOCORthe
net settlement amount from
collectionsrecovered from MERALCO’s
consumersonce the ERC approvedthe pass-
through. The net amount due under the
Settlement Agreementwasto be paid by
MERALCO to NAPOCOR over a period of
five to six years, starting on the first billing
month immediately following the ERC’s
approval of the pass-through of that
amount to MERALCO’sconsumers, and
ending 60months after the last billing month.
Spreading payment to NAPOCORover a
moving five-to six-year period was intended
to minimize the impact of the adjustment on
the consumers, which was estimated to be
about P0.12 per kilowatt hour.
The Settlement Agreement was duly
approved by the respective Boards of
MERALCO and NAPOCOR.
Considering that the Settlement Agreement
stipulated in its Section 3.1 that it would take
effect "upon approval by the ERC of the
recovery of the settlement amounts in this
Agreement from consumers, for which the
parties shall file a joint petition with the
[ERC],"NAPOCOR and MERALCO filed on
April 15, 2004their joint application in the
ERC,9 seeking the approval of the pass-
through provision ofthe Settlement
Agreement, and a provisional authority to
implement the pass-through provision
subject to a final decision after hearing on
the merits.
The joint application was set for initial
hearing, with notice to the Office of the
Solicitor General (OSG) with a request for
the OSG to send a representative to
participate in the proceedings. Hearings
were conducted on the application from
July 22, 2004 until October 7, 2005, at which
NAPOCOR was represented by its OSG-
designated counsel.
On July 10, 2006, MERALCO submitted its
memorandum, and the case was deemed
submitted for resolution.
However, on May 13, 2008,or almost two
years after the case was submitted for
resolution, the OSG, representing herein
petitioner, filed in the ERC a motion for leave
to intervene with motion to admit its
attached opposition.10Considering the
opposition by the OSG to the validity of the
Settlement Agreement, the ERC suspended
the proceedings and deferred the approval
of the joint application. This prompted
MERALCO to initiate on November 23, 2009
in the RTC in Pasig an action for declaratory
relief (Special Civil Action No. 3392).11
On August 20, 2010, the petitioner filed its
comment on the petitionfor declaratory
relief,12 praying for the stay of the
proceedings and forNAPOCOR and
MERALCO to be directed to resort to
arbitration.
On September 16, 2010, the representative
from the OSG appeared in the RTCand
moved to suspend the proceedings, but the
RTC denied the motion. Subsequently, on
September 30, 2010, the OSG filed a motion
to dismiss or to stay the proceedings, and to
refer the parties to arbitration.
On October 28, 2010,the OSG presentedan
urgent supplemental motion to cancel the
November 4, 2010 hearing. However, on
November 3, 2010, the RTC denied the
motion to dismiss or to stay the proceedings
and to refer the parties to arbitrationthrough
the first assailed order,13 stating in its
pertinent portions as follows:
The motions filed by the OSG raise a
common issue: whether or not the parties,
MERALCO and NPC, should be referred to
arbitration?
After a judicious evaluation of the
arguments by the parties, this Court rules
that MERALCO and NPC are not required to
undergo arbitration.
An examination of the Settlement
Agreement, which is the subject matter of
this petition for declaratory relief shows that
it does not require the parties therein to
resolve their dispute arising from said
agreement through arbitration.
The arbitration clause referred to by the
OSG is found in the Contract for the Sale of
Electricity (CSE).1âwphi1 Said contract is not
the one beinglitigatedin thisproceedings.
The instant petition for declaratory relief
does not concern the CSE. Besides, there is
no unsettled dispute between MERALCO
and NPC arising from the CSE that would
require resort to arbitration.
Further, the parties to the Settlement
Agreement have not requested that any
dispute between them should be resolved
through arbitration. The OSG, who is not a
party to the Settlement Agreement or to the
CSE, has no standing to demand that
MERALCO and NPC should proceed to
arbitration consistent with the Supreme
Court’s ruling in Ormoc Sugarcane Planter’s
Association vs. Court of Appeals, G.R. No.
156660, August 24, 2009, were (sic) it ruled
that-
By their own allegation, petitioners are
associations duly existing and organized
under Philippine law, i.e. they have juridical
personalities separate and distinct from that
of their member Planters. It is likewise
undisputed that the eighty (80) milling
contracts that were presented were signed
only by the member Planter concerned and
one of the Centrals as parties. In other
words, none of the petitioners were parties
or signatories to the milling contracts. This
circumstance is fatal to petitioners’ cause
since they anchor their right to demand
arbitration from the respondent sugar
centrals upon the arbitration clause found in
the milling contracts. There is no legal basis
for petitioners’ purported right to demand
arbitration when they are not parties to the
milling contracts, especially when the
language of the arbitration clause expressly
grants the right to demand arbitration only
to the parties to the contract.
As for OSG’s contention that the instant
petition should be dismissed because it
would not terminate the controversy
between the parties due to the existing ERC
Proceedings, this Court is mindful of the fact
that the ERC itself has ruled in its order of
September 14, 2009 that the issues raised by
the OSG in the earlier proceedings before it
are outside its jurisdiction. This means that
these issues may be properly resolved by this
Court and is in fact duty-bound to consider
and rule the issues presented before it in this
case.
This Court therefore holds that there is no
impediment for it to continue this
proceedings and to determine the validity
of the Settlement Agreement.
WHEREFORE, the office (sic) Office of the
Solicitor General’s Motion to Dismiss or Stay
the Proceedings and Refer the Parties to
Arbitration and the Motion for
Reconsideration (of the Honorable Court’s
Order dated September 16, 2010) are
DENIED.
SO ORDERED.14
On November 4, 2010, the pre-trialwas held,
butthe Presiding Judge of Branch 71 of the
RTC ultimatelyresetit through the second
assailed orderdue to the non-appearance
of the representative of the OSG,15 viz:
When this case was called, Atty. Jonas
Emmanuel S. Santos, for the petitioner, Atty.
Julieta S. Baccutan-Estamo, for defendant
PNC, appeared.
Over the vehement objection of Atty.
Santos and Atty. Baccutan-Estamo on the
Urgent Supplemental Motion to Cancel
November 4, 2010 Hearing filed by the
Office of the Solicitor General, considering
that they were both ready, the pre-trial
conference set for today is cancelled and
reset to November 24, 2010 at 8:30 A.M.,
which is an intransferrable date. The
manifestation of Atty. Baccutan-Estamo that
if in the next hearing the respondent OSG
still fails to appear they be declared as in
default, is noted.
SO ORDERED.
Upon learning that the next scheduled
hearing would be on November 24, 2010,
the OSG filed on November 22, 2010 a
motion to cancel that pre-trial, and a
motion for the inhibition of the RTC Judge. It
set both motions for hearing on November
24, 2010.
Also on November 22, 2010, the petitioner
broughtin the CA a petition for certiorari,
prohibition and mandamus (C.A.-G.R. SP
No. 116863), with an application for a
temporary restraining order (TRO) and writ of
preliminary injunction (WPI), alleging that
respondent RTC Judge had committed
grave abuse of discretion: (a) in refusing to
inhibit himself; (b) in refusing to order
respondentsMERALCO and NAPOCORto
resolve their dispute by arbitration; (c) in
proceeding with the pre-trialof the case;
and (d) in declaring the petitioner in default
and at the same time deeming
thepetitionerto have waived itsrightto
participate and present evidence.16
During the hearing ofNovember 24, 2010,
the representativesof the OSG (namely:
State Solicitors Catalina A. Catral-Talatala
and Donalita R. Lazo) appearedin the RTCto
argue for the cancellation of the pre-trial of
that date and to have the RTC Judgeby
reason of his perceived bias in favor of
MERALCO. However,the RTCdenied the
motion to cancel the pre-trialand instead
declared the petitioner to have waived the
right to participate in the pre-trial and to
present evidence.17
The CA granted the TRO on December 1,
2010,18 and the WPIon February 3,
2011,19 enjoining the RTC Judge from
conducting further proceedings in Special
Civil Action No. 3392 and from issuing orders
and performing other acts that would
render the case moot and academic
effective during the pendency of C.A.-G.R.
SP No. 116863.
On October 14, 2011, the CA promulgated
itsdecision under review,20 disposing
thuswise:
IN VIEW OF ALL THE FOREGOING, the instant
Petition including its Supplemental Petition
are hereby DENIED. The Regional Trial Court,
Branch 71 of Pasig City is hereby ORDEREDto
proceed to trial in S.C.A. Case No. 3392, and
to immediately resolve the same with
dispatch.
SO ORDERED.
The CA denied the petitioner’s motion for
reconsideration through its resolution
promulgated on April 25, 2012.21
Hence, the petitioner has appealed.
Issues
The petitioner states as the ground for the
allowance of its petition for review on
certiorari that:
THE COURT OF APPEALS COMMITTED AN
ERROR IN IGNORING FUNDAMENTAL ISSUES
AT THE HEART OF THE CONTROVERSY
BETWEEN PETITIONER AND RESPONDENTS,
AND THEREBY IMPROVIDENTLY ALLOWING
THE TRIAL COURT TO PROCEED WITH S.C.A.
CASE NO. 3392.22
The petitioner submitsargumentsin support of
the foregoing, to wit:
I
THE DISPUTE BETWEEN MERALCO AND NPC
SHOULD BE RESOLVED THROUGH
ARBITRATION INSTEAD OFMEDIATION IN
ACCORDANCEWITH THEIR
ARBITRATIONAGREEMENT UNDER THE CSE.
II
RESPONDENT JUDGE HAS NOJURISDICTION
OVER THESUBJECT MATTER RAISED INS.C. A.
CASE NO. 3392.
III
THE COURT OF APPEALS ERREDIN ALLOWING
THE TRIAL COURT TO PROCEED WITH THE PRE-
TRIAL AND SUBSEQUENT TRIALIN S.C.A. CASE
NO. 3392 INDISREGARD OF PETITIONER’S
RIGHTS. IN PARTICULAR, THECOURT OF
APPEALS ERRED IN [i] FAILING TO
ACKNOWLEDGE THECIRCUMSTANCES
OFPARTIALITY THAT WARRANTEDRESPONDENT
JUDGE’SINHIBITION FROM THE CASE; [ii]
APPROVING THE TRIAL COURT’SPRECIPITATE
ACTION TOPROCEED WITH THE PRE-
TRIALDESPITE INFORMATION THAT A PETITION
FOR CERTIORARI HAD BEEN FILED BY
PETITIONER, AND THEREUPON DECLARING
THE PETITIONER TO HAVEWAIVED THE RIGHT
TOPARTICIPATE THEREIN AND TOPRESENT
EVIDENCE.
IV
THE SETTLEMENT IS
GROSSLYDISADVANTAGEOUS
ANDPREJUDICIAL TO THE GOVERNMENT.
V.
THE PASS-ON PROVISIONIMPOSED UNDER
THESETTLEMENT IS CONTRARY TOL AW,
MORALS, PUBLICINTEREST, AND PUBLIC
POLICY.
VI
THE SETTLEMENT AGREEMENTWAS ENTERED
INTO WITHOUT THE PARTICIPATION AND
LEGAL GUIDANCE OF THE OFFICE OFTHE
SOLICITOR GENERAL.23
Ruling
We deny the petition for review, and affirm
the decision of the CA.
I
RTC’s intervening rendition of the decisionon
the merits has rendered this appealmoot
In its assaileddecisionof October 14, 2011,
the CAdirectedthe RTC to proceed to the
trial on the merits in Special Civil Action No.
3392, and to resolve the case with dispatch.
It is worth mentioning at this juncture,
therefore, that, as the petitioner indicated in
its petition,24the RTCcomplied and
ultimatelyrendered its decision on the merits
in Special Civil Action No. 3392 on May 29,
2012 granting MERALCO’s petition for
declaratory relief and declaring the
Settlement Agreement between NAPOCOR
and MERALCO as valid and binding, save
for the pass-through provision that was
reserved for the consideration and approval
of the ERC. The petitioner has probably
appealed the decision by now, for its
petition for review expressly manifested
theintention to appeal to the CA.25
With the intervening rendition of the decision
on the merits, the challenge against the
interlocutory orders of the RTC designed to
prevent the RTC from proceeding with the
pre-trial and the trial on the merits was
rendered mootand academic. In other
words, any determination of the issue on the
interlocutory orders was left without any
practical value.26 Acase that is moot and
academic because of supervening events
ceases to present any justiciable
controversy. The courts of law will not
determine moot and academic questions,
for they should not engage in academic
declarations and determine moot
questions.27
II
CA correctly ruled thatRTC Judge
did not commit graveabuse of discretion
in issuing the assailed orders
Nonetheless, the Court considers it
necessary to still deal with the contentions of
the petitioner in the interest of upholding the
observations of the CA on the propriety of
the interlocutory orders of the RTC.Doing so
will be instructive for the Bench and the
practicing Bar who may find themselves in
similar situations.
The petitioner assails the order of the RTC
dated November 3, 2010 for denying its
motion to dismiss or to stay proceedings and
to refer the parties to arbitration, and the
pre-trial order dated November 24, 2010 for
declaring that the petitioner was being
deemed to have waived the right to
participate in the pre-trial and to present
evidence in its behalf. Itargues that the CA
thereby erred, firstly, in ruling that the
assailed orders of the RTCwere not tainted
with grave abuse of discretion, and,
secondly, in ordering the RTC to proceed to
the trial of Special Civil Action No. 3392, and
to resolve the case with dispatch.
The Court cannot sustain the arguments of
the petitioner.
The RTC’s proceedingwith the pre-trial set on
November 24, 2010was entirely in accord
withthe Rules of Court. While it is true that
the OSG had filed on November 22, 2010
the petition for certiorari, prohibition and
mandamus, theCA did not restrain the RTC
from thus proceeding. Absent any TRO or
WPI stoppingthe RTC from proceeding, the
mere filing or pendency of the special civil
actions for certiorari, mandamusand
prohibition did not interrupt the due course
of the proceedings inthe main case. This is
quite clear from therevised Section 7, Rule
65 of the Rules of Court,28 which
mandatedthat the petition shall not interrupt
the course of the principal case,viz:
Section7. Expediting proceedings; injunctive
relief.–The court in which the petition is filed
may issue orders expediting the
proceedings, and it may also grant a
temporary restraining order or a writ of
preliminary injunction for the preservation of
the rights of the parties pending such
proceedings. The petition shall not interrupt
the course of the principal case, unless a
temporary restraining order or a writ of
preliminary injunction has been issued,
enjoining the public respondent from further
proceeding with the case.
The public respondent shall proceed with
the principal case within ten (10) days from
the filing of a petition for certiorariwith a
higher court or tribunal, absent a temporary
restraining order or a preliminary injunction,
or upon its expiration. Failure of the public
respondent to proceed with the principal
case may be a ground for an administrative
charge. (Emphasis supplied)
As the foregoing rule also indicates, for the
RTC not to proceedwith the pre-trial on its
scheduled date of November 24,
2010despite the absence of any TRO or WPI
enjoining it from doing so could have
subjected its Presiding Judge to an
administrative charge.
We further concur with the holding of theCA
that the RTC did not commit any grave
abuse of discretion amounting to lack or
excess of jurisdictionin deeming the
petitioner’s right to participate in the pre-
trial and its right to present evidence as
waived throughthe third assailed pre-trial
order dated November 24, 2010. The waiver
appears to have been caused by the
deliberate refusal of the petitioner’s counsel
to participate in the proceedings.
The pre-trial, initially set on September 16,
2010,29 wasreset by the RTC on October 7,
2010 upon the motion of the OSG itself
notwithstanding that bothMERALCO and
NAPOCOR hadalreadysubmitted their pre-
trial briefs and had manifested their
readinessto proceedto the pre-trial. Yet, on
October 7, 2010, the representative of the
OSG again requested a resettingof the pre-
trial. MERALCO expressed its strong
oppositionto the request, but the RTC
granted the request and moved the pre-trial
to November 4, 2010.30
Prior to November 4, 2010, the OSGfiled an
omnibus motion, again requesting the RTC
to cancel the pre-trial. Onthe scheduled
pre-trial of November 4, 2010,the
representative of the OSG did not appear
forthe petitioner, subsequentlyadmitting that
thenon-appearance had beenintentional.
Nonetheless, the RTCreset the pre-trial on
November 24, 2010over the "vehement
objection" of MERALCO’s counsel, but the
RTC expresslyconditioned the new date
as"intransferable."31
On November 24, 2010,however, the
representative of the OSG appeared in
court but only to movefor the cancellation
ofthe hearing. The recorded proceedings of
that date were recounted in the assailed
decision of the CA, which also rendered its
cogent observations on the consequences
of the actuations of the representative of
the OSG, as follows:
x x x While petitioner was initially present
during the scheduled pre-trial conference
on 24 November 2011, State Solicitor Lazo
(one of petitioner’s counsels) asked to be
excused from participating thereat. Excerpts
of the stenographic notes taken during the
hearing a quoon 24 November 2010 reveals:
"xxx
COURT:
Now, on the matter regarding the pre-trial
conference which has been set today, the
Court believes that in the absence of a TRO,
we will proceed with the pre-trial
conference as scheduled.
ATTY. LAZO:
Your Honor, may we ask for a written order
resolving our motion to cancel hearing
today and our motion for inhibition.
COURT:
The court has already made oral order. In
the meantime, you be ready for the
conduct of the pre-trial.
ATTY. LAZO:
Your Honor, may we be excused from
participating with the pre-trial.
COURT:
It was your first stand during the first day
when the pre-trial was set. In fact, one of the
lawyers of OSG likewise stated that he will
not participate. In the interest of substantial
justice let us be more fair in the conduct of
this proceedings, we (sic) all officers of the
court, we are guided by the rules, we have
to comply, we will proceed. The order will
be made after the hearing, unless that we
will suspend the hearing now then the
stenographer will prepare the order so that
you’ll have a copy, what do you want, are
we going to suspend the proceedings so
that the written order will be given to you. Is
that what you want? We will proceed.
This is one request which has never been
done by the Court. An oral order of the
Court is only released after the hearing,
because it will be prepared by the
stenographer. Are you agreeable to that
statement of the Court or you want to
suspend all proceedings of today so that
you will be given a chance that your
request will be granted. Are you not
changing your motion?
ATTY. LAZO:
Your Honor, I submit to the discretion of this
Court.
COURT:
When you submit then you wait, we will
proceed. Second call.
ATTY. LAZO:
Can we have a copy of the same by
registered mail because we have some
urgent matters to attend to your Honor.
COURT:
Okay.
ATTY. LAZO:
May we be excused, your Honor.
COURT:
Okay.
What are we going to do?
ATTY. SANTOS:
Your Honor, we are ready to proceed with
the pre-trial. We have our Pre-Trial Brief filed
and so with the NPC, your Honor.
COURT:
Now, in the conduct of the pre-trial, you
have to reiterate what you already
mentioned in your Pre-Trial Briefs for
purposes of this Court to come out with the
pre-trial order based on the stipulations
made by the parties.
xxx" (Emphasis supplied)
The above-quoted TSN belies petitioner’s
claim that despite its State Solicitor’s
appearance and objection to the holding
of the said hearing of 24 November 2010,
public respondent proceeded to declare
petitioner in default. A quo, public
respondent did not categorically declare
petitioner in default, but instead, decreed
petitioner to have waived its right to
participate in the pre-trial and present
evidence in its behalf which is in
accordance with Section 5, Rule 18 of the
Rules of Court for the apparent reason that
State Solicitor Lazo himself asked to be
excusedfrom participating in the pre-trial
conference. The case of Development Bank
of the Philippines vs. Court of Appeals, et al.
is enlightening on this point where the
Supreme Court had the occasion to state
therein that:
"Consistently with the mandatory character
of the pre-trial, the Rules oblige not only the
lawyers but the parties as well to appear for
this purpose before the Court, and when a
party "fails to appear at a pre-trial
conference (be) may be non-suited or
considered as in default.The obligationin(sic)
appear denotes not simply the personal
appearance, or the mere physical
presentation by a party of one’s self, but
connotes as importantly, preparedness to
go into the different subject assigned by law
to a pre-trial. (Emphasis supplied)
Petitioner’s State Solicitors’ initial
attendance during the pre-trial conference
could not be equated to the personal
appearance mandated by Section 4, Rule
18 of the Rules of Court. The duty to appear
during the pre-trial conference is not by
mere initial attendance, but taking an
active role during the said proceedings.
Petitioner (as defendant a quo) has no valid
reason to complain for its predicament now
as it chose to withhold its participation
during the pre-trial conference.32
From an objective view of the proceedings,
the RTC’sdeeming of the petitioner’s right to
participate in the pre-trial and its right to
present evidence as waived was
reasonable under the circumstances. Thus, it
did not act arbitrarily, whimsically, or
capriciously. The dismissal of the petition for
certiorari, prohibition and mandamuswas
correctand justified, for grave abuse of
discretion on the part of the RTC was not
persuasively demonstratedby the petitioner.
Grave abuse of discretionmeans either that
the judicial or quasi-judicial power
wasexercised in an arbitrary or despotic
manner by reason of passion or personal
hostility, or that the respondent judge,
tribunal or board evaded a positive duty, or
virtually refused to perform the duty
enjoined or to act in contemplation of law,
such as when such judge, tribunal or board
exercising judicial or quasi-judicial powers
acted in a capricious or whimsical manner
as to be equivalent to lack of jurisdiction.33
III
Validity of the Settlement Agreement
is not an issue in this appeal
In hereby assailing the decision of the CA to
uphold the challenged orders of the RTC,
the OSG raises various arguments against
the validity of the Settlement Agreement.

