RULE 4- VENUE OF ACTIONS be in Cebu City Metro Manila or in the place where PAGLAUM and HealthTech elevated the
Manila or in the place where PAGLAUM and HealthTech elevated the case to the CA, which affirmed
Sec. 1. Venue of real actions
Section 1. Venue of real actions. — Actions affecting title to or
possession of real property, or interest therein, shall be commenced
and tried in the proper court which has jurisdiction over the area
wherein the real property involved, or a portion thereof, is situated.
Forcible entry and detainer actions shall be commenced and tried in
the municipal trial court of the municipality or city wherein the real
property involved, or a portion thereof, is situated.
Fortune Motors v. Court of Appeals, G.R. No. 76431, October 16, 1989 (Supra.)
Paglaum Management v. Union Bank, G.R. No. 179018, June 18, 2012
Before this Court is a Petition for Review on Certiorari under Rule 45 of
the Rules of Court, assailing the Decision dated 31 May 2007[1] and Resolution dated
24 July 2007[2] issued by the Court of Appeals (CA).
Petitioner Paglaum Management and Development Corporation
(PAGLAUM) is the registered owner of three parcels of land located in the Province
of Cebu[3] and covered by Transfer Certificate of Title (TCT) Nos.
112488,[4] 112489,[5] and T-68516.[6] These lots are co-owned by Benjamin B. Dy, the
president of petitioner Health Marketing Technologies, Inc. (HealthTech), and his
mother and siblings.[7]
On 3 February 1994, respondent Union Bank of the Philippines (Union
Bank) extended HealthTech a credit line in the amount of ₱10,000,000.[8] To secure
this obligation, PAGLAUM executed three Real Estate Mortgages on behalf of
HealthTech and in favor of Union Bank.[9] It must be noted that the Real Estate
Mortgage, on the provision regarding the venue of all suits and actions arising out of
or in connection therewith, originally stipulates:
Section 9. Venue. The venue of all suits and
actions arising out of or in connection with this Mortgage shall
be in Makati, Metro Manila or in the place where any of the
Mortgaged Properties is located, at the absolute option of the
Mortgagee, the parties hereto waiving any other
venue.[10] (Emphasis supplied.)
However, under the two Real Estate Mortgages dated 11 February
1994, the following version appears:
Section 9. Venue. The venue of all suits and
actions arising out of or in connection with this Mortgage shall
any of the Mortgaged Properties is located, at the
absolute option of the Mortgagee,
the xxxxxxxxxxxxx any other venue.[11] (Emphasis
supplied.)
Meanwhile, the same provision in the Real Estate Mortgage
dated 22 April 1998 contains the following:
Section 9. Venue. The venue of all suits
and actions arising out of or in connection with this
Mortgage shall be in _________ or in the place where
any of the Mortgaged Properties is located, at the
absolute option of the Mortgagee, the parties hereto
waiving any other venue.[12]
HealthTech and Union Bank agreed to subsequent renewals and
increases in the credit line,[13] with the total amount of debt reaching
₱36,500,000.[14]Unfortunately, according to HealthTech, the 1997 Asian
financial crisis adversely affected its business and caused it difficulty in
meeting its obligations with Union Bank.[15] Thus, on 11 December 1998, both
parties entered into a Restructuring Agreement,[16] which states that any action
or proceeding arising out of or in connection therewith shall be commenced
in Makati City, with both parties waiving any other venue.[17]
Despite the Restructuring Agreement, HealthTech failed to pay its
obligation, prompting Union Bank to send a demand letter dated 9 October
2000, stating that the latter would be constrained to institute foreclosure
proceedings, unless HealthTech settled its account in full.[18]
Since HealthTech defaulted on its payment, Union Bank
extra-judicially foreclosed the mortgaged properties.[19] The bank, as the sole
bidder in the auction sale, was then issued a Certificate of Sale dated 24 May
2001.[20] Thereafter, it filed a Petition for Consolidation of Title.[21]
Consequently, HealthTech filed a Complaint for Annulment of Sale
and Titles with Damages and Application for Temporary Restraining Order and
Writ of Injunction dated 23 October 2001, praying for: (a) the issuance of a
temporary restraining order, and later a writ of preliminary injunction, directing
Union Bank to refrain from exercising acts of ownership over the foreclosed
properties; (b) the annulment of the extra-judicial foreclosure of real properties;
(c) the cancellation of the registration of the Certificates of Sale and the
resulting titles issued; (d) the reinstatement of PAGLAUMs ownership over the
subject properties; and (e) the payment of damages.[22] The case was
docketed as Civil Case No. 01-1567 and raffled to the Regional Trial Court,
National Capital Judicial Region, Makati City, Branch 134 (RTC Br. 134), which
issued in favor of PAGLAUM and HealthTech a Writ of Preliminary Injunction
restraining Union Bank from proceeding with the auction sale of the three
mortgaged properties.[23]
On 23 November 2001, Union Bank filed a Motion to Dismiss on
the following grounds: (a) lack of jurisdiction over the issuance of the injunctive
relief; (b) improper venue; and (c) lack of authority of the person who signed
the Complaint.[24] RTC Br. 134 granted this Motion in its Order dated 11 March
2003, resulting in the dismissal of the case, as well as the dissolution of the
Writ of Preliminary Injunction.[25] It likewise denied the subsequent Motion for
Reconsideration filed by PAGLAUM and HealthTech.[26]
the Order dated 11 March 2003[27] and denied the Motion for Reconsideration.[28]
In the instant Petition, PAGLAUM and HealthTech argue that: (a) the
Restructuring Agreement governs the choice of venue between the parties, and (b)
the agreement on the choice of venue must be interpreted with the convenience of
the parties in mind and the view that any obscurity therein was caused by Union
Bank.[29]
On the other hand, Union Bank contends that: (a) the Restructuring
Agreement is applicable only to the contract of loan, and not to the Real Estate
Mortgage, and (b) the mortgage contracts explicitly state that the choice of venue
exclusively belongs to it.[30]
Meanwhile, intervenor J. King & Sons Company, Inc. adopts the position
of Union Bank and reiterates the position that Cebu City is the proper venue.[31]
The sole issue to be resolved is whether Makati City is the proper venue
to assail the foreclosure of the subject real estate mortgage. This Court rules in the
affirmative.
Civil Case No. 01-1567, being an action for Annulment of Sale and Titles
resulting from the extrajudicial foreclosure by Union Bank of the mortgaged real
properties, is classified as a real action. In Fortune Motors v. Court of Appeals,[32] this
Court held that a case seeking to annul a foreclosure of a real estate mortgage is a
real action, viz:
An action to annul a real estate mortgage
foreclosure sale is no different from an action to annul a
private sale of real property. (Muoz v. Llamas, 87 Phil. 737,
1950).
While it is true that petitioner does not directly
seek the recovery of title or possession of the property in
question, his action for annulment of sale and his claim for
damages are closely intertwined with the issue of ownership
of the building which, under the law, is considered immovable
property, the recovery of which is petitioners primary objective.
The prevalent doctrine is that an action for the annulment or
rescission of a sale of real property does not operate to efface
the fundamental and prime objective and nature of the case,
which is to recover said real property. It is a real action.[33]
Being a real action, the filing and trial of the Civil Case No. 01-1567
should be governed by the following relevant provisions of the Rules of Court (the
Rules):
Rule 4
VENUE OF ACTIONS
Section 1. Venue of real actions. Actions affecting
title to or possession of real property, or interest therein, shall
be commenced and tried in the proper court which has
jurisdiction over the area wherein the real property
involved, or a portion thereof, is situated.
 Forcible entry and detainer actions shall be
commenced and tried in the municipal trial court of the
municipality or city wherein the real property involved, or a
portion thereof, is situated.
Sec. 3. When Rule not applicable. This Rule shall
not apply
(a) In those cases where a specific rule
or law provides otherwise; or
(b) Where the parties have validly
agreed in writing before the filing of the action on the
exclusive venue thereof. (Emphasis supplied.)
In Sps. Lantin v. Lantion,[34] this Court explained that a venue stipulation
must contain words that show exclusivity or restrictiveness, as follows:
At the outset, we must make clear that under
Section 4 (b) of Rule 4 of the 1997 Rules of Civil Procedure,
the general rules on venue of actions shall not apply where
the parties, before the filing of the action, have validly agreed
in writing on an exclusive venue. The mere stipulation on the
venue of an action, however, is not enough to preclude
parties from bringing a case in other venues. The parties
must be able to show that such stipulation is exclusive.
In the absence of qualifying or restrictive words, the
stipulation should be deemed as merely an agreement on
an additional forum, not as limiting venue to the specified
place.
xxxxxxxxx
Clearly, the words exclusively and waiving for
this purpose any other venue are restrictive and used
advisedly to meet the requirements.[35] (Emphasis
supplied.)
According to the Rules, real actions shall be commenced and tried in the
court that has jurisdiction over the area where the property is situated. In this case, all
the mortgaged properties are located in the Province of Cebu. Thus, following the
general rule, PAGLAUM and HealthTech should have filed their case in Cebu, and
not in Makati.
However, the Rules provide an exception, in that real actions can be
commenced and tried in a court other than where the property is situated in
instances where the parties have previously and validly agreed in writing on the
exclusive venue thereof. In the case at bar, the parties claim that such an
agreement exists. The only dispute is whether the venue that should be followed is
that contained in the Real Estate Mortgages, as contended by Union Bank, or that in
the Restructuring Agreement, as posited by PAGLAUM and HealthTech. This Court
rules that the venue stipulation in the Restructuring Agreement should be
controlling.
The Real Estate Mortgages were executed by PAGLAUM in favor of
Union Bank to secure the credit line extended by the latter to HealthTech. All three
mortgage contracts contain a dragnet clause, which secures succeeding obligations,
including renewals, extensions, amendments or novations thereof, incurred by
HealthTech from Union Bank, to wit:
Section 1. Secured Obligations. The
obligations secured by this Mortgage (the Secured
Obligations) are the following:
a) All the obligations of the
Borrower and/or the Mortgagor under: (i) the Notes, the
Agreement, and this Mortgage; (ii) any and all
instruments or documents issued upon the renewal,
extension, amendment or novation of the Notes, the
Agreement and this Mortgage, irrespective of whether
such obligations as renewed, extended, amended or
novated are in the nature of new, separate or additional
obligations; and (iii) any and all instruments or
documents issued pursuant to the Notes, the
Agreement and this Mortgage;
b) All other obligations of the
Borrower and/or the Mortgagor in favor of the
Mortgagee, whether presently owing or hereinafter
incurred and whether or not arising from or connected
with the Agreement, the Notes and/or this Mortgage;
and
c) Any and all expenses which
may be incurred in collecting any and all of the above
and in enforcing any and all rights, powers and
remedies of the Mortgagee under this Mortgage.[36]
On the other hand, the Restructuring Agreement was entered into
by HealthTech and Union Bank to modify the entire loan obligation. Section 7
thereof provides:
Security. The principal, interests, penalties
and other charges for which the BORROWER may be
bound to the BANK under the terms of this
Restructuring Agreement, including the renewal,
extension, amendment or novation of this Restructuring
Agreement, irrespective of whether the obligations
arising out of or in connection with this Restructuring
Agreement, as renewed, extended, amended or
novated, are in the nature of new, separate or
additional obligations, and all other instruments or
documents covering the Indebtedness or otherwise
made pursuant to this Restructuring Agreement (the
Secured Obligations), shall continue to be secured by
the following security arrangements (the Collaterals):
a. Real Estate Mortgage dated
February 11, 1994 executed by Paglaum Management
and Development Corporation over a 474 square meter
property covered by TCT No. 112489;
b. Real Estate Mortgage dated
February 11, 1994 executed by Paglaum Management
and Development Corporation over a 2,796 square
meter property covered by TCT No. T-68516;
c. Real Estate Mortgage dated
April 22, 1998 executed by Paglaum Management and
Development Corporation over a 3,711 square meter property
covered by TCT No. 112488;
d. Continuing Surety Agreement of
Benjamin B. Dy;
Without need of any further act and deed, the
existing Collaterals, shall remain in full force and effect and
continue to secure the payment and performance of the
obligations of the BORROWER arising from the Notes and
this Restructuring Agreement.[37] (Emphasis supplied.)
Meanwhile, Section 20 of the Restructuring Agreement as regards the
venue of actions state:
20. Venue Venue of any action or proceeding
arising out of or connected with this Restructuring
Agreement, the Note, the Collateral and any and all
related documents shall be in Makati City, [HealthTech]
and [Union Bank] hereby waiving any other
venue.[38] (Emphasis supplied.)
These quoted provisions of the Real Estate Mortgages and the later
Restructuring Agreement clearly reveal the intention of the parties to implement a
restrictive venue stipulation, which applies not only to the principal obligation, but also
to the mortgages. The phrase waiving any other venue plainly shows that the
choice of Makati City as the venue for actions arising out of or in connection with the
Restructuring Agreement and the Collateral, with the Real Estate Mortgages being
explicitly defined as such, is exclusive.
Even if this Court were to consider the venue stipulations under the Real
Estate Mortgages, it must be underscored that those provisions did not contain words
showing exclusivity or restrictiveness. In fact, in the Real Estate Mortgages dated 11
February 1994, the phrase parties hereto waiving from the entire phrase the parties
hereto waiving any other venue was stricken from the final executed contract.
Following the ruling in Sps. Lantin as earlier quoted, in the absence of qualifying or
restrictive words, the venue stipulation should only be deemed as an agreement on
an additional forum, and not as a restriction on a specified place.
Considering that Makati City was agreed upon by the parties to be the
venue for all actions arising out of or in connection with the loan obligation incurred
by HealthTech, as well as the Real Estate Mortgages executed by PAGLAUM, the
CA committed reversible error in affirming the dismissal of Civil Case No. 01-1567 by
RTC Br. 134 on the ground of improper venue.
WHEREFORE, the Petition for Review is GRANTED. The Decision dated
31 May 2007 and Resolution dated 24 July 2007 in CA-G.R. CV No. 82053 of the
Court of Appeals, as well as the Orders dated 11 March 2003 and 19 September
2003 issued by the Regional Trial Court, Makati City, Branch 134,
are REVERSED and SET ASIDE. The Complaint in Civil Case No. 01-1567 is
hereby REINSTATED.
Ochoa v. China Bank, G.R. No. 192877, March 23, 2011 (resolution only)
For resolution is petitioners motion for reconsideration[1] of our January 17, 2011
Resolution[2] denying their petition for review on certiorari[3] for failing to sufficiently
show any reversible error in the assailed judgment[4] of the Court of Appeals (CA).
Petitioners insist that it was error for the CA to rule that the stipulated exclusive venue
of Makati City is binding only on petitioners complaint for Annulment of
Foreclosure, Sale, and Damages filed before
the Regional Trial Court of Paraaque City, but not on respondent banks Petition for
Extrajudicial Foreclosure of Mortgage, which was filed with the same court.
We disagree.
The extrajudicial foreclosure sale of a real estate mortgage is governed by Act No.
3135, as amended by Act No. 4118, otherwise known as "An Act to Regulate the
Sale of Property Under Special Powers Inserted In or Annexed to Real-Estate
Mortgages." Sections 1 and 2 thereof clearly state:
Section 1. When a sale is made under a special
power inserted in or attached to any real-estate mortgage
hereafter made as security for the payment of money or the
fulfillment of any other obligation, the provisions of the
following sections shall govern as to the manner in which the
sale and redemption shall be effected, whether or not
provision for the same is made in the power.
Sec. 2. Said sale cannot be made legally outside
of the province in which the property sold is situated; and in
case the place within said province in which the sale is to be
made is the subject of stipulation, such sale shall be made in
said place or in the municipal building of the municipality in
which the property or part thereof is situated.[5]
The case at bar involves petitioners mortgaged real property located
in Paraaque City over which respondent bank was granted a special power to
foreclose extra-judicially. Thus, by express provision of Section 2, the sale can only
be made in Paraaque City.
The exclusive venue of Makati City, as stipulated by the parties[6] and sanctioned by
Section 4, Rule 4 of the Rules of Court, [7] cannot be made to apply to the Petition for
Extrajudicial Foreclosure filed by respondent bank because the provisions of Rule 4
pertain to venue of actions, which an extrajudicial foreclosure is not.
Pertinent are the following disquisitions in Supena v. De la Rosa:[8]
Section 1, Rule 2 [of the Rules of Court] defines an action in
this wise:
"Action means an ordinary
suit in a court of justice, by which one
party prosecutes another for the
enforcement or protection of a right, or
the prevention or redress of a wrong."
Hagans v. Wislizenus does not depart from this definition
when it states that "[A]n action is a formal demand of one's
legal rights in a court of justice in the manner prescribed by
the court or by the law. x x x." It is clear that the determinative
or operative fact which converts a claim into an "action or suit"
is the filing of the same with a "court of justice." Filed
elsewhere, as with some other body or office not a court of
justice, the claim may not be categorized under either term.
Unlike an action, an extrajudicial foreclosure of real estate
mortgage is initiated by filing a petition not with any court of
justice but with the office of the sheriff of the province where
the sale is to be made. By no stretch of the imagination can
the office of the sheriff come under the category of a court of
justice. And as aptly observed by the complainant, if ever the
executive judge comes into the picture, it is only because he
exercises administrative supervision over the sheriff.
But this administrative supervision, however, does not
change the fact that extrajudicial foreclosures are not
judicial proceedings, actions or suits.[9]
These pronouncements were confirmed on August 7, 2001 through
A.M. No. 99-10-05-0, entitled Procedure in Extra-Judicial Foreclosure of
Mortgage, the significant portions of which provide:
In line with the responsibility of an
Executive Judge under Administrative Order No. 6,
date[d] June 30, 1975, for the management of courts
within his administrative area, included in which is
the task of supervising directly the work of the
Clerk of Court, who is also the Ex-Office Sheriff,
and his staff, and the issuance of commissions to
notaries public and enforcement of their duties under
the law, the following procedures are hereby
prescribed in extra-judicial foreclosure of mortgages:
1. All applications for
extrajudicial foreclosure of
mortgage whether under the
direction of the sheriff or a
notary public, pursuant to Act
3135, as amended by Act 4118,
and Act 1508, as amended,
shall be filed with the Executive
Judge, through the Clerk of
Court who is also the Ex-Officio
Sheriff.
Verily then, with respect to the venue of extrajudicial foreclosure
sales, Act No. 3135, as amended, applies, it being a special law dealing
particularly with extrajudicial foreclosure sales of real estate mortgages, and
not the general provisions of the Rules of Court on Venue of Actions.
Consequently, the stipulated exclusive venue of Makati City is
relevant only to actions arising from or related to the mortgage, such as
petitioners complaint for Annulment of Foreclosure, Sale, and Damages.
The other arguments raised in the motion are a mere reiteration of
those already raised in the petition for review. As declared in this Courts
Resolution on January 17, 2011, the same failed to show any sufficient ground
to warrant the exercise of our appellate jurisdiction.
WHEREFORE, premises considered, the motion for
reconsideration is hereby DENIED.
Sec. 2. Venue of personal actions
Section 2. Venue of personal actions. — All other actions may be commenced
and tried where the plaintiff or any of the principal plaintiffs resides, or where
the defendant or any of the principal defendants resides, or in the case of a
non-resident defendant where he may be found, at the election of the plaintiff.
Ang v. Ang, G.R. No. 186993, August 22, 2012 (Supra.)
Araneta v. Court of Appeals, G.R. No. 154096, August 22. 2008
This Petition for Review on Certiorari under Rule 45 assails and seeks to
nullify the Decision[1] dated October 17, 2001 of the Court of Appeals (CA) in CA-G.R.
SP No. 64246 and its Resolution[2] of June 20, 2002 denying petitioners motion for
reconsideration. The assailed CA decision annulled and set aside the Orders
dated October 9, 2000, December 18, 2000, and March 15, 2001 of the Regional
Trial Court (RTC), Branch 17 in Batac, Ilocos Norte which admitted petitioners
amended complaint in Civil Case Nos. 3341-17 and 3342-17.
The Facts
Sometime in 1968 and 1972, Ambassador Roberto S. Benedicto, now
deceased, and his business associates (Benedicto Group) organized Far East
Managers and Investors, Inc. (FEMII) and Universal Equity Corporation (UEC),
respectively. As petitioner Irene Marcos-Araneta would later allege, both corporations
were organized pursuant to a contract or arrangement whereby Benedicto, as trustor,
placed in his name and in the name of his associates, as trustees, the shares of
stocks of FEMII and UEC with the obligation to hold those shares and their fruits in
trust and for the benefit of Irene to the extent of 65% of such shares. Several years
after, Irene, through her trustee-husband, Gregorio Ma. Araneta III, demanded the
reconveyance of said 65% stockholdings, but the Benedicto Group refused to oblige.
In March 2000, Irene thereupon instituted before the RTC two similar
complaints for conveyance of shares of stock, accounting and receivership against
the Benedicto Group with prayer for the issuance of a temporary restraining order
(TRO). The first, docketed as Civil Case No. 3341-17, covered the UEC shares and
named Benedicto, his daughter, and at least 20 other individuals as defendants. The
second, docketed as Civil Case No. 3342-17, sought the recovery to the extent of
65% of FEMII shares held by Benedicto and the other defendants named therein.
Respondent Francisca Benedicto-Paulino,[3] Benedictos daughter, filed a
Motion to Dismiss Civil Case No. 3341-17, followed later by an Amended Motion to
Dismiss. Benedicto, on the other hand, moved to dismiss[4] Civil Case No. 3342-17,
adopting in toto the five (5) grounds raised by Francisca in her amended motion to
dismiss. Among these were: (1) the cases involved an intra-corporate dispute over
which the Securities and Exchange Commission, not the RTC, has jurisdiction; (2)
venue was improperly laid; and (3) the complaint failed to state a cause of action, as
there was no allegation therein that plaintiff, as beneficiary of the purported trust, has
accepted the trust created in her favor.
To the motions to dismiss, Irene filed a Consolidated Opposition, which
Benedicto and Francisca countered with a Joint Reply to Opposition.
Upon Benedictos motion, both cases were consolidated.
During the preliminary proceedings on their motions to dismiss,
Benedicto and Francisca, by way of bolstering their contentions on improper venue,
presented the Joint Affidavit[5] of Gilmia B. Valdez, Catalino A. Bactat, and Conchita
R. Rasco who all attested being employed as household staff at the Marcos Mansion
in Brgy. Lacub, Batac, Ilocos Norte and that Irene did not maintain residence in said
place as she in fact only visited the mansion twice in 1999; that she did not vote in
Batac in the 1998 national elections; and that she was staying at her husbands house
in Makati City.
Against the aforesaid unrebutted joint affidavit, Irene presented her PhP 5
community tax certificate[6] (CTC) issued on 11/07/99 in Curimao, Ilocos Norte to
support her claimed residency in Batac, Ilocos Norte.
In the meantime, on May 15, 2000, Benedicto died and was substituted
by his wife, Julita C. Benedicto, and Francisca.
 On June 29, 2000, the RTC dismissed both complaints, stating that these
partly constituted real action, and that Irene did not actually reside in Ilocos Norte,
and, therefore, venue was improperly laid. In its dismissal order,[7] the court also
declared all the other issues raised in the different Motions to Dismiss x x x moot and
academic.
From the above order, Irene interposed a Motion for
Reconsideration[8] which Julita and Francisca duly opposed.
Pending resolution of her motion for reconsideration, Irene filed on July
17, 2000 a Motion (to Admit Amended Complaint),[9] attaching therewith a copy of the
Amended Complaint[10] dated July 14, 2000 in which the names of Daniel Rubio,
Orlando G. Reslin, and Jose G. Reslin appeared as additional plaintiffs. As stated in
the amended complaint, the added plaintiffs, all from Ilocos Norte, were Irenes new
trustees. Parenthetically, the amended complaint stated practically the same cause
of action but, as couched, sought the reconveyance of the FEMII shares only.
During the August 25, 2000 hearing, the RTC dictated in open court an
order denying Irenes motion for reconsideration aforementioned, but deferred action
on her motion to admit amended complaint and the opposition thereto.[11]
On October 9, 2000, the RTC issued an Order[12] entertaining the
amended complaint, dispositively stating:
WHEREFORE, the admission of the Amended
Complaint being tenable and legal, the same is GRANTED.
Let copies of the Amended Complaint be served
to the defendants who are ordered to answer within the
reglementary period provided by the rules.
The RTC predicated its order on the following premises:
[13]
(1) Pursuant to Section 2, Rule 10 of the Rules of Court, Irene may opt
to file, as a matter of right, an amended complaint.
(2) The inclusion of additional plaintiffs, one of whom was a Batac, an
Ilocos Norte resident, in the amended complaint setting out the same cause of action
cured the defect of improper venue.
(3) Secs. 2 and 3 of Rule 3 in relation to Sec. 2 of Rule 4 allow the filing of
the amended complaint in question in the place of residence of any of Irenes
co-plaintiffs.
In time, Julita and Francisca moved to dismiss the amended complaint, but the RTC,
by Order[14] dated December 18, 2000, denied the motion and reiterated its directive
for the two to answer the amended complaint.
In said order, the RTC stood pat on its holding on the rule on amendments of
pleadings. And scoffing at the argument about there being no complaint to amend in
the first place as of October 9, 2000 (when the RTC granted the motion to amend) as
the original complaints were dismissed with finality earlier, i.e., on August 25, 2000
when the court denied Irenes motion for reconsideration of the June 29, 2000 order
dismissing the original complaints, the court stated thusly: there was actually no need
to act on Irenes motion to admit, it being her right as plaintiff to amend her complaints
absent any responsive pleading thereto. Pushing its point, the RTC added the
observation that the filing of the amended complaint on July 17, 2000 ipso
facto superseded the original complaints, the dismissal of which, per the June 29,
2000 Order, had not yet become final at the time of the filing of the amended
complaint.
Following the denial on March 15, 2001 of their motion for the RTC to
reconsider its December 18, 2000 order aforestated, Julita and Francisca, in a bid to
evade being declared in default, filed on April 10, 2001 their Answer to the amended
complaint.[15] But on the same day, they went to the CA via a petition for certiorari,
docketed as CA-G.R. SP No. 64246, seeking to nullify the following RTC orders: the
first, admitting the amended complaint; the second, denying their motion to dismiss
the amended complaint; and the third, denying their motion for reconsideration
of the second issuance.
Inasmuch as the verification portion of the joint petition and the
certification on non-forum shopping bore only Franciscas signature, the CA
required the joint petitioners to submit x x x either the written authority of Julita
C. Benedicto to Francisca B. Paulino authorizing the latter to represent her in
these proceedings, or a supplemental verification and certification duly signed
by x x x Julita C. Benedicto.[16] Records show the submission of the
corresponding authorizing Affidavit[17] executed by Julita in favor of Francisca.
Later developments saw the CA issuing a TRO[18] and then a writ
of preliminary injunction[19] enjoining the RTC from conducting further
proceedings on the subject civil cases.
On October 17, 2001, the CA rendered a Decision, setting aside
the assailed RTC orders and dismissing the amended complaints in Civil Case
Nos. 3341-17 and 3342-17. The fallo of the CA decision reads:
WHEREFORE, based on the foregoing
premises, the petition is hereby GRANTED. The
assailed Orders admitting the amended complaints are
SET ASIDE for being null and void, and the amended
complaints a quo are, accordingly, DISMISSED.[20]
Irene and her new trustees motion for reconsideration of the
assailed decision was denied through the equally assailed June 20, 2002 CA
Resolution. Hence, this petition for review is before us.
The Issues
Petitioners urge the setting aside and annulment of the assailed
CA decision and resolution on the following submissions that the appellate
court erred in: (1) allowing the submission of an affidavit by Julita as sufficient
compliance with the requirement on verification and certification of non-forum
shopping; (2) ruling on the merits of the trust issue which involves factual and
evidentiary determination, processes not proper in a petition for certiorari
under Rule 65 of the Rules of Court; (3) ruling that the amended complaints in
the lower court should be dismissed because, at the time it was filed, there was
no more original complaint to amend; (4) ruling that the respondents did not
waive improper venue; and (5) ruling that petitioner Irene was not a resident of
Batac, Ilocos Norte and that none of the principal parties are residents of Ilocos
Norte.[21]
The Courts Ruling
We affirm, but not for all the reasons set out in, the CAs decision.
First Issue: Substantial Compliance with the Rule
on Verification and Certification of Non-Forum Shopping
Petitioners tag private respondents petition in CA-G.R. SP No.
64246 as defective for non-compliance with the requirements of Secs. 4[22] and
[23]
5 of Rule 7 of the Rules of Court at least with regard to Julita, who failed to
sign the verification and certification of non-forum shopping. Petitioners thus
fault the appellate court for directing Julitas counsel to submit a written
authority for Francisca to represent Julita in the certiorari proceedings.
We are not persuaded.
Verification not Jurisdictional; May be Corrected
Verification is, under the Rules, not a jurisdictional but merely a
formal requirement which the court may motu proprio direct a party to comply
with or correct, as the case may be. As the Court articulated in Kimberly
Independent Labor Union for Solidarity, Activism and Nationalism
(KILUSAN)-Organized Labor Associations in Line Industries and Agriculture (OLALIA)
v. Court of Appeals:
[V]erification is a formal, not a jurisdictional
requisite, as it is mainly intended to secure an assurance that
the allegations therein made are done in good faith or are true
and correct and not mere speculation. The Court may order
the correction of the pleading, if not verified, or act on the
unverified pleading if the attending circumstances are such
that a strict compliance with the rule may be dispensed with in
order that the ends of justice may be served.[24]
Given this consideration, the CA acted within its sound discretion in
ordering the submission of proof of Franciscas authority to sign on Julitas behalf and
represent her in the proceedings before the appellate court.
Signature by Any of the Principal Petitioners is Substantial Compliance
Regarding the certificate of non-forum shopping, the general rule is that
all the petitioners or plaintiffs in a case should sign it.[25] However, the Court has time
and again stressed that the rules on forum shopping, which were designed to
promote the orderly administration of justice, do not interdict substantial compliance
with its provisions under justifiable circumstances.[26] As has been ruled by the Court,
the signature of any of the principal petitioners[27] or principal parties,[28] as Francisca
is in this case, would constitute a substantial compliance with the rule on verification
and certification of non-forum shopping. It cannot be overemphasized that Francisca
herself was a principal party in Civil Case No. 3341-17 before the RTC and in the
certiorari proceedings before the CA. Besides being an heir of Benedicto, Francisca,
with her mother, Julita, was substituted for Benedicto in the instant case after his
demise.
And should there exist a commonality of interest among the parties, or
where the parties filed the case as a collective, raising only one common cause of
action or presenting a common defense, then the signature of one of the petitioners
or complainants, acting as representative, is sufficient compliance. We said so
in Cavile v. Heirs of Clarita Cavile.[29] Like Thomas Cavile, Sr. and the other
petitioners in Cavile, Francisca and Julita, as petitioners before the CA, had filed their
petition as a collective, sharing a common interest and having a common single
defense to protect their rights over the shares of stocks in question.
Second Issue: Merits of the Case cannot be Resolved
on Certiorari under Rule 65
Petitioners posture on the second issue is correct. As they aptly pointed
out, the CA, in the exercise of its certiorari jurisdiction under Rule 65, is limited to
reviewing and correcting errors of jurisdiction only. It cannot validly delve into the
issue of trust which, under the premises, cannot be judiciously resolved without first
establishing certain facts based on evidence.
Whether a determinative question is one of law or of fact depends on the
nature of the dispute. A question of law exists when the doubt or controversy
concerns the correct application of law or jurisprudence to a certain given set of facts;
or when the issue does not call for an examination of the probative value of the
evidence presented, the truth or falsehood of facts being admitted. A question of fact
obtains when the doubt or difference arises as to the truth or falsehood of facts or
when the query invites the calibration of the whole evidence considering mainly the
credibility of the witnesses, the existence and relevancy of specific surrounding
circumstances, as well as their relation to each other and to the whole, and the
probability of the situation.[30]
Clearly then, the CA overstepped its boundaries when, in disposing of
private respondents petition for certiorari, it did not confine itself to determining
whether or not lack of jurisdiction or grave abuse of discretion tainted the issuance of
the assailed RTC orders, but proceeded to pass on the factual issue of the existence
and enforceability of the asserted trust. In the process, the CA virtually resolved
petitioner Irenes case for reconveyance on its substantive merits even before
evidence on the matter could be adduced. Civil Case Nos. 3341-17 and 3342-17 in
fact have not even reached the pre-trial stage. To stress, the nature of the trust
allegedly constituted in Irenes favor and its enforceability, being evidentiary in nature,
are best determined by the trial court. The original complaints and the amended
complaint certainly do not even clearly indicate whether the asserted trust is implied
or express. To be sure, an express trust differs from the implied variety in terms of the
manner of proving its existence.[31] Surely, the onus of factually determining whether
the trust allegedly established in favor of Irene, if one was indeed established, was
implied or express properly pertains, at the first instance, to the trial court and not to
the appellate court in a special civil action for certiorari, as here. In the absence of
evidence to prove or disprove the constitution and necessarily the existence of the
trust agreement between Irene, on one hand, and the Benedicto Group, on the other,
the appellate court cannot intelligently pass upon the issue of trust. A pronouncement
on said issue of trust rooted on speculation and conjecture, if properly challenged,
must be struck down. So it must be here.
Third Issue: Admission of Amended Complaint Proper
As may be recalled, the CA veritably declared as reversibly erroneous the
admission of the amended complaint. The flaw in the RTCs act of admitting the
amended complaint lies, so the CA held, in the fact that the filing of the amended
complaint on July 17, 2000 came after the RTC had ordered with finality the dismissal
of the original complaints. According to petitioners, scoring the CA for its declaration
adverted to and debunking its posture on the finality of the said RTC order, the CA
failed to take stock of their motion for reconsideration of the said dismissal order.
We agree with petitioners and turn to the governing Sec. 2 of Rule 10 of
the Rules of Court which provides:
SEC. 2. Amendments as a matter of right. A party
may amend his pleading once as a matter of right at any time
before a responsive pleading is served or in the case of a
reply, at any time within ten (10) days after it is served.
As the aforequoted provision makes it abundantly clear that the plaintiff
may amend his complaint once as a matter of right, i.e., without leave of court, before
any responsive pleading is filed or served. Responsive pleadings are those which
seek affirmative relief and/or set up defenses,[32] like an answer. A motion to dismiss
is not a responsive pleading for purposes of Sec. 2 of Rule 10.[33] Assayed against
the foregoing perspective, the RTC did not err in admitting petitioners amended
complaint, Julita and Francisca not having yet answered the original complaints when
the amended complaint was filed. At that precise moment, Irene, by force of said Sec.
2 of Rule 10, had, as a matter of right, the option of amending her underlying
reconveyance complaints. As aptly observed by the RTC, Irenes motion to admit
amended complaint was not even necessary. The Court notes though that the RTC
has not offered an explanation why it saw fit to grant the motion to admit in the first
place.
In Alpine Lending Investors v. Corpuz, the Court, expounding on the
propriety of admitting an amended complaint before a responsive pleading is filed,
wrote:
[W]hat petitioner Alpine filed in Civil Case No.
C-20124 was a motion to dismiss, not an answer. Settled is
the rule that a motion to dismiss is not a responsive pleading
for purposes of Section 2, Rule 10. As no responsive pleading
had been filed, respondent could amend her complaint in Civil
Case No. C-20124 as a matter of right. Following this Courts
ruling in Breslin v. Luzon Stevedoring Co. considering that
respondent has the right to amend her complaint, it is the
correlative duty of the trial court to accept the amended
complaint; otherwise, mandamus would lie against it. In other
words, the trial courts duty to admit the amended complaint
was purely ministerial. In fact, respondent should not have
filed a motion to admit her amended complaint.[34]
It may be argued that the original complaints had been dismissed
through the June 29, 2000 RTC order. It should be pointed out, however, that
the finality of such dismissal order had not set in when Irene filed the amended
complaint on July 17, 2000, she having meanwhile seasonably sought
reconsideration thereof. Irenes motion for reconsideration was only resolved
on August 25, 2000. Thus, when Irene filed the amended complaint on July 17,
2000, the order of dismissal was not yet final, implying that there was strictly no
legal impediment to her amending her original complaints.[35]
Fourth Issue: Private Respondents did not Waive Improper Venue
Petitioners maintain that Julita and Francisca were effectively
precluded from raising the matter of improper venue by their subsequent acts
of filing numerous pleadings. To petitioners, these pleadings, taken together,
signify a waiver of private respondents initial objection to improper venue.
This contention is without basis and, at best, tenuous. Venue
essentially concerns a rule of procedure which, in personal actions, is fixed for
the greatest convenience possible of the plaintiff and his witnesses. The
ground of improperly laid venue must be raised seasonably, else it is deemed
waived. Where the defendant failed to either file a motion to dismiss on the
ground of improper venue or include the same as an affirmative defense, he is
deemed to have waived his right to object to improper venue.[36] In the case at
bench, Benedicto and Francisca raised at the earliest time possible, meaning
within the time for but before filing the answer to the complaint,[37] the matter of
improper venue. They would thereafter reiterate and pursue their objection on
venue, first, in their answer to the amended complaints and then in their
petition for certiorari before the CA. Any suggestion, therefore, that Francisca
and Benedicto or his substitutes abandoned along the way improper venue as
ground to defeat Irenes claim before the RTC has to be rejected.
Fifth Issue: The RTC Has No Jurisdiction
on the Ground of Improper Venue
Subject Civil Cases are Personal Actions
It is the posture of Julita and Francisca that the venue was in this
case improperly laid since the suit in question partakes of a real action
involving real properties located outside the territorial jurisdiction of the RTC in
Batac.
This contention is not well-taken. In a personal action, the plaintiff
seeks the recovery of personal property, the enforcement of a contract, or the
recovery of damages.[38] Real actions, on the other hand, are those affecting
title to or possession of real property, or interest therein. In accordance with
the wordings of Sec. 1 of Rule 4, the venue of real actions shall be the proper
court which has territorial jurisdiction over the area wherein the real property
involved, or a portion thereof, is situated. The venue of personal actions is the
court where the plaintiff or any of the principal plaintiffs resides, or where the
defendant or any of the principal defendants resides, or in the case of a
non-resident defendant where he may be found, at the election of the
plaintiff.[39]
In the instant case, petitioners are basically asking Benedicto and
his Group, as defendants a quo, to acknowledge holding in trust Irenes
purported 65% stockownership of UEC and FEMII, inclusive of the fruits of the
trust, and to execute in Irenes favor the necessary conveying deed over the
said 65% shareholdings. In other words, Irene seeks to compel recognition of
the trust arrangement she has with the Benedicto Group. The fact that FEMIIs
assets include real properties does not materially change the nature of the
action, for the ownership interest of a stockholder over corporate assets is only
inchoate as the corporation, as a juridical person, solely owns such assets. It is
only upon the liquidation of the corporation that the stockholders, depending
on the type and nature of their stockownership, may have a real inchoate right
over the corporate assets, but then only to the extent of their stockownership.
The amended complaint is an action in personam, it being a suit against
Francisca and the late Benedicto (now represented by Julita and Francisca), on the
basis of their alleged personal liability to Irene upon an alleged trust constituted in
1968 and/or 1972. They are not actions in rem where the actions are against the real
properties instead of against persons.[40] We particularly note that possession or title
to the real properties of FEMII and UEC is not being disputed, albeit part of the assets
of the corporation happens to be real properties.
Given the foregoing perspective, we now tackle the determinative
question of venue in the light of the inclusion of additional plaintiffs in the amended
complaint.
Interpretation of Secs. 2 and 3 of Rule 3; and Sec. 2 of Rule 4
We point out at the outset that Irene, as categorically and peremptorily
found by the RTC after a hearing, is not a resident of Batac, Ilocos Norte, as she
claimed. The Court perceives no compelling reason to disturb, in the confines of this
case, the factual determination of the trial court and the premises holding it
together. Accordingly, Irene cannot, in a personal action, contextually opt for Batac
as venue of her reconveyance complaint. As to her, Batac, Ilocos Norte is not what
Sec. 2, Rule 4 of the Rules of Court adverts to as the place where the plaintiff or any
of the principal plaintiffs resides at the time she filed her amended complaint. That
Irene holds CTC No. 17019451[41] issued sometime in June 2000 in Batac, Ilocos
Norte and in which she indicated her address as Brgy. Lacub, Batac, Ilocos is really
of no moment. Let alone the fact that one can easily secure a basic residence
certificate practically anytime in any Bureau of Internal Revenue or treasurers office
and dictate whatever relevant data one desires entered, Irene procured CTC No.
17019451 and appended the same to her motion for reconsideration following the
RTCs pronouncement against her being a resident of Batac.
Petitioners, in an attempt to establish that the RTC in Batac, Ilocos Norte
is the proper court venue, asseverate that Batac, Ilocos Norte is where the principal
parties reside.
Pivotal to the resolution of the venue issue is a determination of the status
of Irenes co-plaintiffs in the context of Secs. 2 and 3 of Rule 3 in relation to Sec. 2 of
Rule 4, which pertinently provide as follows:
Rule 3
PARTIES TO CIVIL ACTIONS
SEC. 2. Parties in interest. A real party in interest
is the party who stands to be benefited or injured by the
judgment in the suit, or the party entitled to the avails of the
suit. Unless otherwise authorized by law or these Rules,
every action must be prosecuted or defended in the name of
the real party in interest.
SEC. 3. Representatives as parties. Where the
action is allowed to be prosecuted or defended by a
representative or someone acting in a fiduciary capacity, the
beneficiary shall be included in the title of the case and shall
be deemed to be the real party in interest. A representative
may be a trustee of an express trust, a guardian, an executor
or administrator, or a party authorized by law or these
Rules. An agent acting in his own name and for the benefit of
an undisclosed principal may sue or be sued without joining
the principal except when the contract involves things
belonging to the principal.
Rule 4
VENUE OF ACTIONS
SEC. 2. Venue of personal actions. All other
actions may be commenced and tried where the plaintiff or
any of the principal plaintiffs resides, or where the defendant
or any of the principal defendants resides, or in the case of a
 non-resident defendant where he may be found, at the
election of the plaintiff.
Venue is Improperly Laid
There can be no serious dispute that the real party-in-interest plaintiff is
Irene. As self-styled beneficiary of the disputed trust, she stands to be benefited or
entitled to the avails of the present suit. It is undisputed too that petitioners Daniel
Rubio, Orlando G. Reslin, and Jose G. Reslin, all from Ilocos Norte, were included as
co-plaintiffs in the amended complaint as Irenes new designated trustees. As
trustees, they can only serve as mere representatives of Irene.
Upon the foregoing consideration, the resolution of the crucial issue of
whether or not venue had properly been laid should not be difficult.
Sec. 2 of Rule 4 indicates quite clearly that when there is more than one
plaintiff in a personal action case, the residences of the principal parties should be
the basis for determining proper venue. According to the late Justice Jose Y. Feria,
the word principal has been added [in the uniform procedure rule] in order to prevent
the plaintiff from choosing the residence of a minor plaintiff or defendant as the
venue.[42] Eliminate the qualifying term principal and the purpose of the Rule would,
to borrow from Justice Regalado, be defeated where a nominal or formal party is
impleaded in the action since the latter would not have the degree of interest in the
subject of the action which would warrant and entail the desirably active participation
expected of litigants in a case.[43]
Before the RTC in Batac, in Civil Case Nos. 3341-17 and 3342-17, Irene
stands undisputedly as the principal plaintiff, the real party-in-interest. Following Sec.
2 of Rule 4, the subject civil cases ought to be commenced and prosecuted at the
place where Irene resides.
Principal Plaintiff not a Resident in Venue of Action
As earlier stated, no less than the RTC in Batac declared Irene as not a
resident of Batac, Ilocos Norte. Withal, that court was an improper venue for her
conveyance action.
The Court can concede that Irenes three co-plaintiffs are all residents of
Batac, Ilocos Norte. But it ought to be stressed in this regard that not one of the three
can be considered as principal party-plaintiffs in Civil Case Nos. 3341-17 and
3342-17, included as they were in the amended complaint as trustees of the principal
plaintiff. As trustees, they may be accorded, by virtue of Sec. 3 of Rule 3, the right to
prosecute a suit, but only on behalf of the beneficiary who must be included in the title
of the case and shall be deemed to be the real party-in-interest. In the final analysis,
the residences of Irenes co-plaintiffs cannot be made the basis in determining the
venue of the subject suit. This conclusion becomes all the more forceful considering
that Irene herself initiated and was actively prosecuting her claim against Benedicto,
his heirs, assigns, or associates, virtually rendering the impleading of the trustees
unnecessary.
And this brings us to the final point. Irene was a resident during the period
material of Forbes Park, Makati City. She was not a resident of Brgy. Lacub, Batac,
Ilocos Norte, although jurisprudence[44] has it that one can have several residences, if
such were the established fact. The Court will not speculate on the reason why
petitioner Irene, for all the inconvenience and expenses she and her adversaries
would have to endure by a Batac trial, preferred that her case be heard and decided
by the RTC in Batac. On the heels of the dismissal of the original complaints on the
ground of improper venue, three new personalities were added to the complaint
doubtless to insure, but in vain as it turned out, that the case stays with the RTC in
Batac.