The Court believes and holds that it cannot

address such arguments simply because the
issue in this appeal concerns only the
upholding by the CA of the propriety of the
assailed interlocutory orders of the RTC. The
validity of the Settlement Agreement is not
an issue.

Moreover, the validity of the Settlement

Agreement is properly within the
competence of the RTC, the proper court
for that purpose (except the matter of the
pass-through provision, which was within the
jurisdiction of the ERC).

IV
Mediation v. Arbitration

The petitioner requests the Court's

intervention to direct MERALCO and
NAPOCOR to resolve their dispute through
arbitration pursuant to the arbitration clause
of the CSE.

The Court declines the request, considering

that the primary competence to determine
the enforceability of the arbitration clause
of the CSE pertained to the RTC in Special
Civil Action No. 3392. Yielding to the request
would have the Court usurping the
jurisdiction of the RTC. Moreover, with the
RTC having meanwhile rendered its decision
declaring the Settlement Agreement valid,
the recourse of the petitioner as to its
request is probably an appeal in due
course.

WHEREFORE, we DENY the petition for review

on certiorari, and AFFIRM the decision
promulgated by the Court of Appeals on
October 14, 2011 in C.A.-G.R. SP No. 116863.

SO ORDERED.
G.R. No. 209605, January 12, 2015
NEIL B. AGUILAR AND RUBEN
CALIMBAS, Petitioners, v. LIGHTBRINGERS
CREDIT COOPERATIVE, Respondent.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari filed
by petitioners Neil B. Aguilar (Aguilar) and
Ruben Calimbas (Calimbas), seeking to
reverse and set aside the April 5, 20131 and
October 9, 20132Resolutions of the Court of
Appeals (CA) in CA-G.R. SP No. 128914,
which denied the petition for review
outright, assailing the January 2, 2013
Decision3 of the Regional Trial Court, Branch
5, Dinalupihan, Bataan (RTC) and the May 9,
2012 Decision4 of the First Municipal Circuit
Trial Court, Dinalupihan, Bataan (MCTC).
evidenced by Cash Disbursement
Voucher No. 4010 but the net loan
was only P45,862.00 as supported by
PNB Check No.
0000005133.5chanRoblesvirtualLawlib
rary
2. In Civil Case No. 1429, petitioner
Calimbas allegedly borrowed
P202,800.18 as evidenced by Cash
Disbursement Voucher No. 3962 but
the net loan was only P60,024.00 as
supported by PNB Check No.
0000005088;6chanRoblesvirtualLawlib
rary
3. In Civil Case No. 1430, petitioner
Aguilar allegedly borrowed
P126,849.00 as evidenced by Cash
Disbursement Voucher No. 3902 but
the net loan was only P76,152.00 as
supported by PNB Check No.
0000005026;7

In the lower courts, one of the issues

involved was the proper application of the
Tantiangco, Aguilar and Calimbas filed their
rules when a party does not appear in the
respective answers. They uniformly claimed
scheduled pre-trial conference despite due
that the discrepancy between the principal
notice. In this petition, the dismissal by the
amount of the loan evidenced by the cash
CA of the petition filed under Rule 42 for
disbursement voucher and the net amount
failure to attach the entire records has also
of loan reflected in the PNB checks showed
been put to question, aside from the
that they never borrowed the amounts
veracity of indebtedness issue.
being collected. They also asserted that no
interest could be claimed because there
The Facts
was no written agreement as to its
imposition.
This case stemmed from the three (3)
complaints for sum of money separately
On the scheduled pre-trial conference, only
filed by respondent Lightbringers Credit
respondent and its counsel appeared. The
Cooperative (respondent) on July 14, 2008
MCTC then issued the Order,8 dated August
against petitioners Aguilar and Calimbas,
25, 2009, allowing respondent to present
and one Perlita
evidence ex parte.Respondent later
Tantiangco (Tantiangco) which were
presented Fernando Manalili (Manalili), its
consolidated before the First Municipal
incumbent General Manager, as its sole
Circuit Trial Court, Dinalupihan,
witness. In his testimony, Manalili explained
Bataan (MCTC). The complaints alleged
that the discrepancy between the amounts
that Tantiangco, Aguilar and
of the loan reflected in the checks and
Calimbas were members of the
those in the cash disbursement vouchers
cooperative who borrowed the following
were due to the accumulated interests from
funds:chanroblesvirtuallawlibrary
previous outstanding obligations, withheld
share capital, as well as the service and
1. In Civil Case No. 1428, Tantiangco miscellaneous fees. He stated, however,
allegedly borrowed P206,315.71 as
that it was their bookkeeper who could best
explain the details.
Aguilar and Calimbas insisted that they
should have the right to cross-examine the
witness of respondent, notwithstanding the
fact that these cases were being heard ex
parte. In the interest of justice, the MCTC
directed the counsels of the parties to
submit their respective position papers on
the issue of whether or not a party who had
been declared “as in default” might still
participate in the trial of the case. Only
respondent, however, complied with the
directive. In its Order,9 dated April 27, 2011,
the MCTC held that since the proceedings
were being heard ex parte, the petitioners
who had been declared “as in default” had
no right to participate therein and to cross-
examine the witnesses. Thereafter,
respondent filed its formal offer of
evidence.10chanRoblesvirtualLawlibrary
MCTC Ruling
On May 9, 2012, the MCTC resolved the
consolidated cases in three separate
decisions. In Civil Case No. 1428,11 the MCTC
dismissed the complaint against Tantiangco
because there was no showing that she
received the amount being claimed.
Moreover, the PNB check was made
payable to “cash” and was encashed by a
certain Violeta Aguilar. There was, however,
no evidence that she gave the proceeds to
Tantiangco. Further, the dates indicated in
the cash disbursement voucher and the PNB
check varied from each other and
suggested that the voucher could refer to a
different loan.
The decisions in Civil Case No. 142912 and
1430,13 however, found both Calimbas and
Aguilar liable to respondent for their
respective debts. The PNB checks issued to
the petitioners proved the existence of the
loan transactions. Their receipts of the loan
were proven by their signatures appearing
on the dorsal portions of the checks as well
as on the cash disbursement vouchers. As a
matter of practice, banks would allow the
encashment of checks only by the named
payee and subject to the presentation of
proper identification. Nonetheless, the
MCTC ruled that only the amount shown in
the PNB check must be awarded because
respondent failed to present its bookkeeper
to justify the higher amounts being claimed.
The court also awarded attorney’s fees in
favor of respondent. The dispositive portion
of the decision in Civil Case No. 1429
reads:chanroblesvirtuallawlibrary
WHEREFORE, premises considered, judgment
is hereby rendered in plaintiff’s favor and
against the defendant, ordering the latter to
pay plaintiff the amount of P60,024.00 with
interest at the rate of 12% per annum from
April 4, 2007 until fully paid, plus P15,000.00
as attorney’s fees.
Costs against the defendant.
SO ORDERED.14
And in Civil Case No. 1430, the dispositive
portion states:chanroblesvirtuallawlibrary
WHEREFORE, premises considered, judgment
is hereby rendered in plaintiff’s favor and
against the defendant, ordering the latter to
pay the plaintiff the amount of ?76,152.00
with interest at the rate of 12% per annum
from February 28, 2007 until fully paid.
Defendant is further directed to pay
attorney’s fees equivalent to 25% of the
adjudged amount.
Costs against the defendant.
SO ORDERED.15
On July 12, 2012, a notice of appeal16 was
filed by the petitioners, and on August 15,
2012, they filed their joint memorandum for
appeal17 before the Regional Trial Court,
Branch 5, Bataan (RTC). Aguilar and
Calimbas argued out that had they been
allowed to present evidence, they would
have established that the loan documents
were bogus. Respondent produced
documents to appear that it had new
borrowers but did not lend any amount to
them. Attached to the joint memorandum
were photocopies of the dorsal portions of
the PNB checks which showed that these
checks were to be deposited back to
respondent’s bank account.
RTC Ruling
On January 2, 2013, the RTC rendered
separate decisions in Civil Case No. DH-
1300-1218 and Civil Case No. DH-1299-
1219 which affirmed the MCTC decisions. It
held that the PNB checks were concrete
evidence of the indebtedness of the
petitioners to respondent. The RTC relied on
the findings of the MCTC that the checks
bore no endorsement to another person or
entity. The checks were issued in the name
of the petitioners and, thus, they had the
right to encash the same and appropriate
the proceeds. The decretal portions of the
RTC decision in both cases similarly
read:chanroblesvirtuallawlibrary
WHEREFORE, premises considered, the
appeal is hereby DENIED. The Decision
dated May 9, 2012 of the First Municipal
Circuit Trial Court (1st MCTC), Dinalupihan-
Hermosa, Bataan is hereby affirmed in toto.
SO ORDERED.
On January 18, 2013, the petitioners filed
their joint motion for reconsideration/new
trial20 before the RTC. Aguilar and Calimbas
reiterated their position that they did not
receive the proceeds of the checks. As an
alternative prayer, petitioners moved that
the RTC remand the case to the MCTC for a
new trial on account of the Sinumpaang
Salaysay of Arcenit Dela Torre, the
bookkeeper of respondent.
On February 11, 2013, the RTC issued
separate orders21 denying the motion of the
petitioners. It explained that all the issues
were already passed upon and the
supposed newly discovered evidence was
already available during appeal, but the
petitioners failed to present the same in
time.
CA Ruling
Aggrieved, Aguilar and Calimbas filed a
petition for review22 before the CA on March
11, 2013. It was dismissed, however, in the
questioned resolution,23 dated April 5, 2013,
stating that the petition was formally
defective because the “verification and
disclaimer of forum shopping” and the
“affidavit of service” had a
defective jurat for failure of the notary
public to indicate his notarial commission
number and office address. Moreover, the
entire records of the case, inclusive of the
oral and documents evidence, were not
attached to the petition in contravention of
Section 2, Rule 42 of the Rules of Court.
A motion for reconsideration24 was filed by
the petitioners which sought the leniency of
the CA. They attached a corrected
verification and disclaimer of forum
shopping and affidavit of service. They
asked the CA to simply order the RTC to
elevate the records of the case pursuant to
Section 7, Rule 42 of the Rules of Court.
Moreover, the petitioners could not attach
the records of the case because the
flooding caused by “Habagat” in August
2012 soaked the said records in water.
In the other questioned resolution, dated
October 9, 2013, the CA denied the motion
because the petitioners still failed to attach
the entire records of the case which was a
mandatory requirement under Section 2,
Rule 42.
Hence, this petition.
SOLE ASSIGNMENT OF ERROR
THE COURT OF APPEALS COMMITTED GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK
OR IN EXCESS OF JURISDICTION WHEN IT
DISMISSED THE PETITION FOR REVIEW FILED
BEFORE IT BY THE PETITIONERS UNDER RULE 42
OF THE RULES OF COURT CITING THAT THE
SAID PETITION IS FORMALLY DEFECTIVE FOR
FAILURE OF THE PETITIONERS TO SUBMIT WITH
THE SAID PETITION THE ENTIRE RECORDS OF
THE APPEALED CIVIL CASE NOS. DH-1300-12
AND DH-1299-12.25
The petitioners argue that contrary to the
findings of the CA, they substantially
complied with the required form and
contents of a petition for review under
Section 2, Rule 42 of the Rules of Court.
There is nothing in the provision which
requires that the entire records of the
appealed case should be endorsed to the
CA. Such requirement would definitely be
cumbersome to poor litigants like them.
They assert that they submitted the following
pleadings and material portions of the court
records in their petition for review: (1)
certified copies of the decisions, orders or
resolutions of the RTC and the MCTC; (2)
complaints against the petitioners attached
with documents used by respondent in its
formal offer of evidence; (3) answer of the
petitioners; (4) order of the MCTC declaring
the petitioners in default; (5) respondent’s
formal offer of evidence; (6) notice of
appeal; (7) joint memorandum of appeal;
and (8) joint motion for reconsideration/new
trial. According to the petitioners, these
pleadings and records were sufficient to
support their petition for review.
Assuming that there was a reason to dismiss
the petition on account of technicalities, the
petitioners argue that the CA should not
have strictly applied the rules of procedure
and provided leniency to the petitioners.
They also ask the Court to give a glance on
the merits of their case brought before the
CA.
On February 7, 2014, respondent filed its
comment26 contending that the petitioners
had no excuse in their non-compliance with
Section 2, Rule 42. They claim that the court
records were not attached because these
were soaked in flood water in August 2012,
but the RTC rendered its decision in January
2013. The petitioners failed to secure a
certification from the RTC that these records
were indeed unavailable.
On May 21, 2014, the petitioners filed their
reply before this Court,27 adding that the
elevation of the entire records of the case
was not a mandatory requirement, and the
CA could exercise its discretion that it
furnished with the entire records of the case
by invoking Section 7, Rule 42 of the Rules of
Court.cralawred
The Court’s Ruling
First Procedural Issue
On the sole assignment of error, the Court
agrees with the petitioners that Section 2,
Rule 42 does not require that the entire
records of the case be attached to the
petition for review. The provision
states:chanroblesvirtuallawlibrary
Sec. 2. Form and contents. - The petition
shall be filed in seven (7) legible copies, with
the original copy intended for the court
being indicated as such by the petitioner,
and shall (a) state the full names of the
parties to the case, without impleading the
lower courts or judges thereof either as
petitioners or respondents; (b) indicate the
specific material dates showing that it was
filed on time; (c) set forth concisely a
statement of the matters involved, the issues
raised, the specification of errors of fact or
law, or both, allegedly committed by the
Regional Trial Court, and the reasons or
arguments relied upon for the allowance of
the appeal; (d) be accompanied by clearly
legible duplicate originals or true copies of
the judgments or final orders of both lower
courts, certified correct by the clerk of court
of the Regional Trial Court, the requisite
number of plain copies thereof and of the
pleadings and other material portions of the
record as would support the allegations of
the petition. [Emphasis and underscoring
supplied]
The abovequoted provision enumerates the
required documents that must be attached
to a petition for review, to wit: (1) clearly
legible duplicate originals or true copies of
the judgments or final orders of both lower
courts, certified correct by the clerk of court
of the Regional Trial Court; (2) the requisite
number of plain copies thereof; and (3) of
the pleadings and other material portions of
the record as would support the allegations
of the petition. Clearly, the Rules do not
require that the entire records of the case
be attached to the petition for review. Only
when these specified documents are not
attached in the petition will it suffer infirmities
under Section 3, Rule 42, which
states:chanroblesvirtuallawlibrary
Sec. 3. Effect of failure to comply with
requirements. - The failure of the petitioner
to comply with any of the foregoing
requirements regarding the payment of the
docket and other lawful fees, the deposit for
costs, proof of service of the petition, and
the contents of and the documents which
should accompany the petition shall be
sufficient ground for the dismissal thereof.
In Canton v. City of Cebu,28 the Court
discussed the importance of attaching the
pleadings or material portions of the records
to the petition for review. “[P]etitioner’s
discretion in choosing the documents to be
attached to the petition is however not
unbridled. The CA has the duty to check the
exercise of this discretion, to see to it that
the submission of supporting documents is
not merely perfunctory. The practical
aspect of this duty is to enable the CA to
determine at the earliest possible time the
existence of prima facie merit in the
petition.”29 In that case, the petition was
denied because the petitioner failed to
attach the complaint, answer and appeal
memorandum to support their allegation.
In Cusi-Hernandez v. Diaz,30 a case where
the petitioner did not attach to her petition
for review a copy of the contract to sell that
was at the center of controversy, the Court
nonetheless found that there was a
substantial compliance with the rule,
considering that the petitioner had
appended to the petition for review a
certified copy of the decision of the MTC
that contained a verbatim reproduction of
the omitted contract.
Recently, in Galvez, v. CA,31 it was held that
attaching the other records of the MTC and
the RTC were not necessary based on the
circumstances of the case. The petitioner
therein was not assailing the propriety of the
findings of fact by the MTC and the RTC, but
only the conclusions reached by the said
lower courts after their appreciation of the
facts. In dealing with the questions of law,
the CA could simply refer to the attached
decisions of the MTC and the RTC.
Thus, the question in the case at bench is
whether or not the petitioners attached the
sufficient pleadings and material portions of
the records in their petition for review. The
Court rules that the petition was in
substantial compliance with the
requirements.
The assignment of error32 in the petition for
review clearly raises questions of fact as the
petitioners assail the appreciation of
evidence by the MCTC and the RTC. Thus,
aside from the decisions and orders of the
MCTC and the RTC, the petitioners should
attach pertinent portions of the records such
as the testimony of the sole witness of
respondent, the copies of the cash
disbursement vouchers and the PNB checks
presented by respondent in the MCTC. In
the petition for review, the petitioners
attached respondent’s complaints before
the MCTC which contained the
photocopies of the cash disbursement
vouchers and PNB checks. These should be
considered as ample compliance with
Section 2, Rule 42 of the Rules of Court.
Second Procedural Issue
Nevertheless, instead of remanding the case
to the CA, this Court deems it fit to rule on
the merits of the case to once and for all
settle the dispute of the parties.
The rule is that a court can only consider the
evidence presented by respondent in the
MCTC because the petitioners failed to
attend the pre-trial conference on August
25, 2009 pursuant to Section 5, Rule 18 of the
Rules of Court.33 The Court, however, clarifies
that failure to attend the pre-trial does not
result in the “default” of the defendant.
Instead, the failure of the defendant to
attend shall be cause to allow the plaintiff to
present his evidence ex parte and the court
to render judgment on the basis thereof.
The case of Philippine American Life &
General Insurance Company v. Joseph
Enario34 discussed the difference between
non-appearance of a defendant in a pre-
trial conference and the declaration of a
defendant in default in the present Rules of
Civil Procedure. The decision
states:chanroblesvirtuallawlibrary
Prior to the 1997 Revised Rules of Civil
Procedure, the phrase "as in default" was
initially included in Rule 20 of the old rules,
and which read as
follows:ChanRoblesVirtualawlibrary
Sec. 2. A party who fails to appear at a pre-
trial conference may be non-suited or
considered as in default.
It was however amended in the 1997
Revised Rules of Civil Procedure. Justice
Regalado, in his book REMEDIAL LAW
COMPENDIUM, explained the rationale for
the deletion of the phrase "as in default" in
the amended provision, to
wit:ChanRoblesVirtualawlibrary
1. This is a substantial reproduction of
Section 2 of the former Rule 20 with the
change that, instead of defendant being
declared "as in default" by reason of his non-
appearance, this section now spells out that
the procedure will be to allow the ex
parte presentation of plaintiff’s evidence
and the rendition of judgment on the basis
thereof. While actually the procedure
remains the same, the purpose is one of
semantical propriety or terminological
accuracy as there were criticisms on the use
of the word "default" in the former provision
since that term is identified with the failure to
file a required answer, not appearance in
court.
If the absent party is the plaintiff, then his
case shall be dismissed. If it is the defendant
who fails to appear, then the plaintiff is
allowed to present his evidence ex
parte and the court shall render judgment
on the basis thereof. Thus, the plaintiff is
given the privilege to present his evidence
without objection from the defendant, the
likelihood being that the court will decide in
favor of the plaintiff, the defendant having
forfeited the opportunity to rebut or present
his own
evidence.35chanRoblesvirtualLawlibrary
The pre-trial cannot be taken for granted. It
is not a mere technicality in court
proceedings for it serves a vital objective:
the simplification, abbreviation and
expedition of the trial, if not indeed its
dispensation.36 More significantly, the pre-
trial has been institutionalized as the answer
to the clarion call for the speedy disposition
of cases. Hailed as the most important
procedural innovation in Anglo-Saxon justice
in the nineteenth century, it paved the way
for a less cluttered trial and resolution of the
case. It is, thus, mandatory for the trial court
to conduct pre-trial in civil cases in order to
realize the paramount objective of
simplifying, abbreviating and expediting
trial.37chanRoblesvirtualLawlibrary
In the case at bench, the petitioners failed
to attend the pre-trial conference set on
August 25, 2009. They did not even give any
excuse for their non-appearance, manifestly
ignoring the importance of the pre-trial
stage. Thus, the MCTC properly issued the
August 25, 2009 Order,38 allowing
respondent to present evidence ex parte.
The MCTC even showed leniency when it
directed the counsels of the parties to
submit their respective position papers on
whether or not Aguilar and Calimbas could
still participate in the trial of the case despite
their absence in the pre-trial conference.
This gave Aguilar and Calimbas a second
chance to explain their non-attendance
and, yet, only respondent complied with the
directive to file a position paper. The MCTC,
in its Order,39 dated April 27, 2011, properly
held that since the proceedings were being
heard ex parte, Aguilar and Calimbas had
no right to participate therein and to cross-
examine the witness.