Litigants ought to bank on the righteousness of their causes, the
superiority of their cases, and the persuasiveness of arguments to secure a favorable
verdict. It is high time that courts, judges, and those who come to court for redress
keep this ideal in mind.
WHEREFORE, the instant petition is hereby DISMISSED. The
Decision and Resolution dated October 17, 2001 and June 20, 2002,
respectively, of the CA in CA-G.R. SP No. 64246, insofar as they nullified the
assailed orders of the RTC, Branch 17 in Batac, Ilocos Norte in Civil Case Nos.
3341-17 and 3342-17 on the ground of lack of jurisdiction due to improper
venue, are hereby AFFIRMED. The Orders dated October 9, 2000, December
18, 2000, and March 15, 2001 of the RTC in Civil Case Nos. 3341-17 and
3342-17 are accordingly ANNULLED and SET ASIDE and said civil cases
are DISMISSED.
Emergency Loan Pawnshop v. Court of Appeals, G.R. No. 129184, February
28, 2001 (SUPRA)
Hyatt Elevators v. Goldstar, G.R. No. 161026, October 24, 2005
Well established in our jurisprudence is the rule that the residence of a
corporation is the place where its principal office is located, as stated in its
Articles of Incorporation.
The Case
Before us is a Petition for Review[1] on Certiorari, under Rule 45 of
the Rules of Court, assailing the June 26, 2003 Decision[2] and the November
27, 2003 Resolution[3] of the Court of Appeals (CA) in CA-GR SP No. 74319.
The decretal portion of the Decision reads as follows:
WHEREFORE, in view of the foregoing, the
assailed Orders dated May 27, 2002 and October 1,
2002 of the RTC, Branch 213, Mandaluyong City in
Civil Case No. 99-600, are hereby SET ASIDE. The
said case is hereby ordered DISMISSED on the ground
of improper venue.[4]
The assailed Resolution denied petitioners Motion for Reconsideration.
The Facts
The relevant facts of the case are summarized by the CA in this
wise:
Petitioner [herein Respondent] Goldstar
Elevator Philippines, Inc. (GOLDSTAR for brevity) is a
domestic corporation primarily engaged in the business
of marketing, distributing, selling, importing, installing,
and maintaining elevators and escalators, with address
at 6th Floor, Jacinta II Building, 64 EDSA, Guadalupe,
Makati City.
On the other hand, private respondent
[herein petitioner] Hyatt Elevators and Escalators
Company (HYATT for brevity) is a domestic
corporation similarly engaged in the business of selling,
installing and maintaining/servicing elevators,
escalators and parking equipment, with address at the
th
6 Floor, Dao I Condominium, Salcedo St., Legaspi
Village, Makati, as stated in its Articles of Incorporation.
On February 23, 1999, HYATT filed a Complaint
for unfair trade practices and damages under Articles 19, 20
and 21 of the Civil Code of the Philippines against LG
Industrial Systems Co. Ltd. (LGISC) and LG International
Corporation (LGIC), alleging among others, that: in 1988, it
was appointed by LGIC and LGISC as the exclusive
distributor of LG elevators and escalators in the Philippines
under a Distributorship Agreement; x x x LGISC, in the latter
part of 1996, made a proposal to change the exclusive
distributorship agency to that of a joint venture partnership;
while it looked forward to a healthy and fruitful negotiation for
a joint venture, however, the various meetings it had with
LGISC and LGIC, through the latters representatives, were
conducted in utmost bad faith and with malevolent intentions;
in the middle of the negotiations, in order to put pressures
upon it, LGISC and LGIC terminated the Exclusive
Distributorship Agreement; x x x [A]s a consequence, [HYATT]
suffered P120,000,000.00 as actual damages, representing
loss of earnings and business opportunities, P20,000,000.00
as damages for its reputation and goodwill, P1,000,000.00 as
and by way of exemplary damages, and P500,000.00 as and
by way of attorneys fees.
On March 17, 1999, LGISC and LGIC filed a
Motion to Dismiss raising the following grounds: (1) lack of
jurisdiction over the persons of defendants, summons not
having been served on its resident agent; (2) improper venue;
and (3) failure to state a cause of action. The [trial] court
denied the said motion in an Order dated January 7, 2000.
On March 6, 2000, LGISC and LGIC filed an
Answer with Compulsory Counterclaim ex abundante cautela.
Thereafter, they filed a Motion for Reconsideration and to
Expunge Complaint which was denied.
On December 4, 2000, HYATT filed a motion for
leave of court to amend the complaint, alleging that
subsequent to the filing of the complaint, it learned that
LGISC transferred all its organization, assets and goodwill, as
a consequence of a joint venture agreement with Otis
Elevator Company of the USA, to LG Otis Elevator Company
(LG OTIS, for brevity). Thus, LGISC was to be substituted or
changed to LG OTIS, its successor-in-interest. Likewise, the
motion averred that x x x GOLDSTAR was being utilized by
LG OTIS and LGIC in perpetrating their unlawful and
unjustified acts against HYATT. Consequently, in order to
afford complete relief, GOLDSTAR was to be additionally
impleaded as a party-defendant. Hence, in the Amended
Complaint, HYATT impleaded x x x GOLDSTAR as a
party-defendant, and all references to LGISC were
correspondingly replaced with LG OTIS.
On December 18, 2000, LG OTIS (LGISC) and
LGIC filed their opposition to HYATTs motion to amend the
complaint. It argued that: (1) the inclusion of GOLDSTAR as
party-defendant would lead to a change in the theory of the
case since the latter took no part in the negotiations which led
to the alleged unfair trade practices subject of the case; and
(b) HYATTs move to amend the complaint at that time was
dilatory, considering that HYATT was aware of the existence
of GOLDSTAR for almost two years before it sought its
inclusion as party-defendant.
On January 8, 2001, the [trial] court admitted the
Amended Complaint. LG OTIS (LGISC) and LGIC filed a
motion for reconsideration thereto but was similarly rebuffed
on October 4, 2001.

On April 12, 2002, x x x GOLDSTAR filed a
Motion to Dismiss the amended complaint, raising the
following grounds: (1) the venue was improperly laid, as
neither HYATT nor defendants reside in Mandaluyong City,
where the original case was filed; and (2) failure to state a
cause of action against [respondent], since the amended
complaint fails to allege with certainty what specific ultimate
acts x x x Goldstar performed in violation of x x x Hyatts rights.
In the Order dated May 27, 2002, which is the main subject of
the present petition, the [trial] court denied the motion to
dismiss, ratiocinating as follows:
Upon perusal of the factual and legal
arguments raised by the
movants-defendants, the court finds
that these are substantially the same
issues posed by the then defendant
LG Industrial System Co. particularly
the matter dealing [with] the issues of
improper venue, failure to state cause
of action as well as this courts lack of
jurisdiction. Under the circumstances
obtaining, the court resolves to rule
that the complaint sufficiently states a
cause of action and that the venue is
properly laid. It is significant to note
that in the amended complaint, the
same allegations are adopted as in
the original complaint with respect to
the Goldstar Philippines to enable this
court to adjudicate a complete
determination or settlement of the
claim subject of the action it appearing
preliminarily as sufficiently alleged in
the plaintiffs pleading that said
Goldstar Elevator Philippines Inc., is
being managed and operated by the
same Korean officers of defendants
LG-OTIS Elevator Company and LG
International Corporation.
On June 11, 2002, [Respondent] GOLDSTAR
filed a motion for reconsideration thereto. On June 18, 2002,
without waiving the grounds it raised in its motion to dismiss,
[it] also filed an Answer Ad Cautelam. On October 1, 2002,
[its] motion for reconsideration was denied.
From the aforesaid Order denying x x x Goldstars
motion for reconsideration, it filed the x x x petition for
certiorari [before the CA] alleging grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of the
[trial] court in issuing the assailed Orders dated May 27, 2002
and October 1, 2002.[5]
Ruling of the Court of Appeals
The CA ruled that the trial court had committed palpable error amounting
to grave abuse of discretion when the latter denied respondents Motion to Dismiss.
The appellate court held that the venue was clearly improper, because none of the
litigants resided in Mandaluyong City, where the case was filed.
According to the appellate court, since Makati was the principal
place of business of both respondent and petitioner, as stated in the latters
Articles of Incorporation, that place was controlling for purposes of determining
the proper venue. The fact that petitioner had abandoned its principal office in
Makati years prior to the filing of the original case did not affect the venue
where personal actions could be commenced and tried.
Hence, this Petition.[6]
The Issue
In its Memorandum, petitioner submits this sole issue for our
consideration:
Whether or not the Court of Appeals, in
reversing the ruling of the Regional Trial Court, erred
as a matter of law and jurisprudence, as well as
committed grave abuse of discretion, in holding that in
the light of the peculiar facts of this case, venue was
improper[.][7]
This Courts Ruling
The Petition has no merit.
Sole Issue:
Venue
The resolution of this case rests upon a proper understanding of
Section 2 of Rule 4 of the 1997 Revised Rules of Court:
Sec. 2. Venue of personal actions. All other
actions may be commenced and tried where the
plaintiff or any of the principal plaintiff resides, or where
the defendant or any of the principal defendant resides,
or in the case of a non-resident defendant where he
may be found, at the election of the plaintiff.
Since both parties to this case are corporations, there is a need to
clarify the meaning of residence. The law recognizes two types of persons: (1)
natural and (2) juridical. Corporations come under the latter in accordance with
Article 44(3) of the Civil Code.[8]
Residence is the permanent home -- the place to which, whenever
absent for business or pleasure, one intends to return.[9] Residence is vital
when dealing with venue.[10] A corporation, however, has no residence in the
same sense in which this term is applied to a natural person. This is precisely
the reason why the Court in Young Auto Supply Company v. Court of
Appeals[11] ruled that for practical purposes, a corporation is in a metaphysical
sense a resident of the place where its principal office is located as stated in
the articles of incorporation.[12] Even before this ruling, it has already been
established that the residence of a corporation is the place where its principal
office is established.[13]
This Court has also definitively ruled that for purposes of venue,
the term residence is synonymous with domicile.[14] Correspondingly, the Civil
Code provides:
Art. 51. When the law creating or
recognizing them, or any other provision does not fix
the domicile of juridical persons, the same shall be
understood to be the place where their legal
representation is established or where they exercise
their principal functions.[15]
It now becomes apparent that the residence or domicile of a juridical
person is fixed by the law creating or recognizing it. Under Section 14(3) of the
Corporation Code, the place where the principal office of the corporation is to be
located is one of the required contents of the articles of incorporation, which shall be
filed with the Securities and Exchange Commission (SEC).
In the present case, there is no question as to the residence of
respondent. What needs to be examined is that of petitioner. Admittedly,[16] the latters
principal place of business is Makati, as indicated in its Articles of Incorporation.
Since the principal place of business of a corporation determines its residence or
domicile, then the place indicated in petitioners articles of incorporation becomes
controlling in determining the venue for this case.
Petitioner argues that the Rules of Court do not provide that when the
plaintiff is a corporation, the complaint should be filed in the location of its principal
office as indicated in its articles of incorporation.[17] Jurisprudence has, however,
settled that the place where the principal office of a corporation is located, as stated
in the articles, indeed establishes its residence.[18] This ruling is important in
determining the venue of an action by or against a corporation,[19] as in the present
case.
Without merit is the argument of petitioner that the locality stated in its
Articles of Incorporation does not conclusively indicate that its principal office is still in
the same place. We agree with the appellate court in its observation that the
requirement to state in the articles the place where the principal office of the
corporation is to be located is not a meaningless requirement. That proviso would be
rendered nugatory if corporations were to be allowed to simply disregard what is
expressly stated in their Articles of Incorporation.[20]
Inconclusive are the bare allegations of petitioner that it had closed its
Makati office and relocated to Mandaluyong City, and that respondent was well
aware of those circumstances. Assuming arguendo that they transacted business
with each other in the Mandaluyong office of petitioner, the fact remains that, in law,
the latters residence was still the place indicated in its Articles of Incorporation.
Further unacceptable is its faulty reasoning that the ground for the CAs dismissal of
its Complaint was its failure to amend its Articles of Incorporation so as to reflect its
actual and present principal office. The appellate court was clear enough in its ruling
that the Complaint was dismissed because the venue had been improperly laid, not
because of the failure of petitioner to amend the latters Articles of Incorporation.
Indeed, it is a legal truism that the rules on the venue of personal actions
are fixed for the convenience of the plaintiffs and their witnesses. Equally settled,
however, is the principle that choosing the venue of an action is not left to a plaintiffs
caprice; the matter is regulated by the Rules of Court.[21] Allowing petitioners
arguments may lead precisely to what this Court was trying to avoid in Young Auto
Supply Company v. CA:[22] the creation of confusion and untold inconveniences to
party litigants. Thus enunciated the CA:
x x x. To insist that the proper venue is the actual
principal office and not that stated in its Articles of
Incorporation would indeed create confusion and work untold
inconvenience. Enterprising litigants may, out of some ulterior
motives, easily circumvent the rules on venue by the simple
expedient of closing old offices and opening new ones in
another place that they may find well to suit their needs.[23]
We find it necessary to remind party litigants, especially corporations, as
follows:
The rules on venue, like the other procedural
rules, are designed to insure a just and orderly administration
of justice or the impartial and evenhanded determination of
every action and proceeding. Obviously, this objective will not
 be attained if the plaintiff is given unrestricted freedom to
choose the court where he may file his complaint or petition.
The choice of venue should not be left to the
plaintiffs whim or caprice. He may be impelled by some
ulterior motivation in choosing to file a case in a particular
court even if not allowed by the rules on venue.[24]
WHEREFORE, the Petition is hereby DENIED, and the assailed Decision
and Resolution AFFIRMED. Costs against petitioner.
SO ORDERED . Villegas is still mayor.3
Sec. 3. Venue of actions against non-residents
Section 3. Venue of actions against nonresidents. — If any of the defendants
does not reside and is not found in the Philippines, and the action affects the
personal status of the plaintiff, or any property of said defendant located in the
Philippines, the action may be commenced and tried in the court of the place
where the plaintiff resides, or where the property or any portion thereof is
situated or found.
Time, Inc. v. Reyes, G.R. No. L-28882, May 31, 1971
Petition for certiorari and prohibition, with preliminary injunction, to annul certain
orders of the respondent Court of First Instance of Rizal, issued in its Civil Case No.
10403, entitled "Antonio J. Villegas and Juan Ponce Enrile vs. Time, Inc., and
Time-Life International, Publisher of 'Time' Magazine (Asia Edition)", and to prohibit
the said court from further proceeding with the said civil case.
Upon petitioner's posting a bond of P1,000.00, this Court, as prayed for, ordered, on
15 April 1968, the issuance of a writ of preliminary injunction.
The petition alleges that petitioner Time, Inc.,1 is an American corporation with
principal offices at Rocketfeller Center, New York City, N. Y., and is the publisher of
"Time", a weekly news magazine; the petition, however, does not allege the
petitioner's legal capacity to sue in the courts of the Philippine.2
In the aforesaid Civil Case No. 10403, therein plaintiffs (herein respondents) Antonio
J. Villegas and Juan Ponce Enrile seek to recover from the herein petitioner damages
upon an alleged libel arising from a publication of Time (Asia Edition) magazine, in its
issue of 18 August 1967, of an essay, entitled "Corruption in Asia", which, in part,
reads, as follows:
The problem of Manila's mayor, ANTONIO VILLEGAS, is a case in point.
When it was discovered last year that the mayor's coffers contained far more
pesos than seemed reasonable in the light of his income, an investigation was
launched. Witnesses who had helped him out under curious circumstance
were asked to explain in court. One government official admitted lending
Villegas P30,000 pesos ($7,700) without interest because he was the mayor's
compadre. An assistant declared he had given Villegas loans without collateral
because he regarded the boss as my own son. A wealthy Manila businessman
testified that he had lent Villegas' wife 15,000 pesos because the mayor was
like a brother to me. With that, Villegas denounced the investigation as an
invasion of his family's privacy. The case was dismissed on a technicality, and
More specifically, the plaintiffs' complaint alleges, inter alia that:
(4) Defendants, conspiring and confederating, published a libelous article,
publicly, falsely and maliciously imputing to Plaintiffs the commission of the
crimes of graft, corruption and nepotism; that said publication particularly
referred to Plaintiff Mayor Antonio J. Villegas as a case in point in connection
with graft, corruption and nepotism in Asia; that said publication without any
doubt referred to co-plaintiff Juan Ponce Enrile as the high government official
who helped under curious circumstances Plaintiff Mayor Antonio J. Villegas in
lending the latter approximately P30,000.00 ($7,700.00) without interest
because he was the Mayor's compadre; that the purpose of said Publications
is to cause the dishonor, discredit and put in public contempt the Plaintiffs,
particularly Plaintiff Mayor Antonio J. Villegas.
On motion of the respondents-plaintiffs, the respondent judge, on 25
November 1967, granted them leave to take the depositions "of Mr. Anthony
Gonzales, Time-Life international", and "Mr. Cesar B. Enriquez, Muller &
Phipps (Manila) Ltd.", in connection with the activities and operations in the
Philippines of the petitioner, and, on 27 November 1967, issued a writ of
attachment on the real and personal estate of Time, Inc.
Petitioner received the summons and a copy of the complaint at its offices in
New York on 13 December 1967 and, on 27 December 1967, it filed a motion
to dismiss the complaint for lack of jurisdiction and improper venue, relying
upon the provisions of Republic Act 4363. Private respondents opposed the
motion.
In an order dated 26 February 1968, respondent court deferred the
determination of the motion to dismiss until after trial of the case on the merits,
the court having considered that the grounds relied upon in the motion do not
appear to be indubitable.
Petitioner moved for reconsideration of the deferment private respondents
again opposed.
On 30 March 1968, respondent judge issued an order re-affirming the previous
order of deferment for the reason that "the rule laid down under Republic Act.
No. 4363, amending Article 360 of the Revised Penal Code, is not applicable
to actions against non-resident defendants, and because questions involving
harassment and inconvenience, as well as disruption of public service do not
appear indubitable. ..."
Failing in its efforts to discontinue the taking of the depositions, previously adverted
to, and to have action taken, before trial, on its motion to dismiss, petitioner filed the
instant petition for certiorari and prohibition.
The orders for the taking of the said depositions, for deferring determination of the
motion to dismiss, and for reaffirming the deferment, and the writ of attachment are
sought to be annulled in the petition..
There is no dispute that at the time of the publication of the allegedly offending essay,
private respondents Antonio Villegas and Juan Ponce Enrile were the Mayor Of the
City of Manila and Undersecretary of Finance and concurrently Acting Commissioner
of Customs, respectively, with offices in the City of Manila. The issues in this case
are:
1. Whether or not, under the provisions of Republic Act No. 4363 the respondent
Court of First Instance of Rizal has jurisdiction to take cognizance of the civil suit for
damages arising from an allegedly libelous publication, considering that the action
was instituted by public officers whose offices were in the City of Manila at the time of
the publication; if it has no jurisdiction, whether or not its erroneous assumption of
jurisdiction may be challenged by a foreign corporation by writ of certiorari or
prohibition; and
2. Whether or not Republic Act 4363 is applicable to action against a foreign
corporation or non-resident defendant.
Provisions of Republic Act No. 4363, which are relevant to the resolution of the
foregoing issues, read, as follows:
Section 1. Article three hundred sixty of the Revised Penal Code, as amended by
Republic Act Numbered Twelve hundred and eighty-nine, is further amended to read
as follows:
'ART. 360. Persons responsible. — Any person who shall publish, exhibit, or cause
the publication or exhibition of any defamation in writing or by similar means, shall be
responsible for the same.
The author or editor of a book or pamphlet, or the editor or business manager of a
daily newspaper, magazine or serial publication, shall be responsible for the
defamations contained therein to the extent as if he were the author thereof.
The criminal and civil action for damages in cases of written defamations as provided
for in this chapter, shall be filed simultaneously or separately with the court of first
instance of the province or city where the libelous article is printed and first published
or where any of the offended parties actually resides at the time of the commission of
the offense; Provided, however, That where one of the offended parties is a public
officer whose office is in the City of Manila at the time of the commission of the
offense, the action shall be filed in the Court of First Instance of the City of Manila or
of the city or province where the libelous article is printed and first published, and in
case such public officer does not hold office in the City of Manila, the action shall be
filed in the Court of First Instance of the province or city where he held office at the
time of the commission of the offense or where the libelous article is printed and first
published and in case one of the offended parties is a private individual, the action
shall be filed in the Court of First Instance of the province or city where he actually
resides at the time of the commission of the offense or where the libelous matter is
printed and first published; Provided,further, That the civil action shall be filed in the
same court where the criminal action is filed and vice versa; Provided, furthermore,
That the court where the criminal action or civil action for damages is first filed, shall
acquire jurisdiction to the exclusion of other courts; And provided finally, That this
amendment shall not apply to cases of written defamations, the civil and/or criminal
actions which have been filed in court at the time of the effectivity of the law
xxx xxx xxx
xxx xxx xxx
Sec. 3. This Act shall take effect only if and when, within thirty days from its approval,
the newspapermen in the Philippines shall organize, and elect the members of, a
Philippine Press Council, a private agency of the said newspapermen, whose
function shall be to promulgate a Code of Ethics for them and the Philippine press
investigate violations thereof, and censure any newspaperman or newspaper guilty of
any violation of the said Code, and the fact that such Philippine Press Council has
been organized and its members have been duly elected in accordance herewith
shall be ascertained and proclaimed by the President of the Philippines.
Under the first proviso in section 1, the venue of a civil action for damages in cases of
written defamations is localized upon the basis of, first, whether the offended party or
plaintiff is a public officer or a private individual; and second, if he is a public officer,
whether his office is in Manila or not in Manila, at the time of the commission of the
offense. If the offended party is a public officer in the office in the City of Manila, the
proviso limits him to two (2) choices of venue, namely, in the Court of First instance of
the City of Manila or in the city or province where the libelous article is printed and
first published ..."
The complaint lodged in the court of Rizal by respondents does not allege that the
libelous article was printed and first published in the province of Rizal and, since the
respondents-plaintiffs are public officers with offices in Manila at the time of the
commission of the alleged offense, it is clear that the only place left for them wherein
to file their action, is the Court of First Instance of Manila.