Thus, as it stands, the Court can only
consider the evidence on record offered by
respondent. The petitioners lost their right to
present their evidence during the trial
and, a fortiori, on appeal due to their
disregard of the mandatory attendance in
the pre-trial conference.
Substantive Issue
And on the merits of the case, the Court
holds that there was indeed a contract of
loan between the petitioners and
respondent. The Court agrees with the
findings of fact of the MCTC and the RTC
that a check was a sufficient evidence of a
loan transaction. The findings of fact of the
trial court, its calibration of the testimonies of
the witnesses and its assessment of the
probative weight thereof, as well as its
conclusions anchored on the findings are
accorded high respect, if not conclusive
effect.40chanRoblesvirtualLawlibrary
The case of Pua v. Spouses Lo Bun
Tiong41 discussed the weight of a check as
an evidence of a
loan:chanroblesvirtuallawlibrary
In Pacheco v. Court of Appeals, this Court
has expressly recognized that a check
constitutes an evidence of indebtedness
and is a veritable proof of an obligation.
Hence, it can be used in lieu of and for the
same purpose as a promissory note. In fact,
in the seminal case of Lozano v. Martinez,
We pointed out that a check functions more
than a promissory note since it not only
contains an undertaking to pay an amount
of money but is an "order addressed to a
bank and partakes of a representation that
the drawer has funds on deposit against
which the check is drawn, sufficient to
ensure payment upon its presentation to the
bank." This Court reiterated this rule in the
relatively recent Lim v. Mindanao Wines and
Liquour Galleria stating that a check, the
entries of which are in writing, could prove a
loan transaction.42
There is no dispute that the signatures of the
petitioners were present on both the PNB
checks and the cash disbursement
vouchers. The checks were also made
payable to the order of the petitioners.
Hence, respondent can properly demand
that they pay the amounts borrowed. If the
petitioners believe that there is some other
bogus scheme afoot, then they must
institute a separate action against the
responsible personalities. Otherwise, the
Court can only rule on the evidence on
record in the case at bench, applying the
appropriate laws and jurisprudence.
As to the award of attorney’s fees, the Court
is of the view that the same must be
removed. Attorney's fees are in the concept
of actual or compensatory damages
allowed under the circumstances provided
for in Article 2208 of the Civil Code, and
absent any evidence supporting its grant,
the same must be deleted for lack of
factual basis.43 In this case, the MCTC merely
stated that respondent was constrained to
file the present suit on account of the
petitioners’ obstinate failure to settle their
obligation. Without any other basis on
record to support the award, such cannot
be upheld in favor of respondent. The
settled rule is that no premium should be
placed on the right to litigate and that not
every winning party is entitled to an
automatic grant of attorney’s
fees.44chanRoblesvirtualLawlibrarychanroble
slaw
WHEREFORE, the petition is PARTIALLY
GRANTED.
In accord with the discourse on the
substantive issue, the January 2, 2013
decision of the Regional Trial Court, Branch
5, Dinalupihan, Bataan, is AFFIRMED. The
award of attorney's fees is,
however,DELETED.
SO ORDERED.cralawlawlibrary