The limitation of the choices of venue, as introduced into the Penal Code through its
amendments by Republic Act 4363, was intended "to minimize or limit the filing of
out-of-town libel suits" to protect an alleged offender from "hardships, inconveniences
and harassments" and, furthermore, to protect "the interest of the public service"
where one of the offended parties is a public officer."4 The intent, of the law is clear: a
libeled public official might sue in the court of the locality where he holds office, in
order that the prosecution of the action should interfere as little as possible with the
discharge of his official duties and labors. The only alternative allowed him by law is
to prosecute those responsible for the libel in the place where the offending article
was printed and first published. Here, the law tolerates the interference with the
libeled officer's duties only for the sake of avoiding unnecessary harassment of the
accused. Since the offending publication was not printed in the Philippines, the
alternative venue was not open to respondent Mayor Villegas of Manila and
Undersecretary of Finance Enrile, who were the offended parties.
But respondents-plaintiffs argue that Republic Act No. 4363 is not applicable where
the action is against non-existent defendant, as petitioner Time, Inc., for several
reasons. They urge that, in enacting Republic Act No. 4363, Congress did not intend
to protect non-resident defendants as shown by Section 3, which provides for the
effectivity of the statute only if and when the "newspapermen in the Philippines" have
organized a "Philippine Press Council" whose function shall be to promulgate a Code
of Ethics for "them" and "the Philippine press"; and since a non-resident defendant is
not in a position to comply with the conditions imposed for the effectivity of the statute,
such defendant may not invoke its provisions; that a foreign corporation is not
inconvenienced by an out-of-town libel suit; that it would be absurd and incongruous,
in the absence of an extradition treaty, for the law to give to public officers with office
in Manila the second option of filing a criminal case in the court of the place
where the libelous article is printed and first published if the defendant is a
foreign corporation and that, under the "single publication" rule which
originated in the United States and imported into the Philippines, the rule was
understood to mean that publications in another state are not covered by
venue statutes of the forum.
The implication of respondents' argument is that the law would not take effect
as to non-resident defendants or accused. We see nothing in the text of the
law that would sustain such unequal protection to some of those who may be
charged with libel. The official proclamation that a Philippine Press Council has
been organized is made a pre-condition to the effectivity of the entire Republic
Act No. 4363, and no terms are employed therein to indicate that the law can
or will be effective only as to some, but not all, of those that may be charged
with libeling our public officers.
The assertion that a foreign corporation or a non-resident defendant is not
inconvenienced by an out-of-town suit is irrelevant and untenable, for venue
and jurisdiction are not dependent upon convenience or inconvenience to a
party; and moreover, venue was fixed under Republic Act No. 4363, pursuant
to the basic policy of the law that is, as previously stated, to protect the interest
of the public service when the offended party is a public officer, by minimizing
as much as possible any interference with the discharge of his duties.
That respondents-plaintiffs could not file a criminal case for libel against a
non-resident defendant does not make Republic Act No. 4363 incongruous of
absurd, for such inability to file a criminal case against a non-resident natural
person equally exists in crimes other than libel. It is a fundamental rule of
international jurisdiction that no state can by its laws, and no court which is
only a creature of the state, can by its judgments or decrees, directly bind or
affect property or persons beyond the limits of the state.5 Not only this, but if
the accused is a corporation, no criminal action can lie against it,6 whether
such corporation or resident or non-resident. At any rate, the case filed by
respondents-plaintiffs is case for damages.
50 Am. Jur. 2d 659 differentiates the "multiple publication" and "single
publication" rules (invoked by private respondents) to be as follows:
The common law as to causes of action for tort arising out of a single
publication was to the effect that each communication of written or printed
matter was a distinct and separate publication of a libel contained therein,
giving rise to a separate cause of action. This rule ('multiple publication' rule) is
still followed in several American jurisdictions, and seems to be favored by the
American Law Institute. Other jurisdictions have adopted the 'single
publication' rule which originated in New York, under which any single
integrated publication, such as one edition of a newspaper, book, or magazine,
or one broadcast, is treated as a unit, giving rise to only one cause of action,
regardless of the number of times it is exposed to different people. ...
These rules are not pertinent in the present scheme because the number of
causes of action that may be available to the respondents-plaintiffs is not here
in issue. We are here confronted by a specific venue statute, conferring
jurisdiction in cases of libel against Public officials to specified courts, and no
other. The rule is that where a statute creates a right and provides a remedy
for its enforcement, the remedy is exclusive; and where it confers jurisdiction
upon a particular court, that jurisdiction is likewise exclusive, unless otherwise
provided. Hence, the venue provisions of Republic Act No. 4363 should be
deemed mandatory for the party bringing the action, unless the question of
venue should be waived by the defendant, which was not the case here. Only thus
can the policy of the Act be upheld and maintained. Nor is there any reason why the
inapplicability of one alternative venue should result in rendering the other alternative,
also inapplicable.
The dismissal of the present petition is asked on the ground that the petitioner foreign
corporation failed to allege its capacity to sue in the courts of the Philippines.
Respondents rely on section 69 of the Corporation law, which provides:
SEC. 69. No foreign corporation or corporations formed, organized, or existing under
any laws other than those of the Philippines shall be permitted to ... maintain by itself
or assignee any suit for the recovery of any debt, claim, or demand whatever, unless
it shall have the license prescribed in the section immediately preceding. ..." ...;
They also invoke the ruling in Marshall-Wells Co. vs. Elser & Co., Inc.7 that no foreign
corporation may be permitted to maintain any suit in the local courts unless it shall
have the license required by the law, and the ruling in Atlantic Mutual Ins. Co., Inc. vs.
Cebu Stevedoring Co., Inc.8 that "where ... the law denies to a foreign corporation the
right to maintain suit unless it has previously complied with a certain requirement,
then such compliance or the fact that the suing corporation is exempt therefrom,
becomes a necessary averment in the complaint." We fail to see how these doctrines
can be a propos in the case at bar, since the petitioner is not "maintaining any suit"
but is merely defending one against itself; it did not file any complaint but only a
corollary defensive petition to prohibit the lower court from further proceeding with a
suit that it had no jurisdiction to entertain.
Petitioner's failure to aver its legal capacity to institute the present petition is not fatal,
for ...
A foreign corporation may, by writ of prohibition, seek relief against the wrongful
assumption of jurisdiction. And a foreign corporation seeking a writ of prohibition
against further maintenance of a suit, on the ground of want of jurisdiction in which
jurisdiction is not bound by the ruling of the court in which the suit was brought, on a
motion to quash service of summons, that it has jurisdiction.9
It is also advanced that the present petition is premature, since respondent court has
not definitely ruled on the motion to dismiss, nor held that it has jurisdiction, but only
argument is untenable. The motion to dismiss was predicated on the respondent
court's lack of jurisdiction to entertain the action; and the rulings of this Court are that
writs of certiorari or prohibition, or both, may issue in case of a denial or deferment of
action on such a motion to dismiss for lack of jurisdiction.
If the question of jurisdiction were not the main ground for this petition for review
by certiorari, it would be premature because it seeks to have a review of an
interlocutory order. But as it would be useless and futile to go ahead with the
proceedings if the court below had no jurisdiction this petition was given due course.'
(San Beda vs. CIR, 51 O.G. 5636, 5638).
'While it is true that action on a motion to dismiss may be deferred until the trial and
an order to that effect is interlocutory, still where it clearly appears that the trial judge
or court is proceeding in excess or outside of its jurisdiction, the remedy of prohibition
would lie since it would be useless and a waste of time to go ahead with the
proceedings. (Philippine International Fair, Inc., et al. vs. Ibañez, et al., 50 Off. Gaz.
1036; Enrique v. Macadaeg, et al., 47 Off. Gaz. 1207; see also San Beda College vs.
CIR, 51 Off. Gaz. 5636.)' (University of Sto. Tomas v. Villanueva, L-13748, 30
October 1959.).
Similarly, in Edward J. Nell Co. vs. Cubacub, L-20843, 23 June 1965, 14 SCRA 419,
this Court held:
'.......................................................... It is a settledrule that the jurisdiction of a court
over the subject-matter is determined by the allegations in the complaint; and when a
motion to dismiss is filed for lack of jurisdiction those allegations are deemed
admitted for purposes of such motion, so that it may be resolved without waiting for
the trial. Thus it has been held that the consideration thereof may not be postponed in
the hope that the evidence may yield other qualifying or concurring data which would
bring the case under the court's jurisdiction.'
To the same effect are the rulings in: Ruperto vs. Fernando, 83 Phil.
943; Administrator of Hacienda Luisita Estate vs. Alberto, L-12133, 21 October 1958.
Summing up, We hold:
(1) The under Article 360 of the Revised Penal Code, as amended by Republic Act
No. 4363, actions for damages by public officials for libelous publications against
them can only be filed in the courts of first instance ofthe city or province where the
offended functionary held office at the time ofthe commission of the offense, in case
the libelous article was first printed or published outside the Philippines.
(2) That the action of a court in refusing to rule, or deferring its ruling, on a motion to
dismiss for lack of jurisdiction over the subject matter, or for improper venue, is in
excess of jurisdiction and correctable by writ of prohibition or certiorari sued out in the
appellate Court, even before trial on the merits is had.
WHEREFORE, the writs applied for are granted: the respondent Court of First
Instance of Rizal is declared without jurisdiction to take cognizance of its Civil Case
No. 10403; and its orders issued in connection therewith are hereby annulled and set
aside,. Respondent court is further commanded to desist from further proceedings in
Civil case No. 10403 aforesaid. Costs against private respondents, Antonio J.
Villegas and Juan Ponce Enrile.
The writ of preliminary injunction heretofore issued by this Supreme Court is made
permanent.
Sec. 4. When Rule not applicable
Section 4. When Rule not applicable. — This Rule shall not apply.
(a) In those cases where a specific rule or law provides otherwise; or
(b) Where the parties have validly agreed in writing before the filing of the
action on the exclusive venue thereof.
Union Bank v. Maunlad Homes, G.R. No. 190071, August 5, 2012
Before the Court is the petition for review on certiorari1 under Rule 45 of the Rules of
Court filed by petitioner Union Bank of the Philippines (Union Bank), assailing the
decision dated October 28, 20092 of the Court of Appeals (CA) in CA-G.R. SP
No. 107772.
THE FACTS
Union Bank is the owner of a commercial complex located in Malolos, Bulacan,
known as the Maunlad Shopping Mall.
Sometime in August 2002, Union Bank, as seller, and respondent Maunlad
Homes, Inc. (Maunlad Homes), as buyer, entered into a contract to sell3
involving the Maunlad Shopping Mall. The contract set the purchase price at ₱
151 million, ₱ 2.4 million of which was to be paid by Maunlad Homes as down
payment payable on or before July 5, 2002, with the balance to be amortized
over the succeeding 180-month period.4 Under the contract, Union Bank
authorized Maunlad Homes to take possession of the property and to build or
introduce improvements thereon. The parties also agreed that if Maunlad
Homes violates any of the provisions of the contract, all payments made will be
applied as rentals for the use and possession of the property, and all
improvements introduced on the land will accrue in favor of Union Bank.5 In
the event of rescission due to failure to pay or to comply with the terms of the
contract, Maunlad Homes will be required to immediately vacate the property
and must voluntarily turn possession over to Union Bank.6
When Maunlad Homes failed to pay the monthly amortization, Union Bank sent
the former a Notice of Rescission of Contract7 dated February 5, 2003,
demanding payment of the installments due within 30 days from receipt;
otherwise, it shall consider the contract automatically rescinded. Maunlad
Homes failed to comply. Hence, on November 19, 2003, Union Bank sent
Maunlad Homes a letter demanding payment of the rentals due and requiring
that the subject property be vacated and its possession turned over to the bank.
When Maunlad Homes continued to refuse, Union Bank instituted an
ejectment suit before the Metropolitan Trial Court (MeTC) of Makati City,
Branch 64, on February 19, 2004. Maunlad Homes resisted the suit by
claiming, among others, that it is the owner of the property as Union Bank did
not reserve ownership of the property under the terms of the contract.8 By
virtue of its ownership, Maunlad Homes claimed that it has the right to possess
the property.
On May 18, 2005, the MeTC dismissed Union Bank’s ejectment complaint.9 It
found that Union Bank’s cause of action was based on a breach of contract
and that both parties are claiming a better right to possess the property based
on their respective claims of ownership of the property.
The MeTC ruled that the appropriate action to resolve these conflicting claims
was an accion reivindicatoria, over which it had no jurisdiction.
On appeal, the Regional Trial Court (RTC) of Makati City, Branch 139, affirmed
the MeTC in its decision dated July 17, 2008;10 it agreed with the MeTC that
the issues raised in the complaint extend beyond those commonly involved in
an unlawful detainer suit. The RTC declared that the case involved a
determination of the rights of the parties under the contract. Additionally, the
RTC noted that the property is located in Malolos, Bulacan, but the ejectment
suit was filed by Union Bank in Makati City, based on the contract stipulation
that "the venue of all suits and actions arising out or in connection with the
Contract to Sell shall be in Makati City."11 The RTC ruled that the proper venue
for the ejectment action is in Malolos, Bulacan, pursuant to the second
paragraph of Section 1, Rule 4 of the Rules of Court, which states:
Section 1. Venue of real actions. - Actions affecting title to or
possession of real property, or interest therein, shall be
commenced and tried in the proper court which has
jurisdiction over the area wherein the real property involved,
or a portion thereof, is situated.
Forcible entry and detainer actions shall be commenced and
tried in the municipal trial court of the municipality or city
wherein the real property involved, or a portion thereof, is
situated. [emphasis ours]
The RTC declared that Union Bank cannot rely on the waiver of venue provision in
the contract because ejectment is not an action arising out of or connected with the
contract.
Union Bank appealed the RTC decision to the CA through a petition for review under
Rule 42 of the Rules of Court. The CA affirmed the RTC decision in its October 28,
2009 decision,12 ruling that Union Bank’s claim of possession is based on its claim of
ownership which in turn is based on its interpretation of the terms and conditions of
the contract, particularly, the provision on the consequences of Maunlad Homes’
breach of contract. The CA determined that Union Bank’s cause of action is premised
on the interpretation and enforcement of the contract and the determination of the
validity of the rescission, both of which are matters beyond the jurisdiction of the
MeTC. Therefore, it ruled that the dismissal of the ejectment suit was proper. The CA,
however, made no further ruling on the issue of venue of the action.
From the CA’s judgment, Union Bank appealed to the Court by filing the present
petition for review on certiorariunder Rule 45 of the Rules of Court.
THE PARTIES’ ARGUMENTS
Union Bank disagreed with the CA’s finding that it is claiming ownership over the
property through the ejectment action. It claimed that it never lost ownership over the
property despite the execution of the contract, since only the right to possess was
conceded to Maunlad Homes under the contract; Union Bank never transferred
ownership of the property to Maunlad Homes. Because of Maunlad Homes’ failure to
comply with the terms of the contract, Union Bank believes that it rightfully rescinded
the sale, which rescission terminated Maunlad Homes’ right to possess the subject
property. Since Maunlad Homes failed to turn over the possession of the subject
property, Union Bank believes that it correctly instituted the ejectment suit.
The Court initially denied Union Bank’s petition in its Resolution dated March 17,
2010.13 Upon motion for reconsideration filed by Union Bank, the Court set aside its
Resolution of March 17, 2010 (in a Resolution dated May 30, 201114 ) and required
Maunlad Homes to comment on the petition.
Maunlad Homes contested Union Bank’s arguments, invoking the rulings of the lower
courts. It considered Union Bank’s action as based on the propriety of the rescission
of the contract, which, in turn, is based on a determination of whether Maunlad
Homes indeed failed to comply with the terms of the contract; the propriety of the
rescission, however, is a question that is within the RTC’s jurisdiction. Hence,
Maunlad Homes contended that the dismissal of the ejectment action was proper.
THE COURT’S RULING
We find the petition meritorious.
The authority of the MeTC to
interpret contracts in an unlawful
detainer action
In any case involving the question of jurisdiction, the Court is guided by the settled
doctrine that the jurisdiction of a court is determined by the nature of the action
pleaded by the litigant through the allegations in his complaint.15
Unlawful detainer is an action to recover possession of real property from one who
unlawfully withholds possession after the expiration or termination of his right to hold
possession under any contract, express or implied. The possession of the defendant
in unlawful detainer is originally legal but became illegal due to expiration or
termination of the right to possess.16 Under Section 1, Rule 70 of the Rules of Court,
the action must be filed "within one (1) year after the unlawful deprivation or
withholding of possession." Thus, to fall within the jurisdiction of the MeTC, the
complaint must allege that –
1. the defendant originally had lawful possession of the property, either by virtue of a
contract or by tolerance of the plaintiff; 2. eventually, the defendant’s possession of
the property becameillegal or unlawful upon notice by the plaintiff to defendant of the
expiration or the termination of the defendant’s right of possession;
3. thereafter, the defendant remained in possession of the property and deprived the
plaintiff the enjoyment thereof; and
4. within one year from the unlawful deprivation or withholding of possession, the
plaintiff instituted the complaint for ejectment.17
Contrary to the findings of the lower courts, all four requirements were alleged in
Union Bank’s Complaint. Union Bank alleged that Maunlad Homes "maintained
possession of the subject properties" pursuant to the Contract to Sell.18 Maunlad
Homes, however, "failed to faithfully comply with the terms of payment," prompting
Union Bank to "rescind the Contract to Sell in a Notice of Rescission dated February
5, 2003."19 When Maunlad Homes "refused to turn over and vacate the subject
premises,"20 Union Bank sent another Demand Letter on November 19, 2003 to
Maunlad Homes requiring it (1) "[t]o pay the equivalent rentals-in-arrears as of
October 2003 in the amount of ₱ 15,554,777.01 and monthly thereafter until the
premises are fully vacated and turned over" to Union Bank, and (2) to vacate the
property peacefully and turn over possession to Union Bank.21 As the demand went
unheeded, Union Bank instituted an action for unlawful detainer before the MeTC on
February 19, 2004, within one year from the date of the last demand. These
allegations clearly demonstrate a cause of action for unlawful detainer and vested the
MeTC jurisdiction over Union Bank’s action.
Maunlad Homes denied Union Bank’s claim that its possession of the property had
become unlawful. It argued that its failure to make payments did not terminate its
right to possess the property because it already acquired ownership when Union
Bank failed to reserve ownership of the property under the contract. Despite Maunlad
Homes’ claim of ownership of the property, the Court rules that the MeTC retained its
jurisdiction over the action; a defendant may not divest the MeTC of its jurisdiction by
merely claiming ownership of the property.22 Under Section 16, Rule 70 of the Rules
of Court, "when the defendant raises the defense of ownership in his pleadings and
the question of possession cannot be resolved without deciding the issue of
ownership, the issue of ownership shall be resolved only to determine the issue of
possession." Section 18, Rule 70 of the Rules of Court, however, states that "the
judgment x x x shall be conclusive with respect to the possession only and shall in no
wise bind the title or affect the ownership of the land or building."
The authority granted to the MeTC to preliminarily resolve the issue of
ownership to determine the issue of possession ultimately allows it to interpret
and enforce the contract or agreement between the plaintiff and the defendant.
To deny the MeTC jurisdiction over a complaint merely because the issue of
possession requires the interpretation of a contract will effectively rule out
unlawful detainer as a remedy. As stated, in an action for unlawful detainer, the
defendant’s right to possess the property may be by virtue of a contract,
express or implied; corollarily, the termination of the defendant’s right to
possess would be governed by the terms of the same contract. Interpretation
of the contract between the plaintiff and the defendant is inevitable because it
is the contract that initially granted the defendant the right to possess the
property; it is this same contract that the plaintiff subsequently claims was
violated or extinguished, terminating the defendant’s right to possess. We
ruled in Sps. Refugia v. CA23that –
where the resolution of the issue of possession hinges
on a determination of the validity and interpretation of
the document of title or any other contract on which the
claim of possession is premised, the inferior court may
likewise pass upon these issues.
The MeTC’s ruling on the rights of the parties based on its interpretation of
their contract is, of course, not conclusive, but is merely provisional and is
binding only with respect to the issue of possession.
Thus, despite the CA’s opinion that Union Bank’s "case involves a
determination of the rights of the parties under the Contract to Sell," 24 it is not
precluded from resolving this issue. Having acquired jurisdiction over Union
Bank’s action, the MeTC can resolve the conflicting claims of the parties based
on the facts presented and proved.
The right to possess the property was
extinguished when the contract to
sell failed to materialize
Maunlad Homes acquired possession of the property based on its contract
with Union Bank. While admitting that it suspended payment of the
installments,25 Maunlad Homes contended that the suspension of payment did
not affect its right to possess the property because its contract with Union Bank
was one of sale and not to sell; hence, ownership of the
property has been transferred to it, allowing it to retain possession
notwithstanding nonpayment of installments. The terms of the contract,
however, do not support this conclusion.
Section 11 of the contract between Union Bank and Maunlad Homes provides
that "upon payment in full of the Purchase Price of the Property x x x, the
SELLER shall execute and deliver a Deed of Absolute Sale conveying the
Property to the BUYER."26 "Jurisprudence has established that where the
seller promises to execute a deed of absolute sale upon the completion by the
buyer of the payment of the price, the contract is only a contract to sell." 27The
presence of this provision generally identifies the contract as being a mere
contract to sell.28 After reviewing the terms of the contract between Union
Bank and Maunlad Homes, we find no reasonable ground to exempt the
present case from the general rule; the contract between Union Bank and
Maunlad Homes is a contract to sell.
In a contract to sell, the full payment of the purchase price is a positive suspensive
condition whose non-fulfillment is not a breach of contract, but merely an event that
prevents the seller from conveying title to the purchaser. "The non-payment of the
purchase price renders the contract to sell ineffective and without force and effect." 29
Maunlad Homes’ act of withholding the installment payments rendered the contract
ineffective and without force and effect, and ultimately deprived itself of the right to
continue possessing Maunlad Shopping Mall.
The propriety of filing the unlawful
detainer action in Makati City
pursuant to the venue stipulation in
the contract
Maunlad Homes questioned the venue of Union Bank’s unlawful detainer action
which was filed in Makati City while the contested property is located in Malolos,
Bulacan. Citing Section 1, Rule 4 of the Rules of Court, Maunlad Homes claimed that
the unlawful detainer action should have been filed with the municipal trial court of the
municipality or city where the real property involved is situated. Union Bank, on the
other hand, justified the filing of the complaint with the MeTC of Makati City on the
venue stipulation in the contract which states that "the venue of all suits and actions
arising out of or in connection with this Contract to Sell shall be at Makati City." 30
While Section 1, Rule 4 of the Rules of Court states that ejectment actions shall be
filed in "the municipal trial court of the municipality or city wherein the real property
involved x x x is situated," Section 4 of the same Rule provides that the rule shall not
apply "where the parties have validly agreed in writing before the filing of the action
on the exclusive venue thereof." Precisely, in this case, the parties provided for a
different venue. In Villanueva v. Judge Mosqueda, etc., et al.,31 the Court upheld the
validity of a stipulation in a contract providing for a venue for ejectment actions other
than that stated in the Rules of Court. Since the unlawful detainer action is connected
with the contract, Union Bank rightfully filed the complaint with the MeTC of Makati
City.
WHEREFORE, we hereby GRANT the petition and SET ASIDE the decision dated
October 28, 2009 of the Court of Appeals in CA-G.R. SP No. 107772. Respondent
Maunlad Homes, Inc. is ORDERED TO VACATE the Maunlad Shopping Mall, the
property subject of the case, immediately upon the finality of this Decision.
Respondent Maunlad Homes, Inc. is further ORDERED TO PAY the
rentals-in-arrears, as well as rentals accruing in the interim until it vacates the
property.
The case is REMANDED to the Metropolitan Trial Court of Makati City, Branch 64, to
determine the amount of rentals due. In addition to the amount determined as unpaid
rent, respondent Maunlad Homes, Inc. is ORDERED TO PAY legal interest of six
percent (6o/o) per annum, from November 19, 2003, when the demand to pay and to
vacate was made, up to the finality of this Decision. Thereafter, an interest of twelve
percent ( 12%) per annum shall be imposed on the total amount due until full
payment is made.
Pilipino Telephone v. Tecson, G.R. No. 156966, May 7, 2004
The facts, by and large, are undisputed.
On various dates in 1996, Delfino C. Tecson applied for six (6) cellular phone
subscriptions with petitioner Pilipino Telephone Corporation (PILTEL), a company
engaged in the telecommunications business, which applications were each
approved and covered, respectively, by six mobiline service agreements.
 On 05 April 2001, respondent filed with the Regional Trial Court of Iligan
City, Lanao Del Norte, a complaint against petitioner for a Sum of Money and
Damages.Petitioner moved for the dismissal of the complaint on the ground of
improper venue, citing a common provision in the mobiline service agreements to the
effect that -
Venue of all suits arising from this Agreement or any other suit directly or indirectly
arising from the relationship between PILTEL and subscriber shall be in the proper
courts of Makati, Metro Manila. Subscriber hereby expressly waives any other
venues.[1]
In an order, dated 15 August 2001, the Regional Trial Court of Iligan City,
Lanao del Norte, denied petitioners motion to dismiss and required it to file an answer
within 15 days from receipt thereof.
Petitioner PILTEL filed a motion for the reconsideration, through registered
mail, of the order of the trial court. In its subsequent order, dated 08 October 2001,
the trial court denied the motion for reconsideration.
Petitioner filed a petition for certiorari under Rule 65 of the Revised Rules of
Civil Procedure before the Court of Appeals.
The Court of Appeals, in its decision of 30 April 2002, saw no merit in the
petition and affirmed the assailed orders of the trial court. Petitioner moved for a
reconsideration, but the appellate court, in its order of 21 January 2003, denied the
motion.
There is merit in the instant petition.
Section 4, Rule 4, of the Revised Rules of Civil Procedure[2] allows the parties
to agree and stipulate in writing, before the filing of an action, on the exclusive venue
of any litigation between them. Such an agreement would be valid and binding
provided that the stipulation on the chosen venue is exclusive in nature or in intent,
that it is expressed in writing by the parties thereto, and that it is entered into before
the filing of the suit. The provision contained in paragraph 22 of the Mobile Service
Agreement, a standard contract made out by petitioner PILTEL to its subscribers,
apparently accepted and signed by respondent, states that the venue of all suits
arising from the agreement, or any other suit directly or indirectly arising from the
relationship between PILTEL and subscriber, shall be in the proper courts of Makati,
Metro Manila. The added stipulation that the subscriber expressly waives any other
venue[3] should indicate, clearly enough, the intent of the parties to consider the
venue stipulation as being preclusive in character.
The appellate court, however, would appear to anchor its decision on the
thesis that the subscription agreement, being a mere contract of adhesion, does not
bind respondent on the venue stipulation.
Indeed, the contract herein involved is a contract of adhesion. But such an
agreement is not per se inefficacious. The rule instead is that, should there be
ambiguities in a contract of adhesion, such ambiguities are to be construed against
the party that prepared it. If, however, the stipulations are not obscure, but are clear
and leave no doubt on the intention of the parties, the literal meaning of its
stipulations must be held controlling.[4]
A contract of adhesion is just as binding as ordinary contracts. It is true that
this Court has, on occasion, struck down such contracts as being assailable when the
weaker party is left with no choice by the dominant bargaining party and is thus
completely deprived of an opportunity to bargain effectively. Nevertheless, contracts
of adhesion are not prohibited even as the courts remain careful in scrutinizing the
factual circumstances underlying each case to determine the respective claims of
contending parties on their efficacy.
In the case at bar, respondent secured six (6) subscription contracts for
cellular phones on various dates. It would be difficult to assume that, during
each of those times, respondent had no sufficient opportunity to read and go
over the terms and conditions embodied in the agreements. Respondent
continued, in fact, to acquire in the pursuit of his business subsequent
subscriptions and remained a subscriber of petitioner for quite sometime.
In Development Bank of the Philippines vs. National Merchandising
Corporation,[5] the contracting parties, being of age and businessmen of
experience, were presumed to have acted with due care and to have signed
the assailed documents with full knowledge of their import. The situation would
be no less true than that which obtains in the instant suit. The circumstances
in Sweet Lines, Inc. vs. Teves,[6] wherein this Court invalidated the venue
stipulation contained in the passage ticket, would appear to be rather peculiar
to that case. There, the Court took note of an acute shortage in inter-island
vessels that left passengers literally scrambling to secure accommodations
and tickets from crowded and congested counters. Hardly, therefore, were the
passengers accorded a real opportunity to examine the fine prints contained in
the tickets, let alone reject them.
A contract duly executed is the law between the parties, and they are
obliged to comply fully and not selectively with its terms. A contract of adhesion
is no exception.[7]
WHEREFORE, the instant petition is GRANTED, and the questioned
decision and resolution of the Court of Appeals in CA-G.R. SP No. 68104 are
REVERSED and SET ASIDE. Civil Case No. 5572 pending before the
Regional Trial Court of Iligan City, Branch 4, is DISMISSED without prejudice
to the filing of an appropriate complaint by respondent against petitioner with
the court of proper venue. No costs.
Ochoa v. China Bank, G.R. No. 192877, March 23, 2011 (Supra.)
Republic v. Glasgow Credit, G.R. No. 170281, January 18, 2008
This is a petition for review[1] of the order[2] dated October 27, 2005
of the Regional Trial Court (RTC) of Manila, Branch 47, dismissing the
complaint for forfeiture[3] filed by the Republic of the Philippines, represented
by the Anti-Money Laundering Council (AMLC) against respondents Glasgow
Credit and Collection Services, Inc. (Glasgow) and Citystate Savings Bank, Inc.
(CSBI).
On July 18, 2003, the Republic filed a complaint in the RTC Manila
for civil forfeiture of assets (with urgent plea for issuance of temporary
restraining order [TRO] and/or writ of preliminary injunction) against the bank
deposits in account number CA-005-10-000121-5 maintained by Glasgow in
CSBI. The case, filed pursuant to RA 9160 (the Anti-Money Laundering Act of
2001), as amended, was docketed as Civil Case No. 03-107319.
Acting on the Republics urgent plea for the issuance of a TRO, the
executive judge[4] of RTC Manila issued a 72-hour TRO dated July 21, 2003.
The case was thereafter raffled to Branch 47 and the hearing on the
application for issuance of a writ of preliminary injunction was set on August 4,
2003.
After hearing, the trial court (through then Presiding Judge Marivic
T. Balisi-Umali) issued an order granting the issuance of a writ of preliminary
injunction. The injunctive writ was issued on August 8, 2003.
Meanwhile, summons to Glasgow was returned unserved as it
could no longer be found at its last known address.
On October 8, 2003, the Republic filed a verified omnibus motion for (a)
issuance of alias summons and (b) leave of court to serve summons by publication.
In an order dated October 15, 2003, the trial court directed the issuance
of alias summons. However, no mention was made of the motion for leave of court to
serve summons by publication.
In an order dated January 30, 2004, the trial court archived the case
allegedly for failure of the Republic to serve the alias summons. The Republic filed
an ex parte omnibus motion to (a) reinstate the case and (b) resolve its pending
motion for leave of court to serve summons by publication.
In an order dated May 31, 2004, the trial court ordered the reinstatement
of the case and directed the Republic to serve the alias summons on Glasgow and
CSBI within 15 days. However, it did not resolve the Republics motion for leave of
court to serve summons by publication declaring:
Until and unless a return is made on the alias
summons, any action on [the Republics] motion for leave of
court to serve summons by publication would be untenable if
not premature.
On July 12, 2004, the Republic (through the Office of the Solicitor
General [OSG]) received a copy of the sheriffs return dated June 30, 2004 stating
that the alias summons was returned unserved as Glasgow was no longer holding
office at the given address since July 2002 and left no forwarding address.
Meanwhile, the Republics motion for leave of court to serve summons by
publication remained unresolved. Thus, on August 11, 2005, the Republic filed a
manifestation and ex parte motion to resolve its motion for leave of court to serve
summons by publication.
On August 12, 2005, the OSG received a copy of Glasgows Motion to
Dismiss (By Way of Special Appearance) dated August 11, 2005. It alleged that (1)
the court had no jurisdiction over its person as summons had not yet been served on
it; (2) the complaint was premature and stated no cause of action as there was still no
conviction for estafa or other criminal violations implicating Glasgow and (3) there
was failure to prosecute on the part of the Republic.
The Republic opposed Glasgows motion to dismiss. It contended that its
suit was an action quasi in rem where jurisdiction over the person of the defendant
was not a prerequisite to confer jurisdiction on the court. It asserted that prior
conviction for unlawful activity was not a precondition to the filing of a civil forfeiture
case and that its complaint alleged ultimate facts sufficient to establish a cause of
action. It denied that it failed to prosecute the case.
On October 27, 2005, the trial court issued the assailed order. It
dismissed the case on the following grounds: (1) improper venue as it should have
been filed in the RTC of Pasig where CSBI, the depository bank of the account
sought to be forfeited, was located; (2) insufficiency of the complaint in form and
substance and (3) failure to prosecute. It lifted the writ of preliminary injunction and
directed CSBI to release to Glasgow or its authorized representative the funds in
CA-005-10-000121-5.
Raising questions of law, the Republic filed this petition.
On November 23, 2005, this Court issued a TRO restraining Glasgow
and CSBI, their agents, representatives and/or persons acting upon their orders from
implementing the assailed October 27, 2005 order. It restrained Glasgow from
removing, dissipating or disposing of the funds in account no. CA-005-10-000121-5
and CSBI from allowing any transaction on the said account.
The petition essentially presents the following issue: whether the
complaint for civil forfeiture was correctly dismissed on grounds of improper venue,
insufficiency in form and substance and failure to prosecute.
The Court agrees with the Republic.

THE COMPLAINT WAS FILED IN THE PROPER VENUE
In its assailed order, the trial court cited the grounds raised by Glasgow in
support of its motion to dismiss:
1. That this [c]ourt has no jurisdiction over the
person of Glasgow considering that no
[s]ummons has been served upon it, and it has
not entered its appearance voluntarily;
2. That the [c]omplaint for forfeiture is premature
because of the absence of a prior finding by any
tribunal that Glasgow was engaged in unlawful
activity: [i]n connection therewith[,] Glasgow
argues that the [c]omplaint states no cause of
action; and
3. That there is failure to prosecute, in that, up to
now, summons has yet to be served upon
Glasgow.[5]
But inasmuch as Glasgow never questioned the venue of the Republics
complaint for civil forfeiture against it, how could the trial court have dismissed the
complaint for improper venue? In Dacoycoy v. Intermediate Appellate
Court[6] (reiterated in Rudolf Lietz Holdings, Inc. v. Registry of Deeds of Paraaque
City),[7]this Court ruled:
The motu proprio dismissal of petitioners
complaint by [the] trial court on the ground of improper
venue is plain error. (emphasis supplied)
At any rate, the trial court was a proper venue.
On November 15, 2005, this Court issued A.M. No. 05-11-04-SC, the
Rule of Procedure in Cases of Civil Forfeiture, Asset Preservation, and Freezing of
Monetary Instrument, Property, or Proceeds Representing, Involving, or Relating
to an Unlawful Activity or Money Laundering Offense under RA 9160, as amended
(Rule of Procedure in Cases of Civil
Forfeiture). The order dismissing the Republics complaint
for civil forfeiture of Glasgows account in CSBI has not yet attained finality on
account of the pendency of this appeal. Thus, the Rule of Procedure in Cases of Civil
Forfeiture applies to the Republics complaint.[8]Moreover, Glasgow itself judicially
admitted that the Rule of Procedure in Cases of Civil Forfeiture is applicable to the
instant case.[9]
Section 3, Title II (Civil Forfeiture in the Regional Trial Court) of the Rule
of Procedure in Cases of Civil Forfeiture provides:
Sec. 3. Venue of cases cognizable by the regional trial court.
A petition for civil forfeiture shall be filed in any regional trial
court of the judicial region where the monetary
instrument, property or proceeds representing, involving,
or relating to an unlawful activity or to a money
laundering offense are located; provided, however, that
where all or any portion of the monetary instrument, property
or proceeds is located outside the Philippines, the petition
may be filed in the regional trial court in Manila or of the
judicial region where any portion of the monetary instrument,
property, or proceeds is located, at the option of the petitioner.
(emphasis supplied)
Under Section 3, Title II of the Rule of Procedure in Cases of Civil
Forfeiture, therefore, the venue of civil forfeiture cases is any RTC of the judicial
region where the monetary instrument, property or proceeds representing, involving,
or relating to an unlawful activity or to a money laundering offense are located.
Pasig City, where the account sought to be forfeited in this case is situated, is
within the National Capital Judicial Region (NCJR). Clearly, the complaint for
civil forfeiture of the account may be filed in any RTC of the NCJR. Since the
RTC Manila is one of the RTCs of the NCJR,[10] it was a proper venue of the
Republics complaint for civil forfeiture of Glasgows account.
THE COMPLAINT WAS SUFFICIENT IN FORM AND SUBSTANCE
In the assailed order, the trial court evaluated the Republics
complaint to determine its sufficiency in form and substance:
At the outset, this [c]ourt, before it proceeds,
takes the opportunity to examine the [c]omplaint and
determine whether it is sufficient in form and
substance.
Before this [c]ourt is a [c]omplaint for Civil
Forfeiture of Assets filed by the [AMLC], represented
by the Office of the Solicitor General[,] against Glasgow
and [CSBI] as necessary party. The [c]omplaint
principally alleges the following:
(a) Glasgow is a corporation existing under
the laws of the Philippines, with principal
office address at Unit 703, 7th Floor,
Citystate Center [Building], No. 709 Shaw
Boulevard[,] Pasig City;
(b) [CSBI] is a corporation existing under the
laws of the Philippines, with principal office
at Citystate Center Building, No. 709 Shaw
Boulevard, Pasig City;
(c) Glasgow has funds in the amount
of P21,301,430.28 deposited with [CSBI],
under CA 005-10-000121-5;
(d) As events have proved, aforestated bank
account is related to the unlawful activities
of Estafa and violation of Securities
Regulation Code;
(e) The deposit has been subject of
Suspicious Transaction Reports;
(f) After appropriate investigation, the AMLC
issued Resolutions No. 094 (dated July 10,
2002), 096 (dated July 12, 2002), 101
(dated July 23, 2002), and 108 (dated
August 2, 2002), directing the issuance of
freeze orders against the bank accounts of
Glasgow;
(g) Pursuant to said AMLC Resolutions,
Freeze Orders Nos. 008-010, 011 and 013
were issued on different dates, addressed
to the concerned banks;
(h) The facts and circumstances plainly
showing that defendant Glasgows bank
account and deposit are related to the
unlawful activities of Estafa and violation of
Securities Regulation Code, as well as to a
money laundering offense [which] [has]
been summarized by the AMLC in its
Resolution No. 094; and
(i) Because defendant Glasgows bank account
and deposits are related to the unlawful activities
of Estafa and violation of Securities Regulation
Code, as well as [to] money laundering offense as
aforestated, and being the subject of covered
transaction reports and eventual freeze orders,
the same should properly be forfeited in favor of
the government in accordance with Section 12,
R.A. 9160, as amended.[11]
In a motion to dismiss for failure to state a cause of action, the focus is on
the sufficiency, not the veracity, of the material allegations.[12] The determination is
confined to the four corners of the complaint and nowhere else.[13]
In a motion to dismiss a complaint based on lack
of cause of action, the question submitted to the court for
determination is the sufficiency of the allegations made in the
complaint to constitute a cause of action and not whether
those allegations of fact are true, for said motion must
hypothetically admit the truth of the facts alleged in the
complaint.
The test of the sufficiency of the facts alleged
in the complaint is whether or not, admitting the facts
alleged, the court could render a valid judgment upon the
same in accordance with the prayer of the
complaint.[14] (emphasis ours)
In this connection, Section 4, Title II of the Rule of Procedure in Cases of Civil
Forfeiture provides:
Sec. 4. Contents of the petition for civil forfeiture. - The
petition for civil forfeiture shall be verified and contain the
following allegations:
(a) The name and address of the respondent;
(b) A description with reasonable particularity of
the monetary instrument, property, or proceeds,
and their location; and
(c) The acts or omissions prohibited by and the
specific provisions of the Anti-Money Laundering
Act, as amended, which are alleged to be the
grounds relied upon for the forfeiture of the
monetary instrument, property, or proceeds; and
[(d)] The reliefs prayed for.
Here, the verified complaint of the Republic contained the following
allegations:
(a) the name and address of the primary defendant therein,
Glasgow;[15]
(b) a description of the proceeds of Glasgows unlawful activities
with particularity, as well as the location thereof, account no.
CA-005-10-000121-5 in the amount
of P21,301,430.28 maintained with CSBI;
(c) the acts prohibited by and the specific provisions of RA 9160,
as amended, constituting the grounds for the forfeiture of the
said proceeds. In particular, suspicious transaction reports
showed that Glasgow engaged in unlawful activities of estafa
and violation of the Securities Regulation Code (under
Section 3(i)(9) and (13), RA 9160, as amended); the
proceeds of the unlawful activities were transacted and
deposited with CSBI in account no. CA-005-10-000121-5
 thereby making them appear to have originated from
legitimate sources; as such, Glasgow engaged in money
laundering (under Section 4, RA 9160, as amended); and the
AMLC subjected the account to freeze order and
(d) the reliefs prayed for, namely, the issuance of a TRO or writ
of preliminary injunction and the forfeiture of the account in
favor of the government as well as other reliefs just and
equitable under the premises.
The form and substance of the Republics complaint substantially
conformed with Section 4, Title II of the Rule of Procedure in Cases of Civil
Forfeiture.
Moreover, Section 12(a) of RA 9160, as amended, provides:
SEC. 12. Forfeiture Provisions.
(a) Civil Forfeiture. When there is a covered transaction
report made, and the court has, in a petition filed for the
purpose ordered seizure of any monetary instrument or
property, in whole or in part, directly or indirectly, related to
said report, the Revised Rules of Court on civil forfeiture shall
apply.
In relation thereto, Rule 12.2 of the Revised Implementing Rules and
Regulations of RA 9160, as amended, states:
RULE 12
Forfeiture Provisions
xxx xxx xxx
Rule 12.2. When Civil Forfeiture May be Applied. When there
is a SUSPICIOUS TRANSACTION REPORT OR A
COVERED TRANSACTION REPORT DEEMED
SUSPICIOUS AFTER INVESTIGATION BY THE AMLC, and
the court has, in a petition filed for the purpose, ordered the
seizure of any monetary instrument or property, in whole or in
part, directly or indirectly, related to said report, the Revised
Rules of Court on civil forfeiture shall apply.
RA 9160, as amended, and its implementing rules and regulations lay
down two conditions when applying for civil forfeiture:
(1) when there is a suspicious transaction report or a covered
transaction report deemed suspicious after investigation by
the AMLC and
(2) the court has, in a petition filed for the purpose, ordered the
seizure of any monetary instrument or property, in whole or
in part, directly or indirectly, related to said report.
It is the preliminary seizure of the property in question which brings it
within the reach of the judicial process.[16] It is actually within the courts possession
when it is submitted to the process of the court.[17] The injunctive writ issued on
August 8, 2003 removed account no. CA-005-10-000121-5 from the effective control
of either Glasgow or CSBI or their representatives or agents and subjected it to the
process of the court.
Since account no. CA-005-10-000121-5 of Glasgow in CSBI was (1)
covered by several suspicious transaction reports and (2) placed under the control of
the trial court upon the issuance of the writ of preliminary injunction, the conditions
provided in Section 12(a) of RA 9160, as amended, were satisfied. Hence, the
Republic, represented by the AMLC, properly instituted the complaint for civil
forfeiture.
Whether or not there is truth in the allegation that account no.
CA-005-10-000121-5 contains the proceeds of unlawful activities is an evidentiary
matter that may be proven during trial. The complaint, however, did not even have to
show or allege that Glasgow had been implicated in a conviction for, or the
commission of, the unlawful activities of estafa and violation of the Securities
Regulation Code.
A criminal conviction for an unlawful activity is not a prerequisite for
the institution of a civil forfeiture proceeding. Stated otherwise, a finding of guilt
for an unlawful activity is not an essential element of civil forfeiture.
Section 6 of RA 9160, as amended, provides:
SEC. 6. Prosecution of Money Laundering.
(a) Any person may be charged with and
convicted of both the offense of money laundering and
the unlawful activity as herein defined.
(b) Any proceeding relating to the unlawful
activity shall be given precedence over the prosecution
of any offense or violation under this Act without
prejudice to the freezing and other remedies
provided. (emphasis supplied)
Rule 6.1 of the Revised Implementing Rules and Regulations of
RA 9160, as amended, states:
Rule 6.1. Prosecution of Money Laundering
(a) Any person may be charged with and
convicted of both the offense of money laundering and
the unlawful activity as defined under Rule 3(i) of the
AMLA.
(b) Any proceeding relating to the unlawful
activity shall be given precedence over the prosecution
of any offense or violation under the AMLA without
prejudice to the application ex-parte by the AMLC to
the Court of Appeals for a freeze order with respect to
the monetary instrument or property involved therein
and resort to other remedies provided under the
AMLA, the Rules of Court and other pertinent laws
and rules. (emphasis supplied)
Finally, Section 27 of the Rule of Procedure in Cases of Civil
Forfeiture provides:
Sec. 27. No prior charge, pendency or conviction
necessary. No prior criminal charge, pendency of or
conviction for an unlawful activity or money
laundering offense is necessary for the
commencement or the resolution of a petition for civil
forfeiture. (emphasis supplied)
Thus, regardless of the absence, pendency or outcome of a
criminal prosecution for the unlawful activity or for money laundering, an action
for civil forfeiture may be separately and independently prosecuted and
resolved.