G.R. No. 182864, January 12, 2015
EASTERN SHIPPING LINES,
INC., Petitioner, v. BPI/MS INSURANCE CORP.,
& MITSUI SUMITOMO INSURANCE CO.,
LTD., Respondents.
DECISION
PEREZ, J.:
Before this Court is a Petition for Review
on Certiorari1 of the Decision2 of the Second
Division of the Court of Appeals in CA-G.R.
CV No. 88744 dated 31 January 2008,
modifying the Decision of the Regional Trial
Court (RTC) by upholding the liability of
Eastern Shipping Lines, Inc. (ESLI) but
absolving Asian Terminals, Inc. (ATI) from
liability and deleting the award of attorney’s
fees.
The facts gathered from the records follow:
On 29 December 2004, BPI/MS Insurance
Corporation (BPI/MS) and Mitsui Sumitomo
Insurance Company Limited (Mitsui) filed a
Complaint3 before the RTC of Makati City
against ESLI and ATI to recover actual
damages amounting to US$17,560.48 with
legal interest, attorney’s fees and costs of
suit.
In their complaint, BPI/MS and Mitsui alleged
that on 2 February 2004 at Yokohama,
Japan, Sumitomo Corporation shipped on
board ESLI’s vessel M/V “Eastern Venus 22”
22 coils of various Steel Sheet weighing
159,534 kilograms in good order and
condition for transportation to and delivery
at the port of Manila, Philippines in favor of
consignee Calamba Steel Center, Inc.
(Calamba Steel) located in Saimsim,
Calamba, Laguna as evidenced by a Bill of
Lading with Nos. ESLIYMA001. The declared
value of the shipment was US$83,857.59 as
shown by an Invoice with Nos. KJGE-03-
1228-NT/KE3. The shipment was insured with
the respondents BPI/MS and Mitsui against
all risks under Marine Policy No. 103-
GG03448834.
On 11 February 2004, the complaint alleged
that the shipment arrived at the port of
Manila in an unknown condition and was
turned over to ATI for safekeeping. Upon
withdrawal of the shipment by the Calamba
Steel’s representative, it was found out that
part of the shipment was damaged and
was in bad order condition such that there
was a Request for Bad Order Survey. It was
found out that the damage amounted to
US$4,598.85 prompting Calamba Steel to
reject the damaged shipment for being unfit
for the intended purpose.
On 12 May 2004 at Kashima, Japan,
Sumitomo Corporation again shipped on
board ESLI’s vessel M/V “Eastern Venus 25”
50 coils in various Steel Sheet weighing
383,532 kilograms in good order and
condition for transportation to and delivery
at the port of Manila, Philippines in favor of
the same consignee Calamba Steel as
evidenced by a Bill of Lading with Nos.
ESLIKSMA002. The declared value of the
shipment was US$221,455.58 as evidenced
by Invoice Nos. KJGE-04-1327-NT/KE2. The
shipment was insured with the respondents
BPI/MS and Mitsui against all risks under
Marine Policy No. 104-GG04457785.
On 21 May 2004, ESLI’s vessel with the
second shipment arrived at the port of
Manila partly damaged and in bad order.
The coils sustained further damage during
the discharge from vessel to shore until its
turnover to ATI’s custody for safekeeping.
Upon withdrawal from ATI and delivery to
Calamba Steel, it was found out that the
damage amounted to US$12,961.63. As it
did before, Calamba Steel rejected the
damaged shipment for being unfit for the
intended purpose.
Calamba Steel attributed the damages on
both shipments to ESLI as the carrier and ATI
as the arrastreoperator in charge of the
handling and discharge of the coils and
filed a claim against them. When ESLI and
ATI refused to pay, Calamba Steel filed an
insurance claim for the total amount of the
cargo against BPI/MS and Mitsui as cargo
insurers. As a result, BPI/MS and Mitsui
became subrogated in place of and with all
the rights and defenses accorded by law in
favor of Calamba Steel.
Opposing the complaint, ATI, in its Answer,
denied the allegations and insisted that the
coils in two shipments were already
damaged upon receipt from ESLI’s vessels. It
likewise insisted that it exercised due
diligence in the handling of the shipments
and invoked that in case of adverse
decision, its liability should not exceed
P5,000.00 pursuant to Section 7.01, Article
VII4 of the Contract for Cargo Handling
Services between Philippine Ports Authority
(PPA) and ATI.5 A cross-claim was also filed
against ESLI.
On its part, ESLI denied the allegations of the
complainants and averred that the
damage to both shipments was incurred
while the same were in the possession and
custody of ATI and/or of the consignee or its
representatives. It also filed a cross-claim
against ATI for indemnification in case of
liability.6chanRoblesvirtualLawlibrary
To expedite settlement, the case was
referred to mediation but it was returned to
the trial court for further proceedings due to
the parties’ failure to resolve the legal issues
as noted in the Mediator’s Report dated 28
June 2005.7chanRoblesvirtualLawlibrary
On 10 January 2006, the court issued a Pre-
Trial Order wherein the following stipulations
were agreed upon by the
parties:chanroblesvirtuallawlibrary
1. Parties admitted the capacity of the
parties to sue and be sued;
2. Parties likewise admitted the
existence and due execution of the
Bill of Lading covering various steel
sheets in coil attached to the
Complaint as Annex A;
3. Parties admitted the existence of the
Invoice issued by Sumitomo
Corporation, a true and faithful copy
of which was attached to the
Complaint as Annex B;
4. Parties likewise admitted the
existence of the Marine Cargo Policy
issued by the Mitsui Sumitomo
Insurance Company, Limited, copy
of which was attached to the
Complaint as Annex C;
5. [ATI] admitted the existence and
due execution of the Request for
Bad Order Survey dated February 13,
2004, attached to the Complaint as
Annex D;
6. Insofar as the second cause of
action, [ESLI] admitted the existence
and due execution of the document
[Bill of Lading Nos. ESLIKSMA002,
Invoice with Nos. KJGE-04-1327-
NT/KE2 and Marine Cargo Policy
against all risks on the second
shipment] attached to the
Complaint as Annexes E, F and G;
7. [ATI] admitted the existence of the
Bill of Lading together with the
Invoices and Marine Cargo Policy.
[It] likewise admitted by [ATI] are the
Turn Over Survey of Bad Order
Cargoes attached to the Complaint
as Annexes H, H-1 and J.8
The parties agreed that the procedural issue
was whether there was a valid subrogation
in favor of BPI/MS and Mitsui; and that the
substantive issues were, whether the
shipments suffered damages, the cause of
damage, and the entity liable for reparation
of the damages
caused.9chanRoblesvirtualLawlibrary
Due to the limited factual matters of the
case, the parties were required to present
their evidence through affidavits and
documents. Upon submission of these
evidence, the case was submitted for
resolution.10chanRoblesvirtualLawlibrary
BPI/MS and Mitsui, to substantiate their
claims, submitted the Affidavits of (1) Mario
A. Manuel (Manuel),11 the Cargo Surveyor of
Philippine Japan Marine Surveyors and
Sworn Measurers Corporation who
personally examined and conducted the
surveys on the two shipments; (2) Richatto P.
Almeda,12 the General Manager of
Calamba Steel who oversaw and examined
the condition, quantity, and quality of the
shipped steel coils, and who thereafter filed
formal notices and claims against ESLI and
ATI; and (3) Virgilio G. Tiangco, Jr.,13 the
Marine Claims Supervisor of BPI/MS who
processed the insurance claims of Calamba
Steel. Along with the Affidavits were the Bills
of Lading14 covering the two shipments,
Invoices,15 Notices of Loss of Calamba
Steel,16 Subrogation Form,17 Insurance
Claims,18Survey Reports,19 Turn Over Survey
of Bad Order Cargoes20 and Request for
Bad Order
Survey.21chanRoblesvirtualLawlibrary
ESLI, in turn, submitted the Affidavits of
Captain Hermelo M. Eduarte,22 Manager of
the Operations Department of ESLI, who
monitored in coordination with ATI the
discharge of the two shipments, and
Rodrigo Victoria (Rodrigo),23 the Cargo
Surveyor of R & R Industrial and Marine
Services, Inc., who personally surveyed the
subject cargoes on board the vessel as well
as the manner the ATI employees
discharged the coils. The documents
presented were the Bills of Lading,
Secretary’s Certificate24 of PPA, granting ATI
the duty and privilege to
provide arrastre and stevedoring services at
South Harbor, Port of Manila, Contract for
Cargo Handling Services,25 Damage
Report26 and Turn Over Report made by
Rodrigo.27 ESLI also adopted the Survey
Reports submitted by BPI/MS and
Mitsui.28chanRoblesvirtualLawlibrary
Lastly, ATI submitted the Affidavits of its Bad
Order Inspector Ramon Garcia
(Garcia)29 and Claims Officer Ramiro De
Vera.30 The documents attached to the
submissions were the Turn Over Surveys of
Bad Cargo Order,31 Requests for Bad Order
Survey,32 Cargo Gatepasses issued by
ATI,33 Notices of Loss/Claims of Calamba
Steel34 and Contract for Cargo Handling
Services.35chanRoblesvirtualLawlibrary
On 17 September 2006, RTC Makati City
rendered a decision finding both the ESLI
and ATI liable for the damages sustained by
the two shipments. The dispositive portion
reads:chanroblesvirtuallawlibrary
WHEREFORE, judgment is hereby rendered in
favor of [BPI/MS and Mitsui] and against [ESLI
Inc.] and [ATI], jointly and severally ordering
the latter to pay [BPI/MS and Mitsui] the
following:
1. Actual damages amounting to
US$17,560.48 plus 6% legal interest
per annum commencing from the
filing of this complaint, until the same
is fully paid;
2. Attorney’s fees in a sum equivalent
to 20% of the amount claimed;
3. Costs of suit.36
Aggrieved, ESLI and ATI filed their respective
appeals before the Court of Appeals on
both questions of fact and
law.37chanRoblesvirtualLawlibrary
Before the appellate court, ESLI argued that
the trial court erred when it found BPI/MS
has the capacity to sue and when it
assumed jurisdiction over the case. It also
questioned the ruling on its liability since the
Survey Reports indicated that the cause of
loss and damage was due to the “rough
handling of ATI’s stevedores during
discharge from vessel to shore and during
loading operation onto the trucks.” It
invoked the limitation of liability of US$500.00
per package as provided in
Commonwealth Act No. 65 or the Carriage
of Goods by Sea Act
(COGSA).38chanRoblesvirtualLawlibrary
On the other hand, ATI questioned the
capacity to sue of BPI/MS and Mitsui and
the award of attorney’s fees despite its lack
of justification in the body of the decision.
ATI also imputed error on the part of the trial
court when it ruled that ATI’s employees
were negligent in the ruling of the shipments.
It also insisted on the applicability of the
provision of COGSA on limitation of
liability.39chanRoblesvirtualLawlibrary
In its Decision,40 the Court of Appeals
absolved ATI from liability thereby modifying
the decision of the trial court. The dispositive
portions reads:chanroblesvirtuallawlibrary
WHEREFORE, the appeal of ESLI is DENIED,
while that of ATI is GRANTED. The assailed
Judgment dated September 17, 2006 of
Branch 138, RTC of Makati City in Civil Case
No. 05-108 is hereby MODIFIED absolving ATI
from liability and deleting the award of
attorney’s fees. The rest of the decision is
affirmed.41
Before this Court, ESLI seeks the reversal of
the ruling on its liability.
At the outset, and notably, ESLI included
among its arguments the attribution of
liability to ATI but it failed to implead the
latter as a party to the present petition. This
non-inclusion was raised by BPI/MS and
Mitsui as an issue42 in its
Comment/Opposition43 and
Memorandum:44chanRoblesvirtualLawlibrary
For reasons known only to [ESLI], it did not
implead ATI as a party respondent in this
case when it could have easily done so.
Considering the nature of the arguments
raised by petitioner pointing to ATI as solely
responsible for the damages sustained by
the subject shipments, it is respectfully
submitted that ATI is an indispensable party
in this case. Without ATI being impleaded,
the issue of whether ATI is solely responsible
for the damages could not be determined
with finality by this Honorable Court. ATI
certainly deserves to be heard on the issue
but it could not defend itself because it was
not impleaded before this Court. Perhaps,
this is the reason why [ESLI] left out ATI in this
case so that it could not rebut while
petitioner puts it at fault.45
ESLI in its Reply46 put the blame for the non-
exclusion of ATI to BPI/MS and
Mitsui:chanroblesvirtuallawlibrary
[BPI/MS and Mitsui] claim that herein [ESLI]
did not implead [ATI] as a party respondent
in the Petition for Review on Certiorari it had
filed. Herein Petitioner submits that it is not
the obligation of [ESLI] to implead ATI as the
same is already the look out of [BPI/MS and
Mitsui]. If [BPI/MS and Mitsui] believe that ATI
should be made liable, they should have
filed a Motion for Reconsideration with the
Honorable Court of Appeals. The fact that
[BPI/MS and Mitsui] did not even lift a finger
to question the decision of the Honorable
Court of Appeals goes to show that [BPI/MS
and Mitsui] are not interested as to whether
or not ATI is indeed liable.47
It is clear from the exchange that both [ESLI]
and [BPI/MS and Mitsui] are aware of the
non-inclusion of ATI, the arrastre operator, as
a party to this review of the Decision of the
Court of Appeals. By blaming each other for
the exclusion of ATI, [ESLI] and [BPI/MS and
Mitsui] impliedly agree that the absolution of
ATI from liability is final and beyond review.
Clearly, [ESLI] is the consequential loser. It
alone must bear the proven liability for the
loss of the shipment. It cannot shift the
blame to ATI, thearrastre operator, which
has been cleared by the Court of Appeals.
Neither can it argue that the consignee
should bear the loss.
Thus confined, we go to the merits of the
arguments of ESLI.
First Issue: Liability of ESLI
ESLI bases of its non-liability on the survey
reports prepared by BPI/MS and Mitsui’s
witness Manuel which found that the cause
of damage was the rough handling on the
shipment by the stevedores of ATI during the
discharging operations.48 However, Manuel
does not absolve ESLI of liability. The witness
in fact includes ESLI in the findings of
negligence. Paragraphs 3 and 11 of the
affidavit of witness Manuel attribute fault to
both ESLI and ATI.
3. The vessel M.V. “EASTERN VENUS” V 22-S
carrying the said shipment of 22 coils of
various steel sheets arrived at the port of
Manila and discharged the said shipment
on or about 11 February 2004 to
the arrastre operator [ATI]. I personally
noticed that the 22 coils were roughly
handled during their discharging from the
vessel to the pier of [ATI] and even during
the loading operations of these coils from
the pier to the trucks that will transport the
coils to the consignees’s warehouse. During
the aforesaid operations, the employees
and forklift operators of [ESLI] and [ATI] were
very negligent in the handling of the subject
cargoes.
xxxx
11. The vessel M.V. “EASTERN VENUS” V 25-S
carrying the said shipment of 50 coils of
various steel sheets arrived at the port of
Manila and discharged the said shipment
on or about 21 May 2004 to
the arrastre operator [ATI]. I personally
noticed that the 50 coils were roughly
handled during their discharging from the
vessel to the pier of [ATI] and even during
the loading operations of these coils from
the pier to the trucks that will transport the
coils to the consignees’s warehouse. During
the aforesaid operations, the employees
and forklift operators of [ESLI] and [ATI] were
very negligent in the handling of the subject
cargoes.49 (Emphasis supplied).
ESLI cannot rely only on parts it chooses. The
entire body of evidence should determine
the liability of the parties. From the
statements of Manuel, [ESLI] was negligent,
whether solely or together with ATI.
To further press its cause, ESLI cites the
affidavit of its witness Rodrigo who stated
that the cause of the damage was the
rough mishandling by ATI’s stevedores.
The affidavit of Rodrigo states that his
functions as a cargo surveyor are, (1)
getting hold of a copy of the bill of lading
and cargo manifest; (2) inspection and
monitoring of the cargo on-board, during
discharging and after unloading from the
vessel; and (3) making a necessary report of
his findings. Thus, upon arrival at the South
Harbor of Manila of the two vessels of ESLI on
11 February 2004 and on 21 May 2004,
Rodrigo immediately boarded the vessels to
inspect and monitor the unloading of the
cargoes. In both instances, it was his finding
that there was mishandling on the part of
ATI’s stevedores which he reported as the
cause of the
damage.50chanRoblesvirtualLawlibrary
Easily seen, however, is the absence of a
crucial point in determining liability of either
or both ESLI and ATI – lack of determination
whether the cargo was in a good order
condition as described in the bills of lading
at the time of his boarding. As Rodrigo
admits, it was also his duty to inspect and
monitor the cargo on-board upon arrival of
the vessel. ESLI cannot invoke its non-liability
solely on the manner the cargo was
discharged and unloaded. The actual
condition of the cargoes upon arrival prior
to discharge is equally important and
cannot be disregarded. Proof is needed
that the cargo arrived at the port of Manila
in good order condition and remained as
such prior to its handling by ATI.
Common carriers, from the nature of their
business and on public policy
considerations, are bound to observe
extraordinary diligence in the vigilance over
the goods transported by them. Subject to
certain exceptions enumerated under
Article 173451 of the Civil Code, common
carriers are responsible for the loss,
destruction, or deterioration of the goods.
The extraordinary responsibility of the
common carrier lasts from the time the
goods are unconditionally placed in the
possession of, and received by the carrier
for transportation until the same are
delivered, actually or constructively, by the
carrier to the consignee, or to the person
who has a right to receive
them.52chanRoblesvirtualLawlibrary
In maritime transportation, a bill of lading is
issued by a common carrier as a contract,
receipt and symbol of the goods covered
by it. If it has no notation of any defect or
damage in the goods, it is considered as a