THERE WAS NO FAILURE TO PROSECUTE
The trial court faulted the Republic for its alleged failure to
prosecute the case. Nothing could be more erroneous.
Immediately after the complaint was filed, the trial court ordered its
deputy sheriff/process server to serve summons and notice of the hearing on
the application for issuance of TRO and/or writ of preliminary injunction. The
subpoena to Glasgow was, however, returned unserved as Glasgow could no
longer be found at its given address and had moved out of the building since August
1, 2002.
Meanwhile, after due hearing, the trial court issued a writ of preliminary
injunction enjoining Glasgow from removing, dissipating or disposing of the subject
bank deposits and CSBI from allowing any transaction on, withdrawal, transfer,
removal, dissipation or disposition thereof.
As the summons on Glasgow was returned unserved, and considering
that its whereabouts could not be ascertained despite diligent inquiry, the Republic
filed a verified omnibus motion for (a) issuance of alias summons and (b) leave of
court to serve summons by publication on October 8, 2003. While the trial court
issued an alias summons in its order dated October 15, 2003, it kept quiet on the
prayer for leave of court to serve summons by publication.
Subsequently, in an order dated January 30, 2004, the trial court archived
the case for failure of the Republic to cause the service of alias summons. The
Republic filed an ex parte omnibus motion to (a) reinstate the case and (b) resolve its
pending motion for leave of court to serve summons by publication.
In an order dated May 31, 2004, the trial court ordered the reinstatement
of the case and directed the Republic to cause the service of the alias summons on
Glasgow and CSBI within 15 days. However, it deferred its action on the Republics
motion for leave of court to serve summons by publication until a return was made on
the alias summons.
Meanwhile, the Republic continued to exert efforts to obtain information
from other government agencies on the whereabouts or current status of respondent
Glasgow if only to save on expenses of publication of summons. Its efforts, however,
proved futile. The records on file with the Securities and Exchange Commission
provided no information. Other inquiries yielded negative results.
On July 12, 2004, the Republic received a copy of the sheriffs return
dated June 30, 2004 stating that the alias summons had been returned unserved as
Glasgow was no longer holding office at the given address since July 2002 and left
no forwarding address. Still, no action was taken by the trial court on the Republics
motion for leave of court to serve summons by publication. Thus, on August 11, 2005,
the Republic filed a manifestation and ex parte motion to resolve its motion for leave
of court to serve summons by publication.
It was at that point that Glasgow filed a motion to dismiss by way of
special appearance which the Republic vigorously opposed. Strangely, to say the
least, the trial court issued the assailed order granting Glasgows motion.
Given these circumstances, how could the Republic be faulted for failure
to prosecute the complaint for civil forfeiture? While there was admittedly a delay in
the proceeding, it could not be entirely or primarily ascribed to the Republic. That
Glasgows whereabouts could not be ascertained was not only beyond the Republics
control, it was also attributable to Glasgow which left its principal office address
without informing the Securities and Exchange Commission or any official regulatory
body (like the Bureau of Internal Revenue or the Department of Trade and Industry)
of its new address. Moreover, as early as October 8, 2003, the Republic was already
seeking leave of court to serve summons by publication.
In Marahay v. Melicor,[18] this Court ruled:
While a court can dismiss a case on the ground of non
prosequitur, the real test for the exercise of such power is
whether, under the circumstances, plaintiff is chargeable with
want of due diligence in failing to proceed with reasonable
promptitude. In the absence of a pattern or scheme to
delay the disposition of the case or a wanton failure to
observe the mandatory requirement of the rules on the
part of the plaintiff, as in the case at bar, courts should
decide to dispense with rather than wield their authority
to dismiss. (emphasis supplied)

We see no pattern or scheme on the part of the Republic to delay the
disposition of the case or a wanton failure to observe the mandatory requirement of
the rules. The trial court should not have so eagerly wielded its power to dismiss the
Republics complaint.
SERVICE OF SUMMONS MAY BE BY PUBLICATION
In Republic v. Sandiganbayan,[19] this Court declared that the rule is
settled that forfeiture proceedings are actions in rem. While that case involved
forfeiture proceedings under RA 1379, the same principle applies in cases for civil
forfeiture under RA 9160, as amended, since both cases do not terminate in the
imposition of a penalty but merely in the forfeiture of the properties either acquired
illegally or related to unlawful activities in favor of the State.
As an action in rem, it is a proceeding against the thing itself instead of
against the person.[20] In actions in rem or quasi in rem, jurisdiction over the person of
the defendant is not a prerequisite to conferring jurisdiction on the court, provided
that the court acquires jurisdiction over the res.[21] Nonetheless, summons must be
served upon the defendant in order to satisfy the requirements of due process.[22] For
this purpose, service may be made by publication as such mode of service is allowed
in actions in rem and quasi in rem.[23]
In this connection, Section 8, Title II of the Rule of Procedure in Cases of
Civil Forfeiture provides:
Sec. 8. Notice and manner of service. - (a) The respondent
shall be given notice of the petition in the same manner as
service of summons under Rule 14 of the Rules of Court and
the following rules:
1. The notice shall be served on respondent
personally, or by any other means prescribed in Rule 14 of
the Rules of Court;
2. The notice shall contain: (i) the title of the case;
(ii) the docket number; (iii) the cause of action; and (iv) the
relief prayed for; and
3. The notice shall likewise contain a proviso that,
if no comment or opposition is filed within the reglementary
period, the court shall hear the case ex parte and render such
judgment as may be warranted by the facts alleged in the
petition and its supporting evidence.
(b) Where the respondent is designated as an
unknown owner or whenever his whereabouts
are unknown and cannot be ascertained by
diligent inquiry, service may, by leave of
court, be effected upon him by publication of
the notice of the petition in a newspaper of
general circulation in such places and for
such time as the court may order. In the event
that the cost of publication exceeds the value or
amount of the property to be forfeited by ten
percent, publication shall not be required.
(emphasis supplied)
WHEREFORE, the petition is hereby GRANTED. The October 27, 2005
order of the Regional Trial Court of Manila, Branch 47, in Civil Case No. 03-107319
is SET ASIDE. The August 11, 2005 motion to dismiss of Glasgow Credit and
Collection Services, Inc. is DENIED. And the complaint for forfeiture of the Republic
of the Philippines, represented by the Anti-Money Laundering Council,
is REINSTATED.
The case is hereby REMANDED to the Regional Trial Court of
Manila, Branch 47 which shall forthwith proceed with the case pursuant to the
provisions of A.M. No. 05-11-04-SC. Pending final determination of the case,
the November 23, 2005 temporary restraining order issued by this Court is
hereby MAINTAINED.
i. Except cases under the Rules on
Summary Procedure
ii. Without prejudice of refilling in case of
dismissal
RULE 5- UNIFORM PROCEDURE IN TRIAL COURTS
Sec. 1. Uniform procedure
Section 1. Uniform procedure. — The procedure in the Municipal Trial Courts
shall be the same as in the Regional Trial Courts, except (a) where a particular
provision expressly or impliedly applies only to either of said courts, or (b) in
civil cases governed by the Rule on Summary Procedure.
Sec. 2. Meaning of terms
Section 2. Meaning of terms. — The term "Municipal Trial Courts" as used in
these Rules shall include Metropolitan Trial Courts, Municipal Trial Courts in
Cities, Municipal Trial Courts, and Municipal Circuit Trial Courts.
Revised Rule on Summary Procedure
Sec. De Lima v. Gatdula, G.R. No. 204528, February 19, 2013 (RESOLUTION
ONLY)
Submitted for our resolution is a prayer for the issuance of a temporary restraining
order and/or writ of preliminary injunction to enjoin "the Regional Trial Court, Branch
26, in Manila from implementing its Decision x x x in Civil Case No. 12-127405
granting respondent's application for the issuance of inspection and production
orders x x x."1 This is raised through a Petition for Review on Certiorari under Rule 45
from the "Decision" rendered by the Regional Trial Court dated 20 March 2012.
From the records, it appears that on 27 February 2012, respondent Magtanggol B.
Gatdula filed a Petition for the Issuance of a Writ of Amparo in the Regional Trial
Court of Manila.2 This case was docketed as In the Matter of the Petition for Issuance
of Writ of Amparo of Atty. Magtanggol B. Gatdula, SP No. 12-127405. It was raffled to
the sala of Judge Silvino T. Pampilo, Jr. on the same day.
The Amparo was directed against petitioners Justice Secretary Leila M. De Lima,
Director Nonnatus R. Rojas and Deputy Director Reynaldo O. Esmeralda of the
National Bureau of Investigation (DE LIMA, ET AL. for brevity). Gatdula wanted De
Lima, et al. "to cease and desist from framing up Petitioner [Gatdula] for the fake
ambush incident by filing bogus charges of Frustrated Murder against Petitioner
[Gatdula] in relation to the alleged ambush incident."3
Instead of deciding on whether to issue a Writ of Amparo, the judge issued summons
and ordered De Lima, et al. to file an Answer.4 He also set the case for hearing on 1
March 2012. The hearing was held allegedly for determining whether a temporary
protection order may be issued. During that hearing, counsel for De Lima, et al.
manifested that a Return, not an Answer, is appropriate for Amparo cases.5
In an Order dated 2 March 2012,6 Judge Pampilo insisted that "[s]ince no writ has
been issued, return is not the required pleading but answer".7 The judge noted that
the Rules of Court apply suppletorily in Amparo cases.8 He opined that the Revised
Rules of Summary Procedure applied and thus required an Answer.9
Judge Pampilo proceeded to conduct a hearing on the main case on 7 March
2012.10 Even without a Return nor an Answer, he ordered the parties to file their
respective memoranda within five (5) working days after that hearing. Since the
period to file an Answer had not yet lapsed by then, the judge also decided that the
memorandum of De Lima, et al. would be filed in lieu of their Answer.11
On 20 March 2012, the RTC rendered a "Decision" granting the issuance of the Writ
of Amparo. The RTC also granted the interim reliefs prayed for, namely: temporary
protection, production and inspection orders. The production and inspection orders
were in relation to the evidence and reports involving an on-going investigation of the
attempted assassination of Deputy Director Esmeralda. It is not clear from the
records how these pieces of evidence may be related to the alleged threat to the life,
liberty or security of the respondent Gatdula.
In an Order dated 8 October 2012, the RTC denied the Motion for
Reconsideration dated 23 March 2012 filed by De Lima, et al.
Petitioners Sec. De Lima, et al. thus came to this Court assailing the RTC
"Decision" dated 20 March 2012 through a Petition for Review on Certiorari (With
Very Urgent Application for the Issuance of a Temporary Restraining Order/Writ of
Preliminary Injunction) via Rule 45, as enunciated in Section 19 of the Rule on the
Writ of Amparo (A.M. No. 07-9- 12-SC, 25 September 2007), viz:
petition.24 Unlike an Answer, the Return has other purposes aside from
identifying the issues in the case. Respondents are also required to detail the
actions they had taken to determine the fate or whereabouts of the aggrieved
party.
If the respondents are public officials or employees, they are also required to
state the actions they had taken to: (i) verify the identity of the aggrieved party;
(ii) recover and preserve evidence related to the death or disappearance of the
person identified in the petition; (iii) identify witnesses and obtain statements
concerning the death or disappearance; (iv) determine the cause, manner,
location, and time of death or disappearance as well as any pattern or practice
that may have brought about the death or disappearance; and (vi) bring the
suspected offenders before a competent court.25 Clearly these matters are
important to the judge so that s/he can calibrate the means and methods that
will be required to further the protections, if any, that will be due to the
petitioner.
There will be a summary hearing26 only after the Return is filed to determine
the merits of the petition and whether interim reliefs are warranted. If the
Return is not filed, the hearing will be done ex parte.27 After the hearing, the
court will render the judgment within ten (10) days from the time the petition is
submitted for decision.28
The confusion of the parties arose due to the procedural irregularities in the RTC.
First, the insistence on filing of an Answer was inappropriate. It is the Return that
serves as the responsive pleading for petitions for the issuance of Writs of Amparo.
The requirement to file an Answer is contrary to the intention of the Court to provide a
speedy remedy to those whose right to life, liberty and security are violated or are
threatened to be violated. In utter disregard of the Rule on the Writ of Amparo, Judge
Pampilo insisted on issuing summons and requiring an Answer.
Judge Pampilo’s basis for requiring an Answer was mentioned in his Order dated 2
March 2012:
Under Section 25 of the same rule [on the Writ of Amparo], the Rules of Court shall
apply suppletorily insofar as it is not inconsistent with the said rule.
Considering the summary nature of the petition, Section 5 of the Revised Rules of
Summary Procedure shall apply.
Section 5. Answer – Within ten (10) days from service of summons, the defendant
shall file his Answer to the complaint and serve a copy thereof on the plaintiff. x x x

SEC. 19. Appeal. – Any party may appeal from the final judgment or order to the
Supreme Court under Rule 45. The appeal may raise questions of fact or law or both.
x x x (Emphasis supplied).
It is the Court’s view that the "Decision" dated 20 March 2012 granting the writ
of Amparo is not the judgment or final order contemplated under this rule. Hence, a
Petition for Review under Rule 45 may not yet be the proper remedy at this time.
The RTC and the Parties must understand the nature of the remedy of Amparo to put
its procedures in the proper context.
The remedy of the Writ of Amparo is an equitable and extraordinary remedy to
safeguard the right of the people to life, liberty12 and security13 as enshrined in the
1987 Constitution.14 The Rule on the Writ of Amparo was issued as an exercise of
the Supreme Court's power to promulgate rules concerning the protection and
enforcement of constitutional rights.15 It aims to address concerns such as, among
others, extrajudicial killings and enforced disappearances.16
If the allegations are proven with substantial evidence, the court shall grant the WHEREFORE, based on the foregoing, the respondents are required to file their
Answer ten (days) from receipt of this Order.33
privilege of the writ and such reliefs as may be proper and appropriate.29 The
judgment should contain measures which the judge views as essential for the
continued protection of the petitioner in the Amparo case. These measures
The 1991 Revised Rules of Summary Procedure is a special rule that the Court has
must be detailed enough so that the judge may be able to verify and monitor
devised for the following circumstances:
the actions taken by the respondents. It is this judgment that could be subject
to appeal to the Supreme Court via Rule 45.30 After the measures have served
their purpose, the judgment will be satisfied. In Amparo cases, this is when the SECTION 1. Scope. – This rule shall govern the summary procedure in the
threats to the petitioner’s life, liberty and security cease to exist as evaluated Metropolitan Trial Courts, the Municipal Trial Courts in Cities, the Municipal Trial
by the court that renders the judgment. Parenthetically, the case may also be Courts, and the Municipal Circuit Trial Courts in the following cases falling within their
terminated through consolidation should a subsequent case be filed – either jurisdiction:
criminal or civil.31 Until the full satisfaction of the judgment, the extraordinary
remedy of Amparo allows vigilant judicial monitoring to ensure the protection of
constitutional rights. A. Civil Cases:
The "Decision" dated 20 March 2012 assailed by the petitioners could not (1) All cases of forcible entry and unlawful detainer, x x x.
be the judgment or final order that is appealable under Section 19 of the Rule
on the Writ of Amparo. This is clear from the tenor of the dispositive portion of (2) All other cases, except probate proceedings, where the total amount of the
the "Decision", to wit: plaintiff’s claim does not exceed x x x.

Due to the delicate and urgent nature of these controversies, the procedure was
devised to afford swift but decisive relief.17 It is initiated through a petition18 to be
filed in a Regional Trial Court, Sandiganbayan, the Court of Appeals, or the Supreme
Court.19 The judge or justice then makes an "immediate" evaluation20 of the facts as
alleged in the petition and the affidavits submitted "with the attendant circumstances
detailed".21 After evaluation, the judge has the option to issue the
Writ of Amparo22 or immediately dismiss the case. Dismissal is proper if the petition
and the supporting affidavits do not show that the petitioner's right to life, liberty or
security is under threat or the acts complained of are not unlawful. On the other hand,
the issuance of the writ itself sets in motion presumptive judicial protection for the
petitioner. The court compels the respondents to appear before a court of law to
show whether the grounds for more permanent protection and interim reliefs are
necessary.
The respondents are required to file a Return23 after the issuance of the writ through
the clerk of court. The Return serves as the responsive pleading to the
The Branch Clerk of Court of Court [sic] is hereby DIRECTED to issue the Writ B. Criminal Cases:
of Amparo.
(1) Violations of traffic laws, rules and regulations;
Likewise, the Branch Clerk of Court is hereby DIRECTED to effect the service
of the Writ of Amparo in an expeditious manner upon all concerned, and for
this purpose may call upon the assistance of any military or civilian agency of (2) Violations of the rental law;
the government.
(3) Violations of municipal or city ordinances;
This "Decision" pertained to the issuance of the writ under Section 6 of the
Rule on the Writ of Amparo, not the judgment under Section 18. The
(4) All other criminal cases where the penalty prescribed by law for the offense
"Decision" is thus an interlocutory order, as suggested by the fact that
charged is imprisonment not exceeding six months, or a fine not exceeding one
temporary protection, production and inspection orders were given together
thousand pesos (P1,000.00), or both, x x x.
with the decision. The temporary protection, production and inspection orders
are interim reliefs that may be granted by the court upon filing of the petition
but before final judgment is rendered.32 xxxx
It is clear from this rule that this type of summary procedure only applies to
MTC/MTCC/MCTCs. It is mind-boggling how this rule could possibly apply to
proceedings in an RTC. Aside from that, this Court limited the application of summary
procedure to certain civil and criminal cases. A writ of Amparo is a special
proceeding. It is a remedy by which a party seeks to establish a status, a right or
particular fact.34 It is not a civil nor a criminal action, hence, the application of the
Revised Rule on Summary Procedure is seriously misplaced.
The second irregularity was the holding of a hearing on the main case prior to the
issuance of the writ and the filing of a Return. Without a Return, the issues could not
have been properly joined.
Worse, is the trial court’s third irregularity: it required a memorandum in lieu of a
responsive pleading (Answer) of De Lima, et al.
The Return in Amparo cases allows the respondents to frame the issues subject to a
hearing. Hence, it should be done prior to the hearing, not after. A memorandum, on
the other hand, is a synthesis of the claims of the party litigants and is a final pleading
usually required before the case is submitted for decision. One cannot substitute for
the other since these submissions have different functions in facilitating the suit.
More importantly, a memorandum is a prohibited pleading under the Rule on the Writ
of Amparo.35
The fourth irregularity was in the "Decision" dated 20 March 2012 itself. In the body of
its decision, the RTC stated:
"Accordingly this court GRANTS the privilege of the writ and
the interim reliefs prayed for by the petitioner." (Emphasis supplied).
This gives the impression that the decision was the judgment since the phraseology
is similar to Section 18 of the Rule on the Writ of Amparo:
"SEC. 18. Judgment. — The court shall render judgment within ten (10) days from
the time the petition is submitted for decision. If the allegations in the petition are
proven by substantial evidence, the court shall grant the privilege of the writ and
such reliefs as may be proper and appropriate; otherwise, the privilege shall be
denied." (Emphasis supplied).
The privilege of the Writ of Amparo should be distinguished from the actual
order called the Writ of Amparo. The privilege includes availment of the entire
procedure outlined in A.M. No. 07-9-12-SC, the Rule on the Writ of Amparo. After
examining the petition and its attached affidavits, the Return and the evidence
presented in the summary hearing, the judgment should detail the required acts from
the respondents that will mitigate, if not totally eradicate, the violation of or the threat
to the petitioner's life, liberty or security.
A judgment which simply grants "the privilege of the writ" cannot be
executed.1âwphi1 It is tantamount to a failure of the judge to intervene and grant
judicial succor to the petitioner. Petitions filed to avail of the privilege of the Writ
of Amparo arise out of very real and concrete circumstances. Judicial responses
cannot be as tragically symbolic or ritualistic as "granting the privilege of the Writ
of Amparo."
The procedural irregularities in the RTC affected the mode of appeal that
petitioners used in elevating the matter to this Court.
It is the responsibility of counsels for the parties to raise issues using the
proper procedure at the right time. Procedural rules are meant to assist the
parties and courts efficiently deal with the substantive issues pertaining to a
case. When it is the judge himself who disregards the rules of procedure, delay
and confusion result.
The Petition for Review is not the proper remedy to assail the interlocutory
order denominated as "Decision" dated 20 March 2012. A Petition for
Certiorari, on the other hand, is prohibited.36 Simply dismissing the present
petition, however, will cause grave injustice to the parties involved. It
undermines the salutary purposes for which the Rule on the Writ
of Amparo were promulgated.
In many instances, the Court adopted a policy of liberally construing its rules in
order to promote a just, speedy and inexpensive disposition of every action
and proceeding.37 The rules can be suspended on the following grounds: (1)
matters of life, liberty, honor or property, (2) the existence of special or
compelling circumstances, (3) the merits of the case, (4) a cause not entirely
attributable to the fault or negligence of the party favored by the suspension of
the rules, (5) a lack of any showing that the review sought is merely frivolous
and dilatory, and (6) the other party will not be unjustly prejudiced thereby.38
WHEREFORE, in the interest of justice, as a prophylactic to the irregularities
committed by the trial court judge, and by virtue of its powers under Article VIII,
Section 5 (5) of the Constitution, the Court RESOLVES to:
(1) NULLIFY all orders that are subject of this Resolution issued by Judge
Silvino T. Pampilo, Jr. after respondent Gatdula filed the Petition for the
Issuance of a Writ of Amparo;
(2) DIRECT Judge Pampilo to determine within forty-eight (48) hours from his
receipt of this Resolution whether the issuance of the Writ of Amparo is proper
on the basis of the petition and its attached affidavits.
The Clerk of Court is DIRECTED to cause the personal service of
this Resolution on Judge Silvino T. Pampilo, Jr. of Branch 26 of the Regional
Trial Court of Manila for his proper guidance together with a WARNING that
further deviation or improvisation from the procedure set in A.M. No.
07-9-12-SC shall be meted with severe consequences.
Rule of Procedure for Small Claims Cases
AL. Ang v. Mondejar, G.R. No. 200804, January 22, 2014
This is a direct recourse1 to the Court from the Decision2 dated November 23,
2011and Order3 dated February 16, 2012 of the Regional Trial Court of
Bacolod City, Branch 45 (RTC) in RTC Case No. 11-13833 which dismissed,
on the ground of improper remedy, petitioner A.L. Ang Network, Inc.'s
(petitioner) petition for certiorari from the Decision4 dated June 10, 2011 of the
Municipal Trial Court in Cities of Bacolod City, Branch 4 (MTCC) in Civil Case
No. SCC-1436, a small claims case for sum of money against respondent
Emma Mondejar (respondent).