“clean bill of lading.” A clean bill of lading
constitutes prima facie evidence of the
receipt by the carrier of the goods as
therein
described.53chanRoblesvirtualLawlibrary
Based on the bills of lading issued, it is
undisputed that ESLI received the two
shipments of coils from shipper Sumitomo
Corporation in good condition at the ports
of Yokohama and Kashima, Japan.
However, upon arrival at the port of Manila,
some coils from the two shipments were
partly dented and crumpled as evidenced
by the Turn Over Survey of Bad Order
Cargoes No. 67982 dated 13 February
200454 and Turn Over Survey of Bad Order
Cargoes Nos. 6836355 and 6836556 both
dated 24 May 2004 signed by ESLI’s
representatives, a certain Tabanao and
Rodrigo together with ATI’s representative
Garcia. According to Turn Over Survey of
Bad Order Cargoes No. 67982, four coils and
one skid were partly dented and crumpled
prior to turnover by ESLI to ATI’s possession
while a total of eleven coils were partly
dented and crumpled prior to turnover
based on Turn Over Survey Bad Order
Cargoes Nos. 68363 and 68365.
Calamba Steel requested for a re-
examination of the damages sustained by
the two shipments. Based on the Requests
for Bad Order Survey Nos. 5826757 and
5825458 covering the first shipment dated 13
and 17 February 2004, four coils were
damaged prior to turnover. The second
Request for Bad Order Survey No.
5865859 dated 25 May 2004 also affirmed the
earlier findings that eleven coils on the
second shipment were damaged prior to
turnover.
In Asian Terminals, Inc., v. Philam Insurance
Co., Inc.,60 the Court based its ruling on
liability on the Bad Order Cargo and Turn
Over of Bad Order. The Receipt bore a
notation “B.O. not yet t/over to ATI,” while
the Survey stated that the said steel case
was not opened at the time of survey and
was accepted by the arrastre in good
order. Based on these documents,
packages in the Asian Terminals, Inc.
case were found damaged while in the
custody of the carrier Westwind Shipping
Corporation.
Mere proof of delivery of the goods in good
order to a common carrier and of their
arrival in bad order at their destination
constitutes a prima facie case of fault or
negligence against the carrier. If no
adequate explanation is given as to how
the deterioration, loss, or destruction of the
goods happened, the transporter shall be
held responsible.61 From the foregoing, the
fault is attributable to ESLI. While no longer
an issue, it may be nonetheless state that ATI
was correctly absolved of liability for the
damage.
Second Issue: Limitation of Liability
ESLI assigns as error the appellate court’s
finding and reasoning that the package
limitation under the COGSA62 is inapplicable
even if the bills of lading covering the
shipments only made reference to the
corresponding invoices. Noticeably, the
invoices specified among others the weight,
quantity, description and value of the
cargoes, and bore the notation “Freight
Prepaid” and “As Arranged.”63 ESLI argues
that the value of the cargoes was not
incorporated in the bills of lading64 and that
there was no evidence that the shipper had
presented to the carrier in writing prior to the
loading of the actual value of the cargo,
and, that there was a no payment of
corresponding freight.65 Finally, despite the
fact that ESLI admits the existence of the
invoices, it denies any knowledge either of
the value declared or of any information
contained
therein.66chanRoblesvirtualLawlibrary
According to the New Civil Code, the law of
the country to which the goods are to be
transported shall govern the liability of the
common carrier for their loss, destruction or
deterioration.67 The Code takes precedence
as the primary law over the rights and
obligations of common carriers with the
Code of Commerce and COGSA applying
suppletorily.68chanRoblesvirtualLawlibrary
The New Civil Code provides that a
stipulation limiting a common carrier’s
liability to the value of the goods appearing
in the bill of lading is binding, unless the
shipper or owner declares a greater
value.69In addition, a contract fixing the sum
that may be recovered by the owner or
shipper for the loss, destruction, or
deterioration of the goods is valid, if it is
reasonable and just under the
circumstances, and has been fairly and
freely agreed
upon.70chanRoblesvirtualLawlibrary
COGSA, on the other hand, provides under
Section 4, Subsection 5 that an amount
recoverable in case of loss or damage shall
not exceed US$500.00 per package or per
customary freight unless the nature and
value of such goods have been declared by
the shipper before shipment and inserted in
the bill of lading.
In line with these maritime law provisions,
paragraph 13 of bills of lading issued by ESLI
to the shipper specifically provides a similar
restriction:chanroblesvirtuallawlibrary
The value of the goods, in calculating and
adjusting any claims for which the Carrier
may be liable shall, to avoid uncertainties
and difficulties in fixing value, be deemed to
the invoice value of the goods plus ocean
freight and insurance, if paid, Irrespective of
whether any other value is greater or less,
and any partial loss or damage shall be
adjusted pro rata on the basis of such value;
provided, however, that neither the Carrier
nor the ship shall in any event be or become
liable for any loss, non-delivery or misdelivery
of or damage or delay to, or in connection
with the custody or transportation of the
goods in an amount exceeding $500.00 per
package lawful money of the United States,
or in case of goods not shipped in
packages, per customary freight unit, unless
the nature of the goods and a valuation
higher than $500.00 is declared in writing by
the shipper on delivery to the Carrier and
inserted in the bill of lading and extra freight
is paid therein as required by applicable
tariffs to obtain the benefit of such higher
valuation. In which case even if the actual
value of the goods per package or unit
exceeds such declared value, the value
shall nevertheless be deemed to be the
declared value and any Carrier’s liability
shall not exceed such declared value and
any partial loss or damage shall be adjusted
pro-rata on the basis thereof. The Carrier
shall not be liable for any loss or profit or any
consequential or special damage and shall
have the option of replacing any lost goods
and replacing o reconditioning any
damage goods. No oral declaration or
agreement shall be evidence of a value
different from that provided
therein.71chanRoblesvirtualLawlibrary
xxxx
Accordingly, the issue whether or not ESLI
has limited liability as a carrier is determined
by either absence or presence of proof that
the nature and value of the goods have
been declared by Sumitomo Corporation
and inserted in the bills of lading.
ESLI contends that the invoices specifying
the weight, quantity, description and value
of the cargo in reference to the bills of
lading do not prove the fact that the
shipper complied with the requirements
mandated by the COGSA. It contends that
there must be an insertion of this declaration
in the bill of lading itself to fall outside the
statutory limitation of liability.
ESLI asserts that the appellate court erred
when it ruled that there was compliance
with the declaration requirement even if the
value of the shipment and fact of payment
were indicated on the invoice and not on
the bill of lading itself.
There is no question about the declaration
of the nature, weight and description of the
goods on the first bill of lading.
The bills of lading represent the formal
expression of the parties’ rights, duties and
obligations. It is the best evidence of the
intention of the parties which is to be
deciphered from the language used in the
contract, not from the unilateral post
facto assertions of one of the parties, or of
third parties who are strangers to the
contract.72 Thus, when the terms of an
agreement have been reduced to writing, it
is deemed to contain all the terms agreed
upon and there can be, between the
parties and their successors in interest, no
evidence of such terms other than the
contents of the written
agreement.73chanRoblesvirtualLawlibrary
As to the non-declaration of the value of the
goods on the second bill of lading, we see
no error on the part of the appellate court
when it ruled that there was a compliance
of the requirement provided by COGSA. The
declaration requirement does not require
that all the details must be written down on
the very bill of lading itself. It must be
emphasized that all the needed details are
in the invoice, which “contains the itemized
list of goods shipped to a buyer, stating
quantities, prices, shipping charges,” and
other details which may contain numerous
sheets.74 Compliance can be attained by
incorporating the invoice, by way of
reference, to the bill of lading provided that
the former containing the description of the
nature, value and/or payment of freight
charges is as in this case duly admitted as
evidence.
In Unsworth Transport International (Phils.),
Inc. v. Court of Appeals,75 the Court held
that the insertion of an invoice number does
not in itself sufficiently and convincingly
show that petitioner had knowledge of the
value of the cargo. However, the same
interpretation does not squarely apply if the
carrier had been advised of the value of the
goods as evidenced by the invoice and
payment of corresponding freight charges.
It would be unfair for ESLI to invoke the
limitation under COGSA when the shipper in
fact paid the freight charges based on the
value of the goods. In Adams Express
Company v. Croninger,76 it was said:
“Neither is it conformable to plain principles
of justice that a shipper may understate the
value of his property for the purpose of
reducing the rate, and then recover a larger
value in case of loss. Nor does a limitation
based upon an agreed value for the
purpose of adjusting the rate conflict with
any sound principle of public policy.”
Conversely, but for the same reason, it is
unjust for ESLI to invoke the limitation when it
is informed that the shipper paid the freight
charges corresponding to the value of the
goods.
Also, ESLI admitted the existence and due
execution of the Bills of Lading and the
Invoice containing the nature and value of
the goods on the second shipment. As
written in the Pre-Trial Order,77 the parties,
including ESLI, admitted the existence and
due execution of the two Bills of
Lading78together with the Invoice on the
second shipment with Nos. KJGE-04-1327-
NT/KE279 dated 12 May 2004. On the first
shipment, ESLI admitted the existence of the
Invoice with Nos. KJGE-031228-
NT/KE380 dated 2 February 2004.
The effect of admission of the genuineness
and due execution of a document means
that the party whose signature it bears
admits that he voluntarily signed the
document or it was signed by another for
him and with his
authority.81chanRoblesvirtualLawlibrary
A review of the bill of ladings and invoice on
the second shipment indicates that the
shipper declared the nature and value of
the goods with the corresponding payment
of the freight on the bills of lading. Further,
under the caption “description of packages
and goods,” it states that the description of
the goods to be transported as “various
steel sheet in coil” with a gross weight of
383,532 kilograms (89.510 M3). On the other
hand, the amount of the goods is referred in
the invoice, the due execution and
genuineness of which has already been
admitted by ESLI, is US$186,906.35 as freight
on board with payment of ocean freight of
US$32,736.06 and insurance premium of
US$1,813.17. From the foregoing, we rule
that the non- limitation of liability applies in
the present case.
We likewise accord the same binding effect
on the contents of the invoice on the first
shipment.
ESLI contends that what was admitted and
written on the pre-trial order was only the
existence of the first shipment’ invoice but
not its contents and due execution. It
invokes admission of existence but
renounces any knowledge of the contents
written on it.82chanRoblesvirtualLawlibrary
Judicial admissions are legally binding on
the party making the admissions. Pre-trial
admission in civil cases is one of the
instances of judicial admissions explicitly
provided for under Section 7, Rule 18 of the
Rules of Court, which mandates that the
contents of the pre-trial order shall control
the subsequent course of the action,
thereby, defining and limiting the issues to
be tried. In Bayas v. Sandiganbayan,83this
Court emphasized
that:chanroblesvirtuallawlibrary
Once the stipulations are reduced into
writing and signed by the parties and their
counsels, they become binding on the
parties who made them. They become
judicial admissions of the fact or facts
stipulated. Even if placed at a
disadvantageous position, a party may not
be allowed to rescind them unilaterally, it
must assume the consequences of the
disadvantage.84
Moreover, in Alfelor v. Halasan,85 this Court
declared that:chanroblesvirtuallawlibrary
A party who judicially admits a fact cannot
later challenge that fact as judicial
admissions are a waiver of proof; production
of evidence is dispensed with. A judicial
admission also removes an admitted fact
from the field of controversy. Consequently,
an admission made in the pleadings cannot
be controverted by the party making such
admission and are conclusive as to such
party, and all proofs to the contrary or
inconsistent therewith should be ignored,
whether objection is interposed by the party
or not. The allegations, statements or
admissions contained in a pleading are
conclusive as against the pleader. A party
cannot subsequently take a position
contrary of or inconsistent with what was
pleaded.86 (Citations omitted)
The admission having been made in a
stipulation of facts at pre-trial by the parties,
it must be treated as a judicial admission.
Under Section 4, of Rule 129 of the Rules of
Court, a judicial admission requires no
proof.87chanRoblesvirtualLawlibrary
It is inconceivable that a shipping company
with maritime experience and resource like
the ESLI will admit the existence of a
maritime document like an invoice even if it
has no knowledge of its contents or without
having any copy thereof.
ESLI also asserts that the notation “Freight
Prepaid” and “As Arranged,” does not
prove that there was an actual declaration
made in writing of the payment of freight as
required by COGSA. ESLI did not as it could
not deny payment of freight in the amount
indicated in the documents. Indeed, the
earlier discussions on ESLI’s admission of the
existence and due execution of the
invoices, cover and disprove the argument
regarding actual declaration of payment.
The bills of lading bore a notation on the
manner of payment which was “Freight
Prepaid” and “As Arranged” while the
invoices indicated the amount exactly paid
by the shipper to ESLI.chanrobleslaw
WHEREFORE, we DENY the Petition for Review
on Certiorari. The Decision dated 31 January
2008 and Resolution dated 5 May 2008 of
the Second Division of the Court of Appeals
in CA-G.R. CV. No. 88744 are
hereby AFFIRMED.
SO ORDERED.cralawlawlibrary
G.R. No. 190277 July 23, 2014
ABSOLUTE MANAGEMENT
CORPORATION, Petitioner,
vs.
METROPOLITAN BANK AND TRUST
COMPANY, Respondent.
DECISION
VILLARAMA, JR., J.:
At bar is a Petition for Review on Certiorari
with Application for the Issuance of a
Temporary Restraining Order and/or Writ of
Preliminary Injunction, of the Decision1 and
Resolution2 of the Court of Appeals (CA) in
CA-G.R. SP No. 101568 dated August 13,
2009 and November 13, 2009, respectively,
reversing the Orders dated May 2, 20073 and
September 3, 20074 of the Regional Trial
Court (RTC) of Quezon City, Branch 80, and
requiring the court a quo to allow
respondent to participate in the
proceedings of Civil Case No. Q-00-42105.
The following undisputed facts are stated m
the op1mon of the appellate court:
On October 5, 2000, Sherwood Holdings
Corporation and Spouses Sandy Ang and
Arlene Ang filed a case for sum of money
against private respondent Absolute
Management Corporation before the
Regional Trial Court of Quezon City, Branch
80 and docketed as Civil Case No. Q-00-
42105. Private respondent filed its answer
and incorporated a third-party complaint
against petitioner Metropolitan Bank and
Trust Company.
In an Order dated January 30, 2004, the trial
court set the case for pre-trial on February 7,
2004, but the same was cancelled on
account of the filing by petitioner ofa
motion to admit fourth-party-complaint
against the Estate of Jose L. Chua.
On September 5, 2005, the trial court issued
an Order directing petitioner to produce
and allow private respondent to copy,
microfilm copies of several checks and the
bank ledgers of Current Account Nos.
00719-250162-4 and 00700-250691-9. On
November 20, 2006, the trial court set the
case for pre-trial. When the counsels of the
parties were asked by the trial court to
produce their respective authorizations to
appear at the said hearing, [counsel for
petitioner] manifested that [her] authority to
appear for petitioner was submitted by
them at the first pre-trial hearing way back
[in] 2004.
Petitioner’s counsel was given the chance
to go over the records to look for [the]
Secretary’s Certificate she allegedly
submitted in 2004. Petitioner’s counsel,
however, failed to show any written
authority. As a result thereof, the trial court,
upon motion of the private respondent,
declared petitioner in default. Accordingly,
the trial court allowed private respondent to
present evidence ex-parte.
Without waiting for the written order of
default, petitioner, on December 5, 2006,
filed a Motion to Lift Order of Default seeking
reconsideration of the Order dated
November 20, 2006, attaching thereto an
Affidavit of Merit together with the required
Secretary’s Certificate dated July 16, 2006
and Special Power of Attorney dated
December 5, 2006.
On May 2, 2007, the trial court issued an
Order denying petitioner’s motion to lift the
order of default, which reads:
xxxx
Petitioner filed a motion for reconsideration
of the above-quoted Order but the same
was denied by the trial court in its Order
dated September 3, 2007.5
Respondent filed a petition for certiorariwith