The Facts
On March 23, 2011, petitioner filed a complaint5 for sum of money under the Rule of
Procedure for Small Claims Cases6 before the MTCC, seeking to collect from
respondent the amount of ₱23,111.71 which represented her unpaid water bills for
the period June 1, 2002 to September 30, 2005.7
Petitioner claimed that it was duly authorized to supply water to and collect payment
therefor from the homeowners of Regent Pearl Subdivision, one of whom is
respondent who owns and occupies Lot 8, Block 3 of said subdivision. From June 1,
2002 until September 30, 2005, respondent and her family consumed a total of 1,150
cubic meters (cu. m.) of water, which upon application of the agreed rate of ₱113.00
for every 10 cu. m. of water, plus an additional charge of ₱11.60 for every additional
cu. m. of water, amounted to ₱28,580.09.8 However, respondent only paid the
amount of ₱5,468.38, thus, leaving a balance of ₱23,111.71 which was left unpaid
despite petitioner’s repeated demands.9
In defense, respondent contended that since April 1998 up to February 2003, she
religiously paid petitioner the agreed monthly flat rate of ₱75.00 for her water
consumption. Notwithstanding their agreement that the same would be adjusted only
upon prior notice to the homeowners, petitioner unilaterally charged her
unreasonable and excessive adjustments (at the average of 40 cu. m. of water per
month or 1.3 cu. m. of water a day) far above the average daily water consumption
for a household of only 3 persons. She also questioned the propriety and/or basis of
the aforesaid ₱23,111.71 claim.10
In the interim, petitioner disconnected respondent’s water line for not paying the
adjusted water charges since March 2003 up to August 2005.11
The MTCC Ruling
On June 10, 2011, the MTCC rendered a Decision12 holding that since petitioner was
issued a Certificate of Public Convenience (CPC)13 by the National Water
Resources Board (NWRB) only on August 7, 2003, then, it can only charge
respondent the agreed flat rate of ₱75.00 per month prior thereto or the sum of
₱1,050.00 for the period June 1, 2002 to August 7, 2003. Thus, given that respondent
had made total payments equivalent to ₱1,685.99 for the same period, she should be
considered to have fully paid petitioner.14
The MTCC disregarded petitioner’s reliance on the Housing and Land Use
Regulatory Board’s (HLURB) Decision15dated August 17, 2000 in HLURB Case No.
REM C6-00-001 entitled Nollie B. Apura, et al. v. Dona Carmen I Subdivision, et al.,
as source of its authority to impose new water consumption rates for water consumed
from June 1, 2002 to August 7, 2003 in the absence of proof (a) that petitioner
complied with the directive to inform the HLURB of the result of its consultation with
the concerned homeowners as regards the rates to be charged, and (b) that the
HLURB approved of the same.16
Moreover, the MTCC noted that petitioner failed to submit evidence showing (a) the
exact date when it actually began imposing the NWRB approved rates; and (b) that
the parties had a formal agreement containing the terms and conditions thereof,
without which it cannot establish with certainty respondent’s obligation.17 Accordingly,
it ruled that the earlier agreed rate of ₱75.00 per month should still be the basis for
respondent’s water consumption charges for the period August 8, 2003 to September
30, 2005.18 Based on petitioner’s computation, respondent had only paid ₱300.00 of
her ₱1,500.00 obligation for said period. Thus, it ordered respondent to pay petitioner
the balance thereof, equivalent to ₱1,200.00 with legal interest at the rate of 6% per
annum from date of receipt of the extrajudicial demand on October 14, 2010 until fully
paid.19
Aggrieved, petitioner filed a petition for certiorari20 under Rule 65 of the Rules of
Court before the RTC, ascribing grave abuse of discretion on the part of the MTCC in
finding that it (petitioner) failed to establish with certainty respondent’s obligation, and
in not ordering the latter to pay the full amount sought to be collected.
The RTC Ruling
On November 23, 2011, the RTC issued a Decision21 dismissing the petition for
certiorari, finding that the said petition was only filed to circumvent the
non-appealable nature of small claims cases as provided under Section 2322of the
Rule of Procedure on Small Claims Cases. To this end, the RTC ruled that it cannot
supplant the decision of the MTCC with another decision directing respondent to pay
petitioner a bigger sum than that which has been awarded.
Petitioner moved for reconsideration23 but was denied in an Order24 dated February
16, 2012, hence, the instant petition.
The Issue Before the Court
The sole issue in this case is whether or not the RTC erred in dismissing petitioner’s
recourse under Rule 65 of the Rules of Court assailing the propriety of the MTCC
Decision in the subject small claims case.
The Court’s Ruling
The petition is meritorious.
Section 23 of the Rule of Procedure for Small Claims Cases states that:
SEC. 23. Decision. — After the hearing, the court shall render its decision on the
same day, based on the facts established by the evidence (Form 13-SCC). The
decision shall immediately be entered by the Clerk of Court in the court docket for
civil cases and a copy thereof forthwith served on the parties.
The decision shall be final and unappealable.
Considering the final nature of a small claims case decision under the above-stated
rule, the remedy of appeal is not allowed, and the prevailing party may, thus,
immediately move for its execution.25 Nevertheless, the proscription on appeals in
small claims cases, similar to other proceedings where appeal is not an available
remedy,26 does not preclude the aggrieved party from filing a petition for certiorari
under Rule 65 of the Rules of Court. This general rule has been enunciated in the
case of Okada v. Security Pacific Assurance Corporation,27 wherein it was held that:
In a long line of cases, the Court has consistently ruled that "the extraordinary writ of
certiorari is always available where there is no appeal or any other plain, speedy and
adequate remedy in the ordinary course of law." In Jaca v. Davao Lumber Co., the
Court ruled:
x x x Although Section 1, Rule 65 of the Rules of Court provides that the special civil
action of certiorari may only be invoked when "there is no appeal, nor any plain,
speedy and adequate remedy in the course of law," this rule is not without WHEREFORE, the petition is GRANTED. The Decision dated November 23, 2011
exception. The availability of the ordinary course of appeal does not constitute and Resolution dated February 16, 2012 of the Regional Trial Court of Bacolod City,
sufficient ground to prevent a party from making use of the extraordinary Branch 45 are REVERSED and SET ASIDE. RTC Case No. 11-13833 is hereby
remedy of certiorari where appeal is not an adequate remedy or equally REINSTATED and the court a quo is ordered to resolve the same with dispatch.
beneficial, speedy and sufficient. It is the inadequacy – not the mere absence –
of all other legal remedies and the danger of failure of justice without the writ
that usually determines the propriety of certiorari.
This ruling was reiterated in Conti v. Court of Appeals:
Truly, an essential requisite for the availability of the extraordinary remedies
under the Rules is an absence of an appeal nor any "plain, speedy and
adequate remedy" in the ordinary course of law, one which has been so
defined as a "remedy which (would) equally (be) beneficial, speedy and
sufficient not merely a remedy which at some time in the future will bring about
a revival of the judgment x x x complained of in the certiorari proceeding, but a
remedy which will promptly relieve the petitioner from the injurious effects of
that judgment and the acts of the inferior court or tribunal" concerned. x x x
(Emphasis supplied)
In this relation, it may not be amiss to placate the RTC’s apprehension that
respondent’s recourse before it (was only filed to circumvent the
non-appealable nature of [small claims cases], because it asks [the court] to
supplant the decision of the lower [c]ourt with another decision directing the
private respondent to pay the petitioner a bigger sum than what has been
awarded."28 Verily, a petition for certiorari, unlike an appeal, is an original
action29 designed to correct only errors of jurisdiction and not of judgment.
Owing to its nature, it is therefore incumbent upon petitioner to establish that
jurisdictional errors tainted the MTCC Decision. The RTC, in turn, could either
grant or dismiss the petition based on an evaluation of whether or not the
MTCC gravely abused its discretion by capriciously, whimsically, or arbitrarily
disregarding evidence that is material to the controversy.30
In view of the foregoing, the Court thus finds that petitioner correctly availed of
the remedy of certiorari to assail the propriety of the MTCC Decision in the
subject small claims case, contrary to the RTC’s ruling.
Likewise, the Court finds that petitioner filed the said petition before the proper
forum (i.e., the RTC).1âwphi1 To be sure, the Court, the Court of Appeals and
the Regional Trial Courts have concurrent jurisdiction to issue a writ of
certiorari.31Such concurrence of jurisdiction, however, does not give a party
unbridled freedom to choose the venue of his action lest he ran afoul of the
doctrine of hierarchy of courts. Instead, a becoming regard for judicial
hierarchy dictates that petitions for the issuance of writs of certiorari against
first level courts should be filed with the Regional Trial Court, and those
against the latter, with the Court of Appeals, before resort may be had before
the Court.32 This procedure is also in consonance with Section 4, Rule 65 of
the Rules of Court.33
Hence, considering that small claims cases are exclusively within the
jurisdiction of the Metropolitan Trial Courts, Municipal Trial Courts in Cities,
Municipal Trial Courts, and Municipal Circuit Trial Courts,34 certiorari petitions
assailing its dispositions should be filed before their corresponding Regional
Trial Courts. This petitioner complied with when it instituted its petition for
certiorari before the RTC which, as previously mentioned, has jurisdiction over
the same. In fine, the RTC erred in dismissing the said petition on the ground
that it was an improper remedy, and, as such, RTC Case No. 11-13833 must
be reinstated and remanded thereto for its proper disposition.

RULE 6- KINDS OF PLEADINGS
Sec. 1. Pleadings defined
Section 1. Pleadings defined. — Pleadings are the written statements of the
respective claims and defenses of the parties submitted to the court for
appropriate judgment.
Sec. 2. Pleadings allowed
Section 2. Pleadings allowed. — The claims of a party are asserted in a
complaint, counterclaim, cross-claim, third (fourth, etc.)-party complaint, or
complaint-in-intervention.
The defenses of a party are alleged in the answer to the pleading asserting a
claim against him.
An answer may be responded to by a reply.
Sec. 3. Complaint
Section 3. Complaint. — The complaint is the pleading alleging the plaintiff's
cause or causes of action. The names and residences of the plaintiff and
defendant must be stated in the complaint.
Sec. 4. Answer
Section 4. Answer. — An answer is a pleading in which a defending party sets
forth his defenses.
See: Rule 8, Sec. 10
Section 10. Specific denial. — A defendant must specify
each material allegation of fact the truth of which he does
not admit and, whenever practicable, shall set forth the
substance of the matters upon which he relies to support
his denial. Where a defendant desires to deny only a part
of an averment, he shall specify so much of it as is true
and material and shall deny only the remainder. Where a
defendant is without knowledge or information sufficient
to form a belief as to the truth of a material averment
made to the complaint, he shall so state, and this shall
have the effect of a denial.
Rule 16, Sec. 6
Section 6. Pleading grounds as affirmative defenses. —
If no motion to dismiss has been filed, any of the grounds
for dismissal provided for in this Rule may be pleaded as
an affirmative defense in the answer and, in the
discretion of the court, a preliminary hearing may be had
thereon as if a motion to dismiss had been filed. (5a)
The dismissal of the complaint under this section shall be
without prejudice to the prosecution in the same or
separate action of a counterclaim pleaded in the answer.
PBCom v. Spouses Go, G.R. No. 175514, February 14, 2011
This is a petition for review on certiorari under Rule 45 filed by
petitioner Philippine Bank of Communications (PBCom) seeking to set aside
the July 28, 2006 Decision,[1] and the November 27, 2006 Resolution[2] of the
Court of Appeals (CA) in CA G.R. CV No. 77714. The CA decision reversed
and set aside the January 25, 2002 Decision of the Regional Trial Court,
Branch 42, Manila (RTC), which granted the motion for summary judgment
and rendered judgment on the basis of the pleadings and attached documents.
THE FACTS
On September 30, 1999, respondent Jose C. Go (Go) obtained
two loans from PBCom, evidenced by two promissory notes, embodying his
commitment to pay P17,982,222.22 for the first loan, and P80 million for the
second loan, within a ten-year period from September 30, 1999 to September
30, 2009.[3]
To secure the two loans, Go executed two (2) pledge agreements,
both dated September 29, 1999, covering shares of stock in Ever Gotesco
Resources and Holdings, Inc. The first pledge, valued at P27,827,122.22, was
to secure payment of the first loan, while the second pledge, valued
at P70,155,100.00, was to secure the second loan.[4]
Two years later, however, the market value of the said shares of
stock plunged to less than P0.04 per share. Thus, PBCom, as pledgee,
notified Go in writing on June 15, 2001, that it was renouncing the pledge
agreements.[5]
[6]
Later, PBCom filed before the RTC a complaint for sum of money
with prayer for a writ of preliminary attachment against Go and his wife, Elvy T.
Go (Spouses Go), docketed as Civil Case No. 01-101190. PBCom alleged that
Spouses Go defaulted on the two (2) promissory notes, having paid only three
(3) installments on interest paymentscovering the months of September,
November and December 1999. Consequently, the entire balance of the
obligations of Go became immediately due and demandable. PBCom made
repeated demands upon Spouses Go for the payment of said obligations, but
the couple imposed conditions on the payment, such as the lifting of
garnishment effected by the Bangko Sentral ng Pilipinas (BSP) on Gos
accounts.[7]
Spouses Go filed their Answer with Counterclaim [8] denying the
material allegations in the complaint and stating, among other matters, that:
8. The promissory note referred
to in the complaint expressly state that the loan
obligation is payable within the period of ten (10) years.
Thus, from the execution date of September 30, 1999,
its due date falls on September 30, 2009 (and not
2001 as erroneously stated in the complaint). Thus,
prior to September 30, 2009, the loan obligations
cannot be deemed due and demandable.
In conditional obligations, the acquisition of rights,
as well as the extinguishment or loss of those already
acquired, shall depend upon the happening of the event
which constitutes the condition. (Article 1181, New Civil
Code)
9. Contrary to the plaintiffs proferrence,
defendant Jose C. Go had made substantial payments in
terms of his monthly payments. There is, therefore, a need to
do some accounting works (sic) to reconcile the records of
both parties.
10. While demand is a necessary
requirement to consider the defendant to be in delay/default,
such has not been complied with by the plaintiff since the
former is not aware of any demand made to him by the latter
for the settlement of the whole obligation.
11. Undeniably, at the time the pledge of
the shares of stock were executed, their total value is more
than the amount of the loan or at the very least, equal to it.
Thus, plaintiff was fully secured insofar as its exposure is
concerned.
12. And even assuming without
conceding, that the present value of said shares x x x went
down, it cannot be considered as something permanent
since the prices of stocks in the market either increases (sic)
or decreases (sic) depending on the market forces. Thus, it
is highly speculative for the plaintiff to consider said shares
to have suffered tremendous decrease in its value. More so,
it is unfair for the plaintiff to renounce or abandon the pledge
agreements.
On September 28, 2001, PBCom filed a verified motion for summary
judgment[9] anchored on the following grounds:
I. MATERIAL AVERMENTS OF THE
COMPLAINT ADMITTED BY DEFENDANT-SPOUSES IN
THEIR ANSWER TO OBVIATE THE NECESSITY OF TRIAL
II. NO REAL DEFENSES AND NO
GENUINE ISSUES AS TO ANY MATERIAL FACT WERE
TENDERED BY THE DEFENDANT-SPOUSES IN THEIR
ANSWER
III. PLANTIFFS CAUSES OF ACTIONS
ARE SUPPORTED BY VOLUNTARY ADMISSIONS AND
AUTHENTIC DOCUMENTS WHICH MAY NOT BE
CONTRADICTED.[10]
PBCom contended that the Answer interposed no specific denials on the material
averments in paragraphs 8 to 11 of the complaint such as the fact of default, the
entire amount being already due and demandable by reason of default, and the fact
that the bank had made repeated demands for the payment of the obligations.[11]
Spouses Go opposed the motion for summary judgment arguing that they had
tendered genuine factual issues calling for the presentation of evidence.[12]
The RTC granted PBComs motion in its Judgment[13] dated January 25, 2002, the
dispositive portion of which states:
WHEREFORE, in view of all the foregoing,
judgment is rendered for the plaintiff and against the
defendants ordering them to pay plaintiff jointly and severally
the following:
 II On the matter of specific denial, Spouses Go posit that the Court decisions cited by
1. The total amount PBCom[32] do not apply on all fours in this case. Moreover, the substance of the
of P117,567,779.75, plus WHETHER THE COURT OF APPEALS ERRED OR repayment schedule was not set forth in the complaint. It, therefore, follows that the
interests and penalties as ACTED IN GRAVE ABUSE OF JURISDICTION act of attaching copies to the complaint is insufficient to secure an implied
stipulated in the two promissory [DISCRETION] IN HOLDING THAT ISSUES WERE admission. Assuming arguendo that it was impliedly admitted, the existence of said
notes; RAISED ABOUT THE FACT OF DEFAULT, THE schedule and the promissory notes would not immediately make private respondents
AMOUNT OF THE OBLIGATION, AND THE liable for the amount claimed by PBCom.[33] Before respondents may be held liable, it
2. A sum equivalent to 10% of the EXISTENCE OF PRIOR DEMAND, EVEN WHEN must be established, first, that they indeed defaulted; and second, that the obligations
amount involved in this case, by THE PLEADING CLEARLY POINTS TO THE has remained outstanding.[34]
way of attorneys fees; and CONTRARY.
Spouses Go also state that although they admitted paragraphs 3, 4 and 7
3. The costs of suit. PETITONER PBCOM’S POSITION: SUMMARY JUDGMENT of the Complaint, the fact of default, the amount of outstanding obligation and the
WAS PROPER AS THERE WERE NO GENUINE ISSUES existence of prior demand were fully questioned in the special and affirmative
SO ORDERED.[14] RIASED AS TO ANY MATERIAL FACT defenses.[35]

RULING OF THE COURT

Spouses Go moved for a reconsideration but the motion was denied in an
order[15] dated March 20, 2002.
RULING OF THE COURT OF APPEALS
In its Decision dated July 28, 2006, the CA reversed and set aside the assailed
judgment of the RTC, denied PBComs motion for summary judgment, and ordered
the remand of the records to the court of origin for trial on the merits. The dispositive
portion of the decision states:
WHEREFORE, premises considered, the assailed
judgment of the Regional Trial Court, Branch 42 of Manila in
Civil Case No. 01-101190 is hereby REVERSED and SET
ASIDE, and a new one entered denying plaintiff-appellees
motion for summary judgment. Accordingly, the records of
the case are hereby remanded to the court of origin for trial
on the merits.
[16]
SO ORDERED.
The CA could not agree with the conclusion of the RTC that Spouses Go admitted
paragraphs 3, 4 and 7 of the complaint. It found the supposed admission to be
insufficient to justify a rendition of summary judgment in the case for sum of money,
since there were other allegations and defenses put up by Spouses Go in their
Answer which raised genuine issues on the material facts in the action.[17]
The CA agreed with Spouses Go that paragraphs 3 and 4 of the complaint merely
dwelt on the fact that a contract of loan was entered into by the parties, while
paragraph 7 simply emphasized the terms of the promissory notes executed by Go in
favor of PBCom. The fact of default, the amount of the outstanding obligation, and
the existence of a prior demand, which were all material to PBComs claim, were
hardly admitted[18] by Spouses Go in their Answer and were, in fact, effectively
questioned in the other allegations in the Answer.[19]
PBComs motion for reconsideration was denied in a resolution[20] dated November
27, 2006.
Thus, this petition for review.
THE ISSUES
I The core contention of Spouses Go is that summary judgment was not proper
WHETHER THE COURT OF APPEALS ERRED OR
ACTED IN GRAVE ABUSE OF DISCRETION AMOUNTING
TO LACK, OR EXCESS OF JURISDICTION IN RULING
THAT THERE EXISTS A GENUINE ISSUE AS TO
MATERIAL FACTS IN THE ACTION IN SPITE OF THE
UNEQUIVOCAL ADMISSIONS MADE IN THE PLEADINGS
BY RESPONDENTS; AND
PBCom argues that the material averments in the complaint categorically
admitted by Spouses Go obviated the necessity of trial. In their Answer,
Spouses Go admitted the allegations in paragraphs 3 and 4 of the Complaint
pertaining to the security for the loans and the due execution of the promissory
notes,[21] and those in paragraph 7 which set forth the acceleration clauses in
the promissory note. Their denial of paragraph 5 of the Complaint pertaining to
the Schedules of Payment for the liquidation of the two promissory notes did not
constitute a specific denial required by the Rules.[22]
Even in the Comment[23] of Spouses Go, the clear, categorical and unequivocal
admission of paragraphs 3, 4, and 7 of the Complaint had been conceded.[24]
PBCom faults the CA for having formulated non-existent issues
pertaining to the fact of default, the amount of outstanding obligation and the
existence of prior demand, none of which is borne by the pleadings or the
records.[25]
The Spouses Go, PBCom argues, cannot negate or override the
legal effect of the acceleration clauses embodied in each of the two promissory
notes executed by Go. Moreover, the non-payment of arrearages constituting
default was admitted by Go in his letters to PBCom dated March 3 and April 7,
2000, respectively.[26]Therefore, by such default, they have lost the benefit of
the period in their favor, pursuant to Article 1198[27] of the Civil Code.
Further, PBCom claims that its causes of action are supported by
authentic documents and voluntary admissions which cannot be
contradicted. It cites the March 3 and April 7, 2000 letters of Go requesting
deferment of interest payments on his past due loan obligations to PBCom, as
his assets had been placed under attachment in a case filed by the
BSP.[28] PBCom emphasizes that the said letters, in addition to its letters of
demand duly acknowledged and received by Go, negated their claim that they
were not aware of any demand having been made.[29]
RESPONDENT SPOUSES POSITION: SUMMARY JUDGMENT WAS NOT
PROPER
under the attendant circumstances, as there exist genuine issues with respect
to the fact of default, the amount of the outstanding obligation, and the
existence of prior demand, which were duly questioned in the special and
affirmative defenses set forth in the Answer. Spouses Go agree with the CA
that the admissions in the pleadings pertained to the highlight of the terms of
the contract. Such admissions merely recognized the existence of the contract
of loan and emphasized its terms and conditions.[30] Moreover, although they
admitted paragraphs 3, 4, and 7, the special and affirmative defenses
contained in the Answer tendered genuine issues which could only be resolved
in a full-blown trial.[31]
The Court agrees with the CA that [t]he supposed admission of defendants-appellants
on the x x x allegations in the complaint is clearly not sufficient to justify the rendition
of summary judgment in the case for sum of money, considering that there are other
allegations embodied and defenses raised by the defendants-appellants in their
answer which raise a genuine issue as to the material facts in the action.[36]
The CA correctly ruled that there exist genuine issues as to three material facts, which
have to be addressed during trial: first, the fact of default; second, the amount of the
outstanding obligation, and third, the existence of prior demand.