the CA alleging that the RTC committed
grave abuse of discretion in issuing the
aforestated Orders dated May 2 and
September 3, 2007.
In its assailed decision, the CA reversed the
trial court’s ruling that respondent’s counsel
cannot validly represent respondent due to
"the failure on the part of the representative
of[respondent] to present a Secretary’s
Certificate and Special Power of Attorney
authorizing her to represent [respondent]
during the pre-trial stage."6 The CA ruled
that the RTC’s determination holding that
respondent’s counsel cannot validly
represent respondent due to lack of
authorization lacks merit, viz.:
The presumption in favor of the counsel’s
authority to appear in behalf of a client is a
strong one. A lawyer is not even required to
present a written authorization from the
client. In fact, the absence of a formal
notice of entry of appearance will not
invalidate the acts performed by the
counsel in his client’s name. However, the
court,on its own initiative or on motion of the
other party[,] [may] require a lawyer to
adduce authorization from the client.
xxxx
It is evident therefore that the trial court
gravely abused its discretion in denying
[respondent’s] counsel to represent it. In the
same vein, it is a clear disregard of the oft
repeated principle that courts should not
resort to a rigid application of the rules
where the end result would frustrate the just,
speedy and inexpensive determination of
the controversy.7
Petitioner’s motion for reconsideration was
denied in a Resolution dated November 13,
2009. Hence, this petition raising the
following assignment of errors:
I. THE HONORABLE COURT OF
APPEALS SERIOUSLY ERRED WHEN IT
HELD THAT A SPECIAL POWER OF
ATTORNEY NEED NOT BE PRESENTED
IN COURT DURING PRE-TRIAL
HEARINGS SINCE THE AUTHORITY OF
A LAWYER TO APPEAR IN BEHALF OF
HIS CLIENT IS PRESUMED.
A) THE NON-APPEARANCE OF
A PARTY IN PRE-TRIAL MAY BE
EXCUSED ONLY IF A VALID
CAUSE IS SHOWN THEREFORE
OR IF A REPRESENTATIVE
SHALL APPEAR IN HIS BEHALF
FULLY [AUTHORIZED] IN
WRITING.
B) THE CASES CITED BY THE
HONORABLE COURT OF
APPEALS, NAMELY: (1)
LANDBANK OF THE
PHILIPPINES VS. [PAMINTUAN],
CO.AND (2) CEBU
STEVEDORING VS. RAMOLETE,
TO SUPPORT ITS RULING THAT
THE AUTHORITY OF [A]
LAWYER TO APPEAR IN
BEHALF OF THE CLIENT IS
PRESUMED, ARE
INAPPLICABLE TO THE INSTANT
CASE.
II. THE HONORABLE COURT OF
APPEALS SERIOUSLY ERRED WHEN IT
HELD THAT THERE WAS GRAVE ABUSE
OF DISCRETION ON THE PART OF THE
LOWER COURT, WHEN IN FACT THE
LOWER COURT ONLY PROPERLY
APPLIED THE PROVISIONS OF THE LAW
REQUIRING THE PRESENTATION OF A
SPECIAL POWER OF ATTORNEY
DURING PRE-TRIAL.
III. THE HONORABLE COURT OF
APPEALS SERIOUSLY ERRED WHEN IT
HELD THAT THE LIBERAL APPLICATION
OF THE RULES SHOULD BE APPLIED IN
THE CASE OF RESPONDENT.
IV. THE HONORABLE COURT OF
APPEALS SERIOUSLY ERRED WHEN IT
ORDERED RESPONDENT TO
PARTICIPATE IN THE TRIAL OF THE
COLLECTION CASE FILED WITH THE
REGIONAL TRIAL COURT.
A) RESPONDENT’S
PARTICIPATION IN THE TRIAL
WOULD ONLY CAUSE THE
DELAY IN THE RESOLUTION OF
 THE CASE, CONSIDERING
THAT IN ITS ANSWER, THEY
FAILED TO PRESENT A VALID
DEFENSE.8
We grant the petition.
A petition for certiorari may be filed if the
trial court declared the defendant in default
with grave abuse of discretion.9 However,
an act of a court or tribunal can only be
consideredto be tainted with grave abuse
of discretion when such act is done in a
capricious or whimsical exercise of
judgment as is equivalent to lack of
jurisdiction.10
The court a quodid not commit such grave
abuse of discretion in the case at bar. The
Order given by the RTC in open court dated
November 20, 2006 stated, viz.:
When this case was called for pre-trial
conference, co-plaintiff Sandy Ang failed to
appear despite notice, thus, this case is
hereby dismissed, insofar as he is
concerned. Accordingly, defendant
Absolute Management Corp. may now
adduce evidence ex partein support of its
counterclaim against co-plaintiff Sandy
Ang.
With respect to the third-party complaint of
Absolute Management Corp., against third-
party defendant Metropolitan Bank and
Trust Company whose counsel failed to
present a Secretary’s Certificate and
Special Power ofAttorney authorizing her to
represent said bank in today’s pre-trial, said
third-party plaintiff is hereby allowed to
present evidence ex partepursuant to the
provisions of Sec. 5, Rule 18 of the 1997 Rules
of Civil Procedure.
Meanwhile, let this case be referred to the
Philippine Mediation Center for mediation
proceedings on December 6, 2006 at 10:00
in the morning. Let the pre-trial conference
between the remaining plaintiffs and
defendant Absolute Management Corp. be
set on January 29, 2007 at 1:30 in the
afternoon.
SO ORDERED.
Given in Open Court on November 20,
200611
When respondent tendered its explanation
in a Motion to Lift Order of Default dated
December 4, 2006, respondent clarified
that:
2. The failure of the undersigned
counsel to present the above-
mentioned authorization at the said
occasion was due to their impression
that the same was already
submitted by them during the initial
pre-trial hearing of the case that was
held on February 27, 2004. Because
of such impression, undersigned
counsel did not bring anymore the
required authorization from
[respondent]. Upon inspection of the
records of the case after the said
pre-trial hearing, undersigned
counsel, however, discovered and
realized that no such authorization
was submitted by them at the said
first pre-trial hearing.
3. The records of the instant case will
show that the undersigned counsel
has been representing [respondent]
in all the proceedings of the present
case from the very start, including
the cases before the Court of
Appeals (CA G.R. SP No. 86336) and
the Supreme Court (SC G.R. SP No.
170498), involving the issue of
whether ornot the former has the
right to file a fourth-party complaint
against the Estate of Jose Chua.
4. Indubitably, the undersigned
counsel’s inability to provide the
Honorable Court the proper
authority to represent [respondent]
at the pretrial hearing on November
20, 2006 was not willful and
deliberate, but simply due to their
excusable negligence. Nevertheless,
undersigned counsel[s] are
attaching herewith the Secretary’s
 Certificate and the Special Power of
Attorney, Annexes "A" and "B" hereof
respectively, evidencing their
authority to represent [respondent] in
the instant case.12
Despite the explanation, the trial court
denied the foregoing Motion to Lift Order of
Default for lack of merit in its Order dated
May 2, 2007.13 It likewise found no
compelling reason to grant reconsideration
as stated in its Order dated September 3,
2007.14
We agree with petitioner that the court a
quomerely applied the law in this case
when it declared that respondent’s counsel
did not have the authority to act on behalf
of respondent as its representativeduring the
pretrial on November 20, 2006. The
applicable provision under Rule 18 of the
1997 Rules of Civil Procedure, as amended,
states, viz.:
SEC. 4. Appearance of parties. - It shall be
the duty of the parties and their counsel to
appear at the pre-trial. The non-
appearance of a party may be excused
only if a valid cause is shown therefor or if a
representative shall appear in his behalf fully
authorized in writing to enter into an
amicable settlement, to submit to
alternative modes of dispute resolution, and
to enter into stipulations or admissions of
facts and of documents.15
SEC. 5. Effect of failure to appear. - The
failure of the plaintiff to appear when so
required pursuant to the next preceding
section shall be cause for dismissal of the
action. The dismissal shall be with prejudice,
unless otherwise ordered by the court. A
similar failure on the part of the defendant
shall be cause to allow the plaintiff to
present his evidence ex parteand the court
to render judgment on the basis thereof.
This Court has incisively explained the
ratiocination of the foregoing rule on pre-
trial in the case of Development Bank of the
Philippines v. Court of Appeals16:
Everyone knows that a pre-trial incivil actions
is mandatory, and has been so since
January 1, 1964. Yet tothis day its place in
the scheme of things is not fully
appreciated, and it receives but
perfunctory treatment in many courts. Some
courts considerit a mere technicality, serving
no useful purpose save perhaps,
occasionally to furnish ground for nonsuiting
the plaintiff, or declaring a defendant in
default, or, wistfully, to bring about a
compromise. The pre-trial device is not thus
put to full use. Hence it has failed in the
main to accomplish the chief objective for
it: the simplification, abbreviation and
expedition of the trial, if not indeed its
dispensation. This is a great pity, because
the objective is attainable, and with not
much difficulty, if the device were more
intelligently and extensively handled.
xxxx
What needs stressing is that the parties as
well as the Trial Court must realize that at the
pre-trial, the parties are obligednot only to
make formal identification and specification
ofthe issues and of their proofs, as above
described – indeed, there is noreason why
the Court may not oblige the parties to set
these matters down in separate writings and
submit them to the Court prior to the pre-
trial, and then to discuss, refine and embody
the matters agreed upon in a single
document at or shortly after the pretrial –
but also and equally as peremptorily, to
directly address and discusswith sincerity
and candor and in entire good faith each
of the other subjects enumerated in Section
1, Rule 20, i.e., the "possibility of an amicable
settlement or of a submission to arbitration,"
the "advisability of a preliminary reference of
issues to a commissioner," and "such other
matters as may aid in the prompt disposition
of the action," inclusive of a resort to the
modes of discovery.
Consistently with the mandatory character
of the pre-trial, the Rules oblige not only the
lawyers but the parties as well to appear for
this purpose before the Court, and when a
party "fails to appear at a pre-trial
conference (he) may be non-suited or
considered as indefault." The obligation "to
appear" denotes not simply the personal
appearance, or the mere physical
presentation by a party of one’s self, but
connotes as importantly, preparedness to
go into the different subject assigned by law
to a pre-trial. And in those instances where a
party may not himself be present at the pre-
trial, and another person substitutes for him,
or his lawyer undertakes to appear not only
as an attorney but in substitution of the
client’s person, it is imperative for that
representative of the lawyer to have
"special authority" to make such substantive
agreements as only the client otherwise has
capacity to make. That "special authority"
shouldordinarily be in writing or at the very
least be "duly established by evidence other
than the selfserving assertion of counsel (or
the proclaimed representative) himself."
Without that special authority, the lawyer or
representative cannot be deemed
capacitated to appear in place of the
party; hence, it will be considered that the
latter has failed to put in an appearance at
all, and he [must] therefore "be non-suited
or considered as in default," notwithstanding
his lawyer’s or delegate’s presence.17
Petitioner was correct when it pointed out
that:
x x x Atty. Raquel Buendia appeared on
behalf of Respondent as both its counsel
and representative in the pre-trial. Atty.
Buendia’s authority to appear as counsel on
behalf of Respondent is not being
questioned. In that regard, the Court of
Appeals correctly ruled that the authority of
a counsel to appear in behalf of his client is
presumed. However, it should be noted that
Atty. Buendia also appeared as a
representative of Respondent in the pre-trial
hearing. In this regard, Section 4, Rule 18 of
the Rules of Court specifically mandates
that such representative must be armed
with a written authority from the
partylitigant. Unfortunately, she was not able
to present one.18
It behooves the Court that respondent did
not refute the contention of petitioner that
the ground for the trial court in declaring
respondent in default was the absence of a
Special Power of Attorney (SPA) authorizing
its counsel to act on its behalf as
"representative" in the pre-trial conference.
All that respondent relentlessly invoked was
the liberal application of the rules in order
not to defeat the right of the respondent to
be heard and to present evidence in its
defense – citing that default orders are
frowned upon and that all parties should be
given the opportunity to litigate their claims.
Nonetheless, even respondent itself iswell
aware of the weakness of its plea for a
liberal application ofthe rules when it stated,
viz.:
x x x Citing this Honorable Court’s rulings in
the cases of Land Bank of the Philippines vs.
Pamintuan Development Co.x x x and Cebu
Stevedoring Co. vs. Ramoletex x x[,] the CA
highlighted the established principles that a
lawyer is not required to present a written
authorization from a client such that even
the absence of a formal notice of entry of
appearance will not even invalidate the
acts performed by counsel in the client’s
name. Although not in all fours with the
circumstances of the present case, the
above cases nonetheless demonstrate the
firmly held general principles on client
representation which were properly and
justly applied by the CA in the questioned
Decision.19
The facts in the case at bar do not warrant
a liberal construction of the rules.1âwphi1 To
be sure, the only explanation proffered by
respondent’s counsel for not having the
proper authorization to represent
respondent at pre-trial was her
manifestation in open court that the written
authority was submitted to the court a
quoduring the first pre-trial hearing way
back in 2004. When respondent’s counsel
was given the chance to go over the
records of the court a quoto look for the
Secretary’s Certificate and the SPA that she
allegedly submitted in 2004,these
documents could not be found from the
records of the case. Nonetheless, in its
Motion to Lift Order of Default submitted to
the trial court, respondent argued, viz.:
Indubitably, the undersigned counsel’s (sic)
inability to provide the Honorable Court the
proper authority to represent Third-Party
Defendant at the pre-trial hearing on
November 20, 2006 was not willful and
deliberate, but simply due to their excusable
negligence. Nevertheless, undersigned
counsel[s] are attaching herewith the
Secretary’s Certificate and the Special
Power of Attorney, Annexes "A" and "B"
hereof respectively, evidencing their
authority to represent Third-Party Defendant
in the instant case.20
We disagree with respondent that its
omission is excusable. Respondent had
failed to substantiate its sole excuse for its
representative’s apparent lack of authority
to be its representative, in addition to being
its counsel, during the pre-trial conference.
Tobe sure, if indeed there was such an
authority previously executed by
respondent in favor of its counsel as early as
the pre-trial conferences that respondent
alleges tohave taken place on February 27,
2004 and April 16, 2004, this fact would have
been easily proven by respondent. Such
document conveying authority – having
originated from and issued by
respondentitself – would have been
produced with relative facility. Respondent,
however, failed to produce this document
before the court a quo, the appellate court
and thisCourt. As fairly observed by
petitioner, the SPA later submitted by
respondent’s counsel is dated December 5,
2006 or "after" the pre-trial conference on
November 20, 2006. Thus, petitioner asserts:
87. Moreover, a closer perusal of the SPA
and the Secretary’s Certificate, which
Respondent allegedly thought were
submitted during the 27 February 2004
scheduled pre-trial,would show that the
same were dated only on 05 December
2006 and 16 July 2006, respectively.
88. If it was true that Respondent mistakenly
thought that the said SPA and Secretary’s
Certificate werepresented in 2004, said
documents would have been dated 2004
and not 2006. Moreover, it bears stressing
that the SPA was executed after the 20
November 2006 pre-trial hearing.21
Finally, a cursory reading of the assailed
decision of the appellate court shows that
when it reversed the decision of the court a
quo, it did so on the ground that
respondent’s counsel’s filing of a notice of
entry of appearance has given rise to the
presumption that she (respondent’s counsel)
had the authority to represent respondent.
As stated by the CA:
x x x When her authority was challenged,
she manifested that her authority for the
[respondent] was submitted and were
attached to the records of the case. The
doubt entertained by the trial court is of no
consequence in view of [respondent’s]
vigorous assertion that it authorized said
lawyer to represent it. Indeed, even an
unauthorized appearance of an attorney
may be ratified by the client either expressly.
Ratification retroacts to the date of the
lawyer’s first appearance and validates the
action taken by him.22
Indubitably, the appellate court ruled on the
capacity of respondent’s counsel to
represent it as its lawyer, or as its attorney, in
the court a quo. Perforce, it ruled that the
RTC committed grave abuse of discretion
when it declared that respondent's counsel
did not have the authority to represent it.
We are constrained to disagree with this
ruling. The crux of this controversy is whether
respondent's counsel had the authority to
represent respondent in her capacity as its
representative during the subject pre-trial,
and not in her capacity as its counsel.
Prescinding from the foregoing disquisitions,
we agree with the court a quo that
respondent's counsel did not have the
proper authority.
WHEREFORE, in view of the foregoing, the
petition is GRANTED. The Decision and
Resolution of the Court of Appeals in CA-
G.R. SP No. 101568 dated August 13, 2009
and November 13, 2009, respectively, are
REVERSED. The Orders dated May 2, 2007
and September 3, 2007 of the Regional Trial
Court of Quezon City, Branch 80, in Civil
Case No. Q-00-42105 are hereby REINSTATED
and UPHELD.

No pronouncement as to costs.

SO ORDERED.
G.R. No. 161380, April 21, 2014 17 coconut trees situated in Banika-Bulacao,
Pardo, Cebu City, and covered by Tax
AZNAR BROTHERS REALTY Declaration No. IV-00128.3 The Deed of
COMPANY, Petitioner, v. SPOUSES JOSE AND Absolute Sale described the property as
MAGDALENA YBAÑEZ,Respondents. bounded on the North by Aznar Brothers; on
the East by Angel Sabellano; on the South
DECISION by Bernardo Sabellano; and on the West by
Agaton Bacalso. The parties agreed to
register the sale under Act No.
BERSAMIN, J.:
3344.4chanrobleslaw
The ownership of a sizable parcel of land is
On February 17, 1967, Saturnino Tanuco sold
the subject of this dispute between the
to Aznar Brothers for P2,528.00 the 15,760-
buyer of its recognized owner and the buyer
square-meter parcel of corn and cogon
of the successors-in-interest of the
land planted with 17 coconut trees situated
recognized owner. The land has since been
in Candawawan, Pardo, Cebu City,
registered under the Torrens system in the
bounded on the North by Alfonso Pacaña;
name of the latter buyer who had
on the East by Tecla Cabales; on the South
meanwhile obtained a free patent on the
by Angel Abellana; and on the West by
premise that the land belonged to the
Castor Sabellano. Tax Declaration No. IV-
public domain.chanrobleslaw
004787 was issued for the property. The
parties agreed to register the parcel of land
The Case
under Act No. 3344.5chanrobleslaw
Aznar Brothers Realty Company (Aznar
In his affidavit of confirmation executed on
Brothers) is on appeal to review and undo
April 11, 1967, Angel Abellana declared that
the adverse decision promulgated on
during the lifetime of his daughter, Rosa, he
October 10, 2002,1 whereby the Court of
had given to her husband, Tanuco, a parcel
Appeals (CA) affirmed the judgment
of land “known as Lot No. 18563” with an
rendered on March 8, 1996 by the Regional
area of 15,760 square meters located in
Trial Court (RTC), Branch 10, in Cebu
Pardo, Cebu City; that the land was
City2insofar as the RTC: (a) dismissed for lack
bounded on the North by Alfonso Pacaña;
of merit Aznar Brothers’ complaint for the
on the East by Tecla Cabales; on the South
declaration of the nullity of the extrajudicial
by Lot No. 5316 of Angel Abellana; and on
declaration of heirs with extrajudicial
the West by Castor Sabellano; that the
settlement of estate and deed of absolute
property assessed at P300.00 was declared
sale, and (b) declared Lot No. 18563 as
under Tax Declaration No. IV-004787; and
legally owned by defendants Spouses Jose
that on February 17, 1967 Tanuco had sold
and Magdalena Ybañez (Spouses Ybañez),
the parcel of land to Aznar Brothers for
but modified the decision of the RTC by
P4,728.00.6chanrobleslaw
deleting the awards of moral and
exemplary damages, attorney’s fees,
On July 3, 1968, Casimiro died intestate
litigation expenses and costs of
leaving as heirs his wife Maria, and their
suit.chanrobleslaw
children, namely, Fabian and Adriano, both
surnamed Ybañez, and Carmen Ybañez-
Antecedents
Tagimacruz, Fe Ybañez-Alison, and
Dulcisima Ybañez-Tagimacruz. On August
On March 21, 1964, Casimiro Ybañez
29, 1977, the heirs of Casimiro executed a
(Casimiro), with the marital consent of Maria
document entitled Extrajudicial Declaration
Daclan, executed aDeed of Absolute
of Heirs with an Extrajudicial Settlement of
Sale in favor of Aznar Brothers conveying for
Estate of Deceased Person and Deed of
P2,500.00 the 17,575-square-meter
Absolute Sale, whereby they divided and
unregistered agricultural land planted with
adjudicated among themselves Lot No.
18563 with an area of 16,050 square meters
situated in Banika, Bulacao, Pardo Cebu
City. By the same document, they sold the
entire lot for P1,000.00 to their co-heir,
Adriano D. Ybañez
(Adriano).7chanrobleslaw
On June 21, 1978, Adriano sold Lot No. 18563
to Jose R. Ybañez for P60,000.00. Lot No.
18563 is described in their deed of sale as
containing an area of 16,050 square meters,
and was bounded on the North by the lot of
Eusebia Bacalso; on the East by a lot of
Aznar Brothers; on the South by a lot of
Angel Abellana; and on the West by a lot of
Teofila C. Leona.8chanrobleslaw
On January 15, 1979, Jose R. Ybañez filed
Free Patent Application No. (VII-I) 18980 in
respect of the land he had bought from
Adriano.9 In due course, on July 20, 1979,
Original Certificate of Title (OCT) No. 2150
was issued to Jose R. Ybañez. The 16,050-
square-meter land is particularly described
in OCT No. 2150 as –
situated in the Barrio of Bulacao-Pardo, City
of Cebu x x x. Bounded on the NorthEast,
along lines 1-2-3 by Lot No. 1811, on the
SouthEast, along lines 3-4 by Lot No. 5316; on
the SouthWest, along lines 4-5-6-7-8-9-10-11
by Lot No. 18565; on the NorthWest, along
line 11-12 by Lot No. 18566; along line 12-1
by Lot No. 18114, all of Cebu City.10
On May 26, 1989, Aznar Brothers filed in the
RTC a complaint against Jose R. Ybañez
claiming absolute ownership of Lot No.
18563 by virtue of the Deed of Absolute
Sale dated March 21, 1964 executed in its
favor by Casimiro (Civil Case No. CEB-7887).
Alleging that the free patent issued in favor
of Jose R. Ybañez covered the same
property “already adjudicated as private
property,” Aznar Brothers sought judgment
to compel Jose R. Ybañez to surrender all
the documents pertaining to the free patent
for cancellation, and to order him to pay
attorney’s fees of P5,000.00 and litigation
expenses of P3,000.00.11chanrobleslaw
Jose R. Ybañez moved to dismiss the
complaint of Aznar Brothers on the ground
of lack of cause of action, lack of jurisdiction
over the nature of the action, and estoppel
by laches.12 After Aznar Brothers
opposed,13 the RTC denied the motion to
dismiss.14 Thereafter, Jose R. Ybañez filed his
answer to the complaint.
In his answer, Jose R. Ybañez reiterated the
grounds of his motion to dismiss (i.e., lack of
cause of action, lack of jurisdiction over the
nature of the action, and the bar by
estoppel by laches); and prayed that Aznar
Brothers be ordered to pay moral damages
of P100,000.00; exemplary damages in an
amount to be determined by the court;
attorney’s fees of P20,000.00; and litigation
expenses of P5,000.00, plus costs of
suit.15chanrobleslaw
In its reply, Aznar Brothers averred that Jose
R. Ybañez did not present “records or
certification as to the ownership of the land
at the time of the application for free patent
xxx to prove that the land xxx is not a private
land.”16chanrobleslaw
In the course of the case, Aznar Brothers
amended its complaint to allege the sale
executed on February 17, 1967 by Tanuco
and confirmed by Angel Abellana on April
11, 1967.17chanrobleslaw
In his amended answer, Jose R. Ybañez
contended that Aznar Brothers had offered
to buy the property from him, requesting him
to update and prepare all the documents
relevant to the sale, but Aznar Brothers later
opted to claim the property as its own when
the sale could not be
finalized.18chanrobleslaw
Aznar Brothers amended its complaint a
second time to implead Jose R. Ybañez’s
wife Magdalena Marcos-Ybañez as
defendant, averring that both defendants
held “no legal right nor just title to apply for
free patent over the lot in question,” for the
land was “no longer a public disposable
agricultural land but a private residential
land” that it already owned; that the
issuance of OCT No. 2150 was erroneous
and without factual and legal bases; that it
learned about the registration of the land in
the name of Jose R. Ybañez only when his
agent offered to sell the land to it; that it
refused the offer because it was already the
owner of the land; and that consequently
OCT No. 2150 should be cancelled, and
Jose R. Ybañez should be ousted from the
land.19chanrobleslaw
Aznar Brothers sought a restraining order or
a writ of preliminary injunction to prevent the
Spouses Ybañez from disposing of the land.
It further sought the declaration as null and
void ab initio the Extrajudicial Declaration of
Heirs with Extrajudicial Settlement of Estate
of Deceased Person and Deed of Absolute
Sale dated August 29, 1977, and of
the Deed of Absolute Sale dated June 21,
1978; the cancellation of OCT No. 2150; an
order directing the Register of Deeds to issue
another title in its name; the ouster of the
Spouses Ybañez from the property; the
permanent injunction to prevent Spouses
Ybañez from interfering with or disturbing its
possession and ownership of Lot No. 18563;
and judgment ordering the Spouses Ybañez
to pay moral damages of P50,000.00,
attorney’s fees of P30,000.00, and litigation
expenses of P20,000.00.
The Ybañez Spouses opposed the admission
of the second amended complaint,
claiming that the cause of action would
thereby be changed from accion
publiciana to accion reivindicatoria; that
while Magdalena Marcos-Ybañez was
thereby being impleaded, the heirs named
in the Extrajudicial Declaration of Heirs with
Extrajudicial Settlement of Estate of
Deceased Person and Deed of Absolute
Sale, specifically Adriano, were not being
impleaded; and that the declaration of
nullity of OCT No. 2150 was a prohibited
collateral attack on their title to the
property.20chanrobleslaw
The RTC admitted the second amended
complaint, emphasizing that the original
cause of action ofaccion publiciana would
not be changed because the second
amended complaint would incorporate
additional but related causes of action, a
change permitted only during the pre-trial
stage.21chanrobleslaw
The Ybañez Spouses then amended their
answer by reiterating the allegations in their
previous answers, and, in addition, pleaded
that they had religiously paid the taxes on
the land; that the claim of ownership of
Aznar Brothers had been based only on tax
declarations; that their application for free
patent had been granted more than ten
years prior to the filing of the complaint by
Aznar Brothers, who were all too aware of
the land registration case; that Aznar
Brothers did not question their title within one
year from its issuance; that a decree of
registration being binding on the whole
world, the filing of the complaint ten years
after the title had been issued left the
complaint without any cause of action; that
the action for recovery of possession
constituted a collateral attack on their title
to the property; and that adverse, notorious
and continuous possession of the property
under a claim of ownership was ineffective
against a Torrens title. They sought the
dismissal of the second amended complaint
for lack of cause of action, lack of
jurisdiction, estoppel by laches, and lack of
proper parties; and prayed for moral
damages of P100,000.00; exemplary
damages in such amount as the court
would award in the exercise of discretion;
attorney’s fees of P20,000.00; and litigation
expenses of P5,000.00 plus costs of
suit.22chanrobleslaw
Judgment of the RTC
On March 8, 1996,23 the RTC rendered
judgment after trial, declaring that the
identity of the land sold to Aznar Brothers by
Casimiro and the land sold by the heirs of
Casimiro to Jose R. Ybañez was “not an issue
anymore” because it was “not raised as an
issue” during the pre-trial conference; that
the issue remaining for resolution concerned
which of the conflicting claims of ownership
– that of Aznar Brothers based on Tax
Declaration No. GR-07-049-00694 or that of
the Spouses Ybañez based on OCT No. 2150
– should prevail; that the Spouses Ybañez
with their OCT No. 2150 should prevail,
rendering Aznar Brothers’ complaint
dismissible for lack of merit; that Lot No.
18563 was “legally owned by the
defendants;” and Aznar Brothers was liable
to pay the Spouses Ybañez moral damages
of P100,000.00, exemplary damages of
P50,000.00, attorney’s fees of P20,000.00,
and litigation expenses of P5,000.00, plus
costs of suit.chanrobleslaw
Decision of the CA
Aznar Brothers appealed to the CA, assailing
the judgment of the RTC for not sustaining
the sale by Casimiro in its favor of Lot No.
18563 despite the sale being registered
under Act No. 3344, as amended; and for
awarding moral damages, exemplary
damages, attorney’s fees and litigation
expenses to the Spouses Ybañez.
As earlier mentioned, the CA promulgated
its adverse decision on October 10,
2002,24 decreeing
thusly:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, the
Court AFFIRMS the appealed judgment
butDELETES the award of attorney’s fees,
litigation expenses, costs of the suit, moral
and exemplary damages.
SO ORDERED.
The CA denied the motion for
reconsideration of Aznar Brothers.
Issues
Only Aznar Brothers has come to the Court
for review, raising the following issues for
consideration and resolution, to
wit:chanRoblesvirtualLawlibrary
1. THE CONCLUSION OF THE
HONORABLE COURT OF APPEALS
THAT PETITIONER IS BARRED BY
ESTOPPEL BY LACHES, IS NOT IN
ACCORD WITH LAW AND/OR WITH
APPLICABLE DECISIONS OF THE
SUPREME COURT THEREBY
COMMITTING A REVERSIBLE ERROR
OF LAW WHICH IS GRAVELY
PREJUDICIAL TO THE RIGHT OF THE
PETITIONER OVER THE SUBJECT LOT
NO. 18563. SAID CONCLUSION IS NOT
SUPPORTED BY FACTS ON RECORDS
(sic).
2. THE COURT OF APPEALS GRAVELY
ERRED IN AFFIRMING THE DECISION
OF THE REGIONAL TRIAL COURT
DECLARING SUBJECT LOT AS LEGALLY
OWNED BY THE RESPONDENTS
DESPITE OF ITS OWN FINDING THAT:
RESPONDENTS WERE BUYERS IN BAD
FAITH AND THAT THEIR SELLERS WERE
NOT OWNERS OF THE PROPERTY IN
QUESTION AND THEREFORE, THERE
WAS NOTHING THAT THEY COULD
HAVE SOLD TO THE RESPONDENTS.25
Ruling of the Court
The appeal is meritorious.chanrobleslaw
1.
Identity of the lot in litis is no
longer a proper issue herein
The CA and the RTC both held that the
identity of the property in litis was no longer
an issue to be considered and determined
because the parties did not raise it at the
pre-trial. The Spouses Ybañez insist herein,
however, that the RTC and the CA should
have made such a finding nonetheless in
view of the materiality of whether the land
claimed by Aznar Brothers was different
from Lot No. 18563, the land subject of their
OCT No. 2150.
We clarify that although the Spouses
Ybañez’s non-appeal barred them from
assigning errors for purposes of this review,
they are not prevented from now insisting, if
only to uphold the judgment of the CA
against Aznar Brothers,26 that the property in
litis was not the same as Lot No. 18563, but
they would not be accorded any relief
upon those reasons,27 even if the Court
should find Aznar Brother’s appeal
unmeritorious or utterly
frivolous.28chanrobleslaw
Regardless, the holding by both lower courts
was proper and correct. The non-inclusion in
the pre-trial order barred the identity of the
property in litis as an issue, for it is basic that
any factual issue not included in the pre-trial
order will not be heard and considered at
the trial,29 much less, on appeal. The parties
had the obligation to disclose during the
pre-trial all the issues they intended to raise
during the trial, except those involving
privileged or impeaching matters, for the
rule is that the definition of issues during the
pre-trial conference will bar the
consideration of others, whether during trial
or on appeal. The basis of the exclusion is
that the parties are concluded by the
delimitation of the issues in the pre-trial order
because they themselves agreed to
it.30chanrobleslaw
The waiver of the identity of the property in
litis as an issue did not violate the right of
any of the parties herein due to the Rules of
Court having forewarned them in Section 7,
Rule 18 of the Rules of Court that should the
action proceed to trial, the pre-trial order
would explicitly define and limit the issues to
be tried, and its contents would control the
subsequent course of the action, unless
modified before trial to prevent manifest
injustice.
In reality, the parties could still have reversed
the waiver had they so wanted. Towards
that end, they had three opportunities after
the issuance of the pre-trial order to submit
the identity of the propertyin litis as an issue
for trial and decision. The first was for either
of them to seek the modification of the pre-
trial order prior to the trial in order to prevent
manifest injustice,31 but neither did so. The
second was for either of them to have the
trial court consider the identity of the
property in litis as an issue proper for the trial,
but such party must give a special reason to
justify the trial court in doing so. This would
have been authorized under Section 5, Rule
30 of the Rules of Court.32 Again, neither of
them seized such opportunity. And the third
was for the Spouses Ybañez to adduce
evidence on Lot No. 18563 being different
from the land claimed by Aznar Brothers.
Had they done so, Aznar Brothers could
have either allowed such evidence without
objection, or objected to such evidence on
the ground of its not being relevant to any
issue raised in the pleadings or in the pre-trial
order. The RTC could then have proceeded
as it deemed fit, including allowing such
evidence. This procedure would have been
authorized by Section 5, Rule 10 of the Rules
of Court, viz:chanRoblesvirtualLawlibrary
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. (5a)
Moreover, for the Spouses Ybañez to call
upon the Court now to analyze or weigh
evidence all over again upon such a
factual matter would be impermissible
considering that the Court is not a trier of
facts.33chanrobleslaw
There are exceptional instances in which the
Court has held itself competent to make its
own appreciation of the facts, and not be
concluded by the findings of fact of the trial
and appellate courts, namely: (1) when the
factual findings of the CA and those of the
trial court were contradictory; (2) when the
findings are grounded entirely on
speculation, surmises, or conjectures; (3)
when the inference made by the CA from its
findings of fact was manifestly mistaken,
absurd, or impossible; (4) when there is
grave abuse of discretion in the
appreciation of facts; (5) when the CA, in
making its findings, went beyond the issues
of the case, and such findings were contrary
to the admissions of both appellant and
appellee; (6) when the judgment of the CA
was premised on a misapprehension of
facts; (7) when the CA failed to notice
certain relevant facts that, if properly
considered, would justify a different
conclusion; (8) when the findings of facts
were themselves conflicting; (9) when the
findings of fact were conclusions without
citation of the specific evidence on which
they were based; and (10) when the
findings of fact of the CA were premised on
the absence of evidence but such findings
were contradicted by the evidence on
record. 34 None of the aforementioned
exceptions obtains in this case.
Accordingly, the Court, just as the lower
courts have been bound, shall proceed
upon the assumption that the property in
litis and Lot No. 18563 were one and the
same realty.
2.
CA correctly concluded that Aznar Brothers
owned Lot No. 18563; and that the Spouses
Ybañez
were not buyers in good faith
In its assailed judgment, the CA concluded
that the RTC erred in holding in favor of the
Spouses Ybañez, observing as
follows:chanRoblesvirtualLawlibrary
The trial court however erred when it
held:chanroblesvirtuallawlibrary
Nevertheless, from the totality of the
evidence adduced by the parties, there is
no preponderant evidence that the
defendants had prior knowledge of the
previous sale of subject property to the
plaintiff when they bought the same from
Adriano D. Ybañez on June 21, 1978. And
there is neither any showing that defendant
had prior knowledge of such sale when they
applied for and was issued Original
Certificate of Title No. 2150 on August 14,
1979. Thus, defendants can very well be
considered as purchasers to the protection
of the provisions of P.D. 1529. While plaintiff
has shown to have acquired or was issued
tax declaration No. GR-07-049-00694 and
had paid taxes on the property, said tax
declaration and realty tax payments are not
conclusive evidence of ownership (Ferrer-
Lopez vs. Court of Appeals, 150 SCRA 393). It
cannot prevail over Original Certificate of
Title No. 2150 in the name of the
defendants, as a torrens title concludes all
controversies over ownership of land
covered by a final decree of registration
(PNB vs. Court of Appeals, 153 SCRA 435).
The Deed of Absolute Sale (Exhibit F) in favor
of plaintiff-appellant Aznar was registered
under Act 3344, as amended on March 23,
1964 with the Register of Deeds of Cebu
City. The registration of said deed gave
constructive notice to the whole world
including defendant-appellees of the
existence of said deed of conveyance.
(Gerona v. Guzman, 11 SCRA 153)
Defendant-appellees cannot, therefore,
claim to be buyers in good faith of the land
in question. Resultantly, they merely stepped
into the shoes of their sellersvis a vis said
land. Since their sellers were not owners of
the property in question, there was nothing
that they could have sold to defendant-
appellees.35
We sustain the CA’s conclusion that the
Spouses Ybañez were guilty of bad faith,
and that they acquired Lot No. 18563 from
sellers who were not the owners.
Accordingly, we resolve the second error
raised herein in favor of Aznar Brothers.
The records and evidence fully
substantiated the CA’s conclusion. The
Spouses Ybañez acquired Lot No. 18563
through the deed of sale executed on June
21, 1978 by Adriano in favor of Jose R.
Ybañez. Together with his siblings Fabian
Ybañez, Carmen Ybañez-Tagimacruz, Fe
Ybañez-Alison, and Dulcisima Ybañez-
Tagimacruz, Adriano had supposedly
inherited Lot No. 18563 from Casimiro, their
father, who had died intestate on July 3,
1968. Holding themselves as the heirs and
successors-in-interest of Casimiro, they had
then executed on August 29, 1977 the
Extrajudicial Declaration of Heirs with
anExtrajudicial Settlement of Estate of
Deceased Person and Deed of Absolute
Sale, whereby they divided and
adjudicated Lot No. 18563 among
themselves, and then sold the entire lot to
Adriano.
But, as the CA correctly found, the Spouses
Ybañez held no right to Lot No. 18563
because Adriano, their seller, and his siblings
were not the owners of Lot No. 18563.
Indeed, Casimiro had absolutely conveyed
his interest in Lot No. 18563 to Aznar Brothers
under the Deed of Absolute Sale of March
21, 1964 with the marital consent of Maria
Daclan, Casimiro’s surviving spouse and the
mother of Adriano and his siblings.
Considering that such conveyance was
effective and binding on Adriano and his
siblings, there was no valid transmission of
Lot No. 18563 upon Casimiro’s death to any
of said heirs, and they could not legally
adjudicate Lot No. 18563 unto themselves,
and validly transfer it to Adriano. The
conveyance by Adriano to Jose R. Ybañez
on June 21, 1978 was absolutely void and
ineffectual.
There is also no question that the Spouses
Ybañez were aware of the conveyance of
Lot No. 18563 by Casimiro to Aznar Brothers
considering that the Deed of Absolute
Sale of March 21, 1964 between Casimiro
and Aznar Brothers was registered in the
book of registry of unregistered land on the
same day pursuant to their agreement.
Such registration constituted a constructive
notice of the conveyance on the part of the
Spouses Ybañez pursuant to Section 194 of
the Revised Administrative Code of 1917, as
amended by Act No. 3344, which provided
as follows:chanRoblesvirtualLawlibrary
Section 194. Recording of instruments or
deeds relating to real estate not registered
under Act Numbered Four hundred and
ninety-six or under the Spanish Mortgage
Law. – No instrument or deed establishing,
transmitting, acknowledging, modifying or
extinguishing rights with respect to real
estate not registered under the provisions of
Act Numbered Four hundred and ninety-six,
entitled “The Land Registration Act,” and its
amendments, or under the Spanish
Mortgage Law,shall be valid, except as
between the parties thereto, until such
instrument or deed has been registered, in
the manner hereinafter prescribed, in the
office of the register of deeds for the
province or city where the real estate lies.
It shall be the duty of the register of deeds
for each province or city to keep a day
book and a register book of unregistered
real estate, in accordance with a form to be
prepared by the Chief of the General Land
Registration Office, with the approval of the
Secretary of Justice. The day book shall
contain the names of the parties, the nature
of the instrument or deed for which
registration is requested, the hour and
minute, date and month of the year when
the instrument was received. The register
book shall contain, among other particulars,
the names, age, civil status, and the
residences of the parties interested in the
act or contract registered and in case of
marriage, the name of the wife, or husband,
as the case may be, the character of the
contract and its conditions, the nature of
each piece of land and its improvements
only, and not any other kind of real estate or
properties, its situation, boundaries, area in
square meters, whether or not the
boundaries of the property are visible on the
land by means of monuments or otherwise,
and in the affirmative case, in what they
consist; the permanent improvements
existing on the property; the page number
of the assessment of each property in the
year when the entry is made, and the
assessed value of the property for that year;
the notary or the officer who
acknowledged, issued, or certified the
instrument or deed; the name of the person
or persons who, according to the instrument,
are in present possession of each property;
a note that the land has not been registered
under Act Numbered Four hundred and
ninety-six nor under the Spanish Mortgage
Law; that the parties have agreed to
register said instrument under the provisions
of this Act, and that the original instrument
has been filed in the office of the register of
deeds, indicating the file number, and that
the duplicate has been delivered to the
person concerned; the exact year, month,
day, hour, and minute when the original of
the instrument was received for registration,
as stated in the day book. It shall also be the
duty of the register of deeds to keep an
index-book of persons and an index-book of
estates, respectively, in accordance with a
form to be also prepared by the Chief of the
General Land Registration Office, with the
approval of the Secretary of Justice.
Upon presentation of any instrument or
deed relating to real estate not registered
under Act Numbered Four hundred and
ninety-six and its amendments or under the
Spanish Mortgage Law, which shall be
accompanied by as many duplicates as
there are parties interested, it shall be the
duty of the register of deeds to ascertain
whether said instrument has all the
requirements for proper registration. If the
instrument is sufficient and there is no
legitimate objection thereto, or in case of
there having been one, if the same has
been dismissed by final judgment of the
courts, and if there does not appear in the
register any valid previous entry that may be
affected wholly or in part by the registration
of the instrument or deed presented, and if
the case does not come under the
prohibition of section fourteen hundred and
fifty-two of Act Numbered Twenty-seven
hundred and eleven, the register of deeds
shall register the instrument in the proper
book. In case the instrument or deed
presented has defects preventing its
registration, said register of deeds shall
refuse to register it until the defects have
been removed, stating in writing his reasons
for refusing to record said instrument as
requested. Any registration made under this
section shall be understood to be without
prejudice to a third-party with a better right.
The register of deeds shall be entitled to
collect in advance as fees for the services to
be rendered by him in accordance with this
Act, the same fees established for similar
services relating to instruments or deeds in
connection with real estate in section one
hundred fourteen of Act Numbered Four
hundred ninety-six entitled “The Land
Registration Act,” as amended by Act
Numbered Two thousand eight hundred
and sixty-six. (Emphasis in the original; bold
italics supplied.)
Although a deed or instrument affecting
unregistered lands would be valid only
between the parties thereto, third parties
would also be affected by the registered
deed or instrument on the theory of
constructive notice once it was further
registered in accordance with Section 194,
i.e., the deed or instrument was written or
inscribed in the day book and the register
book for unregistered lands in the Office of
the Register of Deeds for the province or city
where the realty was located. As ruled
inGutierrez v. Mendoza-
Plaza:36chanrobleslaw
The non-registration of the aforesaid deed
does not also affect the validity thereof.
Registration is not a requirement for validity
of the contract as between the parties, for
the effect of registration serves chiefly to
bind third persons. The principal purpose of
registration is merely to notify other persons
not parties to a contract that a transaction
involving the property has been entered
into. The conveyance of unregistered land
shall not be valid against any person unless
registered, except (1) the grantor, (2) his
heirs and devisees, and (3) third persons
having actual notice or knowledge thereof.
As held by the Court of Appeals, petitioners
are the heirs of Ignacio, the grantor of the
subject property. Thus, they are bound by
the provisions of the deed of donation inter
vivos.
The effect on third parties of the
constructive notice by virtue of the
registration of the deed or instrument was
aptly illustrated in Bautista v. Fule,37 where
the Court pronounced that the subsequent
buyer of unregistered land sold at an
execution sale, which the purchaser at the
public auction registered under Act No.
3344 seven days after that sale, was
“deemed to have constructive notice” of
the sale, and, therefore, could not be
“entitled to the rights of a purchaser in good
faith.” The Court emphasized that as to
lands not registered under either the Spanish
Mortgage Law or the Land Registration
Act, the registration under Act No. 3344
should produce its effects against third
persons if the law was “to have utility at
all.”38chanrobleslaw
It is worth mentioning that Act No. 3344
(approved on December 8, 1926) was the
governing law at the time of the execution
of the deed of absolute sale of March 21,
1964 between Casimiro and Aznar Brothers,
and the deed of absolute sale of February
17, 1967 between Tanuco and Aznar
Brothers. Both deeds were registered
pursuant to Section 194; while, on the other
hand, the sale between Adriano and Jose
R. Ybañez on June 21, 1978 was covered by
the P.D. No. 1529, also known as theProperty
Registration Decree (whose effectivity was
upon its approval on June 11,
1978).39chanrobleslaw
Section 3 of P.D. No. 1529, albeit expressly
discontinuing the system of registration
under the Spanish Mortgage Law, has
considered lands recorded under that
system as unregistered land that could still
be recorded under Section 113 of P.D. No.
1529 “until the land shall have been brought
under the operation of the Torrens system;”
and has provided that “[t]he books of
registration for unregistered lands provided
under Section 194 of the Revised
Administrative Code, as amended by Act
No. 3344, shall continue to remain in force;
provided, that all instruments dealing with
unregistered lands shall henceforth be
registered under Section 113 of this Decree.”
It is clear, therefore, that even with the
effectivity of P.D. No. 1529, all unregistered
lands may still be registered pursuant to
Section 113 of P.D. No. 1529, which
essentially replicates Section 194, as
amended by Act No. 3344, to the effect
that a deed or instrument conveying real
estate not registered under the Torrens
system40 should affect only the parties
thereto unless the deed or instrument was
registered in accordance with the same
section.41chanrobleslaw
The only exception to the rule on
constructive notice by registration of the
deed or instrument affecting unregistered
realty exists in favor of “a third party with a
better right.” This exception is provided in
Section 194, as amended by Act No. 3344,
to the effect that the registration “shall be
understood to be without prejudice to a
third party with a better right;” and in
paragraph (b) of Section 113 of P.D. No.
1529, to the effect that “any recording
made under this section shall be without
prejudice to a third party with a better
right.” As to who is “a third party with better
right” under these provisions is suitably
explained in Hanopol v. Pilapil,42 a case
where the sale of unregistered land was
registered under Act No. 3344 but the land
was sold twice, as
follows:chanRoblesvirtualLawlibrary
It thus appears that the “better right”
referred to in Act No. 3344 is much more
than the mere prior deed of sale in favor of
the first vendee. In the Lichauco case just
mentioned, it was the prescriptive right that
had supervened. Or, as also suggested in
that case, other facts and circumstances
exist which, in addition to his deed of sale,
the first vendee can be said to have better
right than the second purchaser.43 (Bold
emphasis supplied.)
The Court also observes in Sales v. Court of
Appeals,44 a case involving parties to a
deed of donation who had agreed to
register the instrument under Act No. 3344
but failed to do so, that the “better right” of
a third party relates to “other titles which a
party might have acquired independently
of the unregistered deed such as title by
prescription.”45 But the exception does not
obviously apply to the Spouses Ybañez
because they acquired their right from
Adriano who did not hold any legal or
equitable interest in Lot No. 18563 that he
could validly transfer to the Spouses
Ybañez.chanrobleslaw
3.
Estoppel by laches did not bar
Aznar Brothers’ right over Lot No. 18563
Unexpectedly, the CA disregarded its
aforecited correct conclusion on Aznar
Brothers’ ownership of Lot No. 18563, and
instead ruled that estoppel by laches had
already barred Aznar Brothers’ “dominical
claim” over Lot No. 18563. It ratiocinated
thusly:chanRoblesvirtualLawlibrary
But then, there were pre-existing and
supervening circumstances which
effectively quashed the dominical claim of
plaintiff-appellant over the subject land.
Plaintiff-appellant was never in possession of
the land which it bought. Even after buying
the land from Casimiro Ybañez, plaintiff-
appellant did not take possession of it. On
the other hand, the heirs of Casimiro Ybañez
took possession of said land upon the latter’s
death. Said heirs sold their shares on said
land to one of their co-heirs, Adriano
Ybañez, who in turn, sold the whole land to
defendant appellees, the spouses Jose and
Magdalena Ybañez. The latter continued
possessing said land, tax declared it, paid
realty taxes thereon and finally secured a
free patent and title over it. Up to the
present, defendant-appellees are in
possession of the land as owners thereof.
There is absolutely no doubt that in law,
plaintiff-appellant had lost its dominical and
possessory claim over the land for its
inaction from 1964 when it bought the land
up to 1989 when it filed the Complaint in the
trial court – or a long period of 25 years. This
is called estoppel by laches.46
Aznar Brothers now assails this adverse ruling
under its first assigned error by pointing out
that the CA erred in relying on estoppel by
laches, a rule of equity, to bar its “dominical
claim” over Lot No. 18563. It insists that its
action to declare the nullity of
the Extrajudicial Declaration of Heirs with
Extrajudicial Settlement of Estate of
Deceased Person and Deed of Absolute
Sale dated August 29, 1977, and the Deed
of Absolute Sale of June 21, 1978 was
imprescriptible under Article 1410 of theCivil
Code; and that on the assumption
that accion publiciana would prescribe in
ten years, its filing of the original complaint
on May 26, 1989 was done within the 10-
year period counted from August 14, 1979,
the date of the issuance of OCT No. 2150 in
the name of Jose R. Ybañez.
The Spouses Ybañez counter that the CA
was correct because Aznar Brothers did not
assert possession and ownership over the
land for 25 years; that it brought its
complaint only in 1989 after they had
undergone the proceedings in rem for the
issuance of OCT No. 2150; that it did not
challenge their application for the free
patent or the proceedings for the issuance
of OCT No. 2150; that it did not also oppose
the conduct of the survey of the land
relevant to the application for the free
patent despite the notice of the survey
given by the surveying engineer to the
adjoining lot owners; that during the hearing
of the case, Jose R. Ybañez testified that
only three hectares of the land originally
owned by Casimiro had been sold to it, the
rest having been retained by Casimiro that
became the subject of the extrajudicial
settlement by his heirs, who had then sold
that retained portion to Jose R. Ybañez; that
the tax declarations presented by it
described property distinct from that
covered by OCT No. 2150, although it
claimed that the same property had been
sold to it twice by Casimiro and Tanuco; and
that on at least three occasions, it had
attempted to buy the lot from them but the
negotiations did not push through.
We hold and declare that the CA’s ruling in
favor of the Spouses Ybañez was devoid of
legal and factual support, and should be
rightfully reversed.
Laches is the failure or neglect for an
unreasonable and unexplained length of
time to do that which by exerting due
diligence a party could and should have
done earlier.47 A suit that is barred on the
ground of laches is also called a stale
demand. Laches is based on grounds of
public policy that requires, for the peace of
society, the discouragement of stale claims
and, unlike the statute of limitations, is not a
mere question of time but is principally a
question of the inequity or unfairness of
permitting a right or claim to be enforced or
asserted.48Tempus enim modus tollendi
obligationes et actiones, quia tempus currit
contra desides et sui juris contemptores (For
time is a means of dissipating obligations
and actions, because time runs against the
slothful and careless of their own
rights).49 Truly, the law serves those who are
vigilant and diligent, not those who sleep
when the law requires them to
act.50chanrobleslaw
For laches to bar a claim, four elements
must be shown, namely: (1) conduct on the
part of the defendant, or one under whom
he claims, giving rise to a situation of which
a complaint is made and for which the
complainant seeks a remedy; (2) delay in
asserting the complainant’s right, the
complainant having had knowledge or
notice of defendant’s conduct and having
been afforded an opportunity to institute a
suit; (3) lack of knowledge or notice on the
part of the defendant that the complainant
would assert the right on which he bases his
suit; and (4) injury or prejudice to the
defendant in the event that the relief is
accorded to the complainant, or the suit is
not held to be barred.51chanrobleslaw
The CA incorrectly barred the claim of Aznar
Brothers to Lot No. 18563 because of laches.
For one, Aznar Brothers immediately
registered the purchase in accordance with
Act No. 3344, the law then governing the
registration of unregistered land. Its action in
that regard ensured the protection of the
law as to its ownership of the land, and
evinced that it did not abandon its
ownership. Verily, its maintaining Lot No.
18563 as an unregistered land from then on
should not prejudice its rights; otherwise, its
registration pursuant to law would be set at
naught. Secondly, the supposed acts of
possession of Lot No. 18563 exercised by the
Spouses Ybañez from the time of their
purchase from Adriano, including causing it
to be surveyed for purposes of the
application for free patent, did not
prejudice Aznar Brothers’ interest because
the registration under Act No. 3344 had
given constructive notice to the Spouses
Ybañez of its prior acquisition of the land.
Thereby, the Spouses Ybañez became
bound by the sale from Casimiro to Aznar
Brothers, and rendered them incapable of
acquiring the land in good faith from
Adriano. Consequently, Jose R. Ybañez’s
intervening application for the free patent,
the grant of the free patent and the
issuance of OCT No. 2150 thereafter did not
supplant the superior rights and interest of
Aznar Brothers in Lot No. 18563. And, lastly,
the Spouses Ybañez would not suffer any
prejudice should Aznar Brothers prevail
herein, for Adriano, their predecessor-in-
interest, did not transmit to them any kind or
degree of right or interest in Lot No. 18563.
4.
Lot No. 18563, not being land of the
public domain, was not subject to the free
patent
issued to the Spouses Ybañez
The Spouses Ybañez’s position rests on their
having been issued the free patent and
OCT No. 2150.
The records do not support the position of
the Spouses Ybañez. Although Jose R.
Ybañez declared in paragraph 4 of his
application for the free patent that Lot No.
18563 was public land, and was not then
claimed or occupied by any other
person;52 and further declared under oath in
the affidavit submitted to support his
application for the free patent that he
“recognize(d)” Lot No. 18563 “as public
land,” his declarations did not establish that
Lot No. 18563 was land of the public
domain. Nor did the Spouses Ybañez show
that Jose R. Ybañez had acted in good faith
in applying for the free patent pursuant to
Commonwealth Act No. 141 (The Public
Land Act), as amended. Instead, they were
fully aware of the nature and character of
the land as private. In the Deed of Absolute
Sale dated June 21, 1978, Adriano stated
that he had been “the absolute owner in
fee simple free from all liens and
encumbrances whatsoever” of Lot No.
18563; and that he (Adriano) had held the
“perfect right to convey the same (as) the
purchaser of the same as per Extrajudicial
Declaration of Heirs with extrajudicial
settlement of estate of deceased person
and deed of absolute sale.”53 In view of the
privity between Adriano and the Spouses
Ybañez as to the land, the former’s
statements concluded the
latter.54chanrobleslaw
In contrast, Aznar Brothers acquired Lot No.
18563 as the private land of Casimiro. In
their Deed of Absolute Sale of March 21,
1964, Casimiro expressly warranted that the
land was his “own exclusive
property.”55 With the ownership of Aznar
Brothers being thus established, the free
patent issued to Jose R. Ybañez by the
Government was invalid for the reason that
the Government had no authority to dispose
of land already in private ownership.56 The
invalidity of the free patent necessarily left
OCT No. 2150 a patent nullity. As ruled
in Heirs of Simplicio Santiago v. Heirs of
Mariano E. Santiago:57chanrobleslaw
The settled rule is that a free patent issued
over a private land is null and void, and
produces no legal effects
whatsoever. Private ownership of land – as
when there is a prima facie proof of
ownership like a duly registered possessory
information or a clear showing of open,
continuous, exclusive, and notorious
possession, by present or previous
occupants – is not affected by the issuance
of a free patent over the same land,
because the Public Land Law applies only to
lands of the public domain. The Director of
Lands has no authority to grant free patent
to lands that have ceased to be public in
character and have passed to private
ownership. Consequently, a certificate of
title issued pursuant to a homestead patent
partakes of the nature of a certificate issued
in a judicial proceeding only if the land
covered by it is really a part of the
disposable land of the public domain. (Bold
emphasis supplied)
To the same effect was Agne v. Director of
Lands,58 where the Court declared that if
land covered by free patent was already
the private property of another and,
therefore, not part of the disposable land of
the public domain, the patentee did not
acquire any right or title to the land.
The principle of indefeasibility of the Torrens
title does not protect OCT No. 2150 because
the free patent on which the issuance of the
title was based was null and void. A direct
attack as well as a collateral attack are
proper, for, as the Court declared in De
Guzman v. Agbagala:59chanrobleslaw
x x x. An action to declare the nullity of a
void title does not prescribe and is
susceptible to direct, as well as to collateral,
attack. OCT No. P-30187 was registered on
the basis of a free patent which the RTC
ruled was issued by the Director of Lands
without authority. The petitioners falsely
claimed that the land was public land when
in fact it was not as it was private land
previously owned by Carmen who inherited
it from her parents. x x x.
Nonetheless, it appears that Aznar Brothers
actually mounted a direct attack on the title
of the Spouses Ybañez. In the original
complaint, Aznar Brothers sought judgment
ordering them to “[s]urrender all the
documents pertaining to the Free Patent for
cancellation.” Such relief was predicated
on the allegation that the land in question
“was already adjudicated as private
property of the plaintiff” through the Deed
of Absolute Sale of March 21, 1964. Aznar
Brothers reiterated the relief in the amended
complaint. In its second amended
complaint, it expressly prayed for the
“cancellation and annulment” of OCT No.
2150. By such pleadings, it directly attacked
OCT No. 2150, because their object was “to
nullify the title, and thus challenge the
judgment or proceeding pursuant to which
the title was decreed.”60chanrobleslaw

WHEREFORE, the Court REVERSES and SETS

ASIDE the decision promulgated on October
10, 2002 by the Court of Appeals partially
affirming the judgment rendered on March
8, 1996 by the Regional Trial Court, Branch
10, in Cebu City; DECLARES petitioner AZNAR
BROTHERS REALTY COMPANYthe sole and
exclusive owner of the unregistered parcel
of land known and described as Lot No.
18563; CANCELS and NULLIFIES Free Patent
No. VII-1118514 and Original Certificate of
Title No. 2150 of the Registry of Deeds of the
Province of Cebu in the name of
respondent Jose R. Ybañez, married to
Magdalena Marcos;
and ORDERS respondents to pay the costs of
suit.

SO ORDERED.