Under the Rules, following the filing of pleadings, if, on motion of a party and after
hearing, the pleadings, supporting affidavits, depositions and admissions on file show
that, except as to the amount of damages, there is no genuine issue as to any material
fact, and that the moving party is entitled to a judgment as a matter of law,[37] summary
judgment may be rendered. This rule was expounded in Asian Construction and
Development Corporation v. Philippine Commercial International Bank,[38] where it
was written:
Under Rule 35 of the 1997 Rules of Procedure,
as amended, except as to the amount of damages, when
there is no genuine issue as to any material fact and the
moving party is entitled to a judgment as a matter of law,
summary judgment may be allowed.[39] Summary or
accelerated judgment is a procedural technique aimed at
weeding out sham claims or defenses at an early stage of
litigation thereby avoiding the expense and loss of time
involved in a trial.[40]
Under the Rules, summary judgment is
appropriate when there are no genuine issues of fact which
call for the presentation of evidence in a full-blown trial. Even
if on their face the pleadings appear to raise issues, when
the affidavits, depositions and admissions show that such
issues are not genuine, then summary judgment as
prescribed by the Rules must ensue as a matter of law. The
determinative factor, therefore, in a motion for summary
judgment, is the presence or absence of a genuine issue as
to any material fact.
A genuine issue is an issue of fact which
requires the presentation of evidence as distinguished from a
sham, fictitious, contrived or false claim. When the facts as
pleaded appear uncontested or undisputed, then there is no
real or genuine issue or question as to the facts, and
summary judgment is called for. The party who moves for
summary judgment has the burden of demonstrating clearly
the absence of any genuine issue of fact, or that the issue
posed in the complaint is patently unsubstantial so as not to
constitute a genuine issue for trial. Trial courts have limited
authority to render summary judgments and may do so only
when there is clearly no genuine issue as to any material
 fact. When the facts as pleaded by the parties are disputed 2. That plaintiffs
or contested, proceedings for summary judgment cannot are the actual and joint
take the place of trial.[41] (Underscoring supplied.) occupants and in prior
continuous physical
Juxtaposing the Complaint and the Answer discloses that the material facts here possession since 1975 up
are not undisputed so as to call for the rendition of a summary judgment. While the to Nov. 28, 1993 of a certain
denials of Spouses Go could have been phrased more strongly or more emphatically, commercial compound
and the Answer more coherently and logically structured in order to overthrow any described as follows:
shadow of doubt that such denials were indeed made, the pleadings show that they
did in fact raise material issues that have to be addressed and threshed out in a A certain parcel of
full-blown trial. land situated in Bo. Sta. Maria,
Calauag, Quezon. Bounded on
the N., & E., by Julian de Claro;
PBCom anchors its arguments on the alleged implied admission by Spouses Go
resulting from their failure to specifically deny the material allegations in the Complaint, on the W., by Luis Urrutia.
Containing an area of 5,270
citing as precedent Philippine Bank of Communications v. Court of
Appeals,[42] and Morales v. Court of Appeals. Spouses Go, on the other hand, argue square meters, more or less.
Declared under Ramon J.
that although admissions were made in the Answer, the special and affirmative
defenses contained therein tendered genuine issues. Lim's Tax Dec. No. 4576 with
an Ass. Value of P26,100.00
Under the Rules, every pleading must contain, in a methodical and logical form, a 3. That plaintiffs
plain, concise and direct statement of the ultimate facts on which the party pleading have been using the premises
relies for his claim or defense, as the case may be, omitting the statement of mere mentioned for combined
evidentiary facts.[43] lumber and copra business.
Copies of plaintiffs' Lumber
To specifically deny a material allegation, a defendant must specify each material Certificate of Registration No.
allegation of fact the truth of which he does not admit, and whenever practicable, shall 2490 and PCA Copra Business
set forth the substance of the matters upon which he relies to support his denial. Registration No. 6265/76 are
Where a defendant desires to deny only a part of an averment, he shall specify so hereto attached as Annexes
much of it as is true and material and shall deny only the remainder. Where a "A" and "B" respectively; the
defendant is without knowledge or information sufficient to form a belief as to the truth Mayor's unnumbered copra
of a material averment made in the complaint, he shall so state, and this shall have dealer's permit dated Dec. 31,
the effect of a denial.[44] 1976 hereto attached as
Annex "C";
Rule 8, Section 10 of the Rules of Civil Procedure contemplates three (3) modes of
specific denial, namely: 1) by specifying each material allegation of the fact in the xxx xxx
complaint, the truth of which the defendant does not admit, and whenever practicable, xxx
setting forth the substance of the matters which he will rely upon to support his denial;
5. That
(2) by specifying so much of an averment in the complaint as is true and material and
defendants' invasion of
denying only the remainder; (3) by stating that the defendant is without knowledge or
plaintiffs' premises was
information sufficient to form a belief as to the truth of a material averment in the
accomplished illegally by
complaint, which has the effect of a denial.[45]
detaining plaintiffs' caretaker
Emilio Herrera and his
The purpose of requiring the defendant to make a specific denial is to make him
daughter inside the compound,
disclose the matters alleged in the complaint which he succinctly intends to disprove
then proceeded to saw the
at the trial, together with the matter which he relied upon to support the denial. The
chain that held plaintiffs'
parties are compelled to lay their cards on the table.[46]
padlock on the main gate of
the compound and then busted
Again, in drafting pleadings, members of the bar are enjoined to be clear and concise
or destroyed the padlock that
in their language, and to be organized and logical in their composition and structure in
closes the backyard gate or
order to set forth their statements of fact and arguments of law in the most readily
exit. Later, they forcibly
comprehensible manner possible. Failing such standard, allegations made in
opened the lock in the upstairs
pleadings are not to be taken as stand-alone catchphrases in the interest of accuracy.
room of plaintiff Agnes J. Lim's
They must be contextualized and interpreted in relation to the rest of the statements in
quarters and defendants
the pleading.
immediately filled it with other
occupants now. Copy of the
In Spouses Gaza v. Lim, the Court ruled that the CA erred in declaring that the
caretaker's (Emilio Herrera)
petitioners therein impliedly admitted respondents' allegation that they had prior and
statement describing in detail
continuous possession of the property, as petitioners did in fact enumerate their
is hereto attached as Annex
special and affirmative defenses in their Answer. They also specified therein each
"D";
allegation in the complaint being denied by them. The Court therein stated:
xxx xxx
The Court of Appeals held that spouses Gaza,
xxx.7
petitioners, failed to deny specifically, in their answer,
paragraphs 2, 3 and 5 of the complaint for forcible entry The Court of Appeals then concluded that
quoted as follows: since petitioners did not deny specifically in their
answer the above-quoted allegations in the complaint,
xxx xxx
they judicially admitted that Ramon and Agnes Lim,
xxx
respondents, "were in prior physical possession of the
subject property, and the action for forcible entry which they
filed against private respondents (spouses Gaza) must be
decided in their favor. The defense of private respondents
that they are the registered owners of the subject property is
unavailing."
We observe that the Court of Appeals failed to
consider paragraph 2 of petitioners' answer quoted as
follows:
2. That defendants
specifically deny the allegations in
paragraph 2 and 3 of the complaint
for want of knowledge or information
sufficient to form a belief as to the
truth thereof, the truth of the matter
being those alleged in the special and
affirmative defenses of the
defendants;"8
Clearly, petitioners specifically denied the
allegations contained in paragraphs 2 and 3 of the complaint
that respondents have prior and continuous possession of
the disputed property which they used for their lumber and
copra business. Petitioners did not merely allege they have
no knowledge or information sufficient to form a belief as to
truth of those allegations in the complaint, but added the
following:
SPECIAL AND
AFFIRMATIVE DEFENSES
That defendants hereby
reiterate, incorporate and restate the
foregoing and further allege:
5. That the complaint
states no cause of action;
"From the allegations of
plaintiffs, it appears that their
possession of the subject property was
not supported by any concrete title or
right, nowhere in the complaint that
they alleged either as an owner or
lessee, hence, the alleged possession
of plaintiffs is questionable from all
aspects. Defendants Sps. Napoleon
Gaza and Evelyn Gaza being the
registered owner of the subject
property has all the right to enjoy the
same, to use it, as an owner and in
support thereof, a copy of the transfer
certificate of title No. T-47263 is hereto
attached and marked as Annex
"A-Gaza" and a copy of the Declaration
of Real Property is likewise attached
and marked as Annex "B-Gaza" to form
an integral part hereof;
6. That considering that
the above-entitled case is an ejectment
case, and considering further that the
complaint did not state or there is no
showing that the matter was referred to
a Lupon for conciliation under the
provisions of P.D. No. 1508, the
Revised Rule on Summary Procedure
of 1991, particularly Section 18 thereof
 provides that such a failure is
jurisdictional, hence subject to
dismissal;
7. That the Honorable
Court has no jurisdiction over the
subject of the action or suit;
The complaint is for
forcible entry and the plaintiffs were
praying for indemnification in the sum
of P350,000.00 for those copra, lumber,
tools, and machinery listed in par. 4 of
the complaint and P100,000.00 for
unrealized income in the use of the
establishment, considering the
foregoing amounts not to be rentals,
Section 1 A (1) and (2) of the Revised
Rule on Summary Procedure prohibits
recovery of the same, hence, the
Honorable Court can not acquire
jurisdiction over the same. Besides, the
defendants Napoleon Gaza and Evelyn
Gaza being the owners of those
properties cited in par. 4 of the
complaint except for those copra and
two (2) live carabaos outside of the
subject premises, plaintiffs have no
rights whatsoever in claiming damages
that it may suffer, as and by way of
proof of ownership of said properties
cited in paragraph 4 of the complaint
attached herewith are bunche[s] of
documents to form an integral part
hereof;
8. That plaintiffs' allegation
that Emilio Herrera was illegally
detained together with his daughter
was not true and in support thereof,
attached herewith is a copy of said
Herrera's statement and marked as
Annex "C-Gaza."
xxx xxx x in the complaint expressly state that
xx.9
The above-quoted paragraph 2 and Special and
Affirmative Defenses contained in petitioners' answer glaringly
show that petitioners did not admit impliedly that respondents
have been in prior and actual physical possession of the
property. Actually, petitioners are repudiating vehemently
respondents' possession, stressing that they (petitioners) are
the registered owners and lawful occupants thereof.
Respondents' reliance on Warner Barnes and Co.,
Ltd. v. Reyes10 in maintaining that petitioners made an implied
admission in their answer is misplaced. In the cited case, the
defendants' answer merely alleged that they were "without
knowledge or information sufficient to form a belief as to the
truth of the material averments of the remainder of the
complaint" and "that they hereby reserve the right to present
an amended answer with special defenses and
counterclaim."11 In the instant case, petitioners enumerated
their special and affirmative defenses in their answer. They
also specified therein each allegation in the complaint being
denied by them. They particularly alleged they are the
registered owners and lawful possessors of the land and
denied having wrested possession of the premises from the
respondents through force, intimidation, threat, strategy There is therefore, a need to do
and stealth. They asserted that respondents' purported some accounting works (sic) just to
possession is "questionable from all aspects." They also reconcile the records of both
averred that they own all the personal properties parties.
enumerated in respondents' complaint, except the two
carabaos. Indeed, nowhere in the answer can we
10. While demand is a necessary
discern an implied admission of the allegations of the requirement to consider the
complaint, specifically the allegation that petitioners defendant to be in delay/default,
have priority of possession. such has not been complied with by
Thus, the Court of Appeals erred in the plaintiff since the former is not
declaring that herein petitioners impliedly admitted aware of any demand made to him
respondents' allegation that they have prior and by the latter for the settlement of the
continuous possession of the property.[47] (Underscoring whole obligation.
supplied.)
11. Undeniably, at the time the
pledge of the shares of stocks were
In this case, as in Gaza, the admissions made by Spouses Go are to be read executed, their total value is more
and taken together with the rest of the allegations made in the Answer, than the amount of the loan, or at
including the special and affirmative defenses. the very least, equal to it. Thus,
plaintiff was fully secured insofar as
For instance, on the fact of default, PBCom alleges in paragraph 8 of the its exposure is concerned.[49]
Complaint that Go defaulted in the payment for both promissory notes, having
paid only three interest installments covering the months of September,
12. And even assuming without
November, and December 1999.
conceding, that the present value of
said shares has went (sic) down, it
In paragraph 6 of the Answer, Spouses Go denied the said allegation, and
cannot be considered as something
further alleged in paragraphs 8 to 13 that Go made substantial payments on his
permanent since, the prices of
monthly loan amortizations.
stocks in the market either
increases (sic) or (sic) decreases
The portions of the pleadings referred to are juxtaposed below:
depending on the market forces.
Thus, it is highly speculative for the
plaintiff to consider said shares to
Complaint Answer have suffered tremendous
decrease in its value. Moreso (sic),
8. The defendant defaulted in the 6. Defendants deny the allegations it is unfair for the plaintiff to
payment of the obligations on the two in paragraphs 8, 9, 10 and 11 of the renounce or abandon the pledge
(2) promissory notes (Annexes A and Complaint; agreements.
B hereof) as he has paid only three (3)
installments on interests (sic) xxx
payments covering the months of
September, November and December,
8. The promissory notes referred to 13. As aptly stated, it is not aware of
1999, on both promissory notes,
any termination of the pledge
respectively. As a consequence of the
the loan obligation is payable within agreement initiated by the plaintiff.
default, the entire balance due on the
the period of ten (10) years. Thus,
obligations of the defendant to plaintiff
from the execution date
on both promissory notes immediately
of September 30, 1999, its due date Moreover, in paragraph 10 of the Answer, Spouses Go also denied the existence of
became due and demandable
falls on September 3o, 2009 (and prior demand alleged by PBCom in paragraph 10 of the Complaint. They stated
pursuant to the terms and conditions
not 2001 as erroneously stated in therein that they were not aware of any demand made by PBCom for the settlement of
embodied in the two (2) promissory
the complaint). Thus, prior the whole obligation. Both sections are quoted below:
notes;[48]
to September 30, 2009, the loan
obligations cannot be deemed due
Complaint Answer
and demandable.
10. Plaintiff made repeated demands 10. While demand is a necessary
In conditional obligations, the
acquisition of rights, as well as the from (sic) defendant for the payment requirement to consider the
of the obligations which the latter defendant to be in delay/default, such
extinguishment or loss of those
already acquired, shall depend upon acknowledged to have incurred has not been complied with by the
however, defendant imposed plaintiff since the former is not aware
the happening of the event which
constitutes the condition. (Article conditions such as [that] his of any demand made to him by the
[effecting] payments shall depend latter for the settlement of the whole
1181, New Civil Code)
upon the lifting of garnishment obligation.
effected by the Bangko Sentral on his
9. Contrary to the plaintiffs accounts. Photocopies of defendants
preference, defendant Jose C. Go communication dated March 3, 2000
has made substantial payments in and April 7, 2000, with plaintiff are
terms of his monthly payments. hereto attached as Annexes
F and G hereof, as well as its In Philippine Bank of Communications v. Court of Appeals,[55] the Court ruled
demand to pay dated April 18, 2000. that the defendants contention that it had no truth or information sufficient to In this case, however, Spouses Go are not disclaiming knowledge of the transaction
Demand by plaintiff is hereto form a belief as to the truth of the deed of exchange was an invalid or or the execution of the promissory notes or the pledge agreements sued upon. The
attached as Annex ineffectual denial pursuant to the Rules of Court,[56] as it could have easily matters in contention are, as the CA stated, whether or not respondents were in
H hereof.[50][Emphases supplied] asserted whether or not it had executed the deed of exchange attached to the default, whether there was prior demand, and the amount of the outstanding loan.
petition. Citing Capitol Motors Corporations v. Yabut,[57] the Court stated that: These are the matters that the parties disagree on and by which reason they set forth
vastly different allegations in their pleadings which each will have to prove by
x x x The rule authorizing an answer to the presenting relevant and admissible evidence during trial.
Finally, as to the amount of the outstanding obligation, PBCom alleged in paragraph 9 effect that the defendant has no knowledge or
of the Complaint that the outstanding balance on the couples obligations as of May 31, information sufficient to form a belief as to the truth of Furthermore, in stark contrast to the cited cases where one of the parties disclaimed
2001 was P21,576,668.64 for the first loan and P95,991,111.11, for the second loan an averment and giving such answer the effect of a knowledge of something so patently within his knowledge, in this case, respondents
or a total of P117,567,779.75. denial, does not apply where the fact as to which want Spouses Go categorically stated in the Answer that there was no prior demand, that
of knowledge is asserted, is so plainly and necessarily they were not in default, and that the amount of the outstanding loan would have to be
In paragraph 9 of the Answer, however, Spouses Go, without stating any specific within the defendants knowledge that his averment of ascertained based on official records.
amount, averred that substantial monthly payments had been made, and there was a ignorance must be palpably untrue.[58]
need to reconcile the accounting records of the parties. WHEREFORE, the petition is DENIED.
The Warner Barnes case cited above sprung from a suit for foreclosure of
Complaint Answer
mortgage, where the document that defendant denied was the deed of
mortgage sued upon and attached to the complaint. The Court then ruled that it Sec. 5. Defenses
9. Defendants outstanding 9. Contrary to the plaintiffs would have been easy for the defendants to specifically allege in their answer
obligations under the two (2) preference, defendant Jose C. Go whether or not they had executed the alleged mortgage. Section 5. Defenses. — Defenses may either be negative or affirmative.
promissory notes as of May 31, has made substantial payments in
2001 are: P21,576,668.64 (Annex A) terms of his monthly payments. Similarly, in Capitol Motors, the document denied was the promissory note (a) A negative defense is the specific denial of the material fact or facts alleged
and P95,991,111.11 (Annex B), or a There is therefore, a need to do some sued upon and attached to the complaint. In said case, the Court ruled that in the pleading of the claimant essential to his cause or causes of action.
total of P117,567,779.75. Copy of the accounting works just to reconcile the although a statement of lack of knowledge or information sufficient to form a
Statement of Account is hereto records of both parties.[52] belief as to the truth of a material averment in the complaint was one of the
attached as Annex Ehereof.[51] (b) An affirmative defense is an allegation of a new matter which, while
modes of specific denial contemplated under the Rules, paragraph 2 of the
hypothetically admitting the material allegations in the pleading of the claimant,
Answer in the said case was insufficient to constitute a specific
denial.[59] Following the ruling in the Warner Barnes case, the Court held that it would nevertheless prevent or bar recovery by him. The affirmative defenses
would have been easy for defendant to specifically allege in the Answer include fraud, statute of limitations, release, payment, illegality, statute of
Clearly then, when taken within the context of the entirety of the pleading, it becomes
whether or not it had executed the promissory note attached to the frauds, estoppel, former recovery, discharge in bankruptcy, and any other
apparent that there was no implied admission and that there were indeed genuine
issues to be addressed. Complaint.[60] matter by way of confession and avoidance.

As to the attached March 3, 2000 letter, the Court is in accord with the CA when it
wrote:
The letter dated March 3, 2000 is insufficient to
support the material averments in PBComs complaint for
being equivocal and capable of different interpretations. The
contents of the letter do not address all the issues material to
the banks claim and thus do not conclusively establish the
cause of action of PBCom against the spouses Go. As
regards the letter dated April 7, 2000, the trial court itself
ruled that such letter addressed to PBCom could not be
considered against the defendants-appellants simply
because it was not signed by defendant-appellant Jose Go.
Notably, the trial court even agreed with the
defendant-appellants on the following points:
The alleged default and
outstanding obligations are based on
the Statement of Account. This Court
agrees with the defendants that since
the substance of the document was not
set forth in the complaint although a
copy thereof was attached thereto, or
the said document was not set forth
verbatim in the pleading, the rule on
implied admission does not apply.[53]
It must also be pointed out that the cases cited by PBCom do not apply to this case.
Those two cases involve denial of lack of knowledge of facts so plainly and
necessarily within [the knowledge of the party making such denial] that such averment
of ignorance must be palpably untrue.[54] Also, in both cases, the documents denied
were the same documents or deeds sued upon or made the basis of, and attached to,
the complaint.
In Morales v. Court of Appeals,[61] the matter denied was intervenors knowledge
of the plaintiffs having claimed ownership of the vehicle in contention. The
Court therein stated:
Yet, despite the specific allegation as
against him, petitioner, in his Answer in Intervention
with Counterclaim and Crossclaim, answered the
aforesaid paragraph 11, and other paragraphs, merely
by saying that he has no knowledge or information
sufficient to form a belief as to its truth. While it may be
true that under the Rules one could avail of this See: Rule 8, Sec. 10
statement as a means of a specific denial,
nevertheless, if an allegation directly and specifically
Section 10. Specific denial. — A defendant must specify
charges a party to have done, performed or committed
each material allegation of fact the truth of which he does
a particular act, but the latter had not in fact done,
performed or committed it, a categorical and express not admit and, whenever practicable, shall set forth the
denial must be made. In such a case, the occurrence substance of the matters upon which he relies to support
or non-occurrence of the facts alleged may be said to his denial. Where a defendant desires to deny only a part
be within the partys knowledge. In short, the petitioner of an averment, he shall specify so much of it as is true
herein could have simply expressly and in no and material and shall deny only the remainder. Where a
uncertain terms denied the allegation if it were untrue. defendant is without knowledge or information sufficient
It has been held that when the matters of which a to form a belief as to the truth of a material averment
defendant alleges of having no knowledge or made to the complaint, he shall so state, and this shall
information sufficient to form a belief, are plainly and have the effect of a denial.
necessarily within his knowledge, his alleged
ignorance or lack of information will not be considered
as specific denial. His denial lacks the element of
sincerity and good faith, hence, insufficient.[62]
Rule 16, Sec. 6
Borrowing the phraseology of the Court in the Capitol Motors case, clearly, the
fact of the parties having executed the very documents sued upon, that is, the Section 6. Pleading grounds as affirmative defenses. — If no motion to
deed of exchange, deed or mortgage or promissory note, is so plainly and dismiss has been filed, any of the grounds for dismissal provided for in this
necessarily within the knowledge of the denying parties that any averment of Rule may be pleaded as an affirmative defense in the answer and, in the
ignorance as to such fact must be palpably untrue. discretion of the court, a preliminary hearing may be had thereon as if a motion
to dismiss had been filed. (5a)
The respondents further averred that they did not receive any The respondents elevated the case to the Court of Appeals (CA) through
The dismissal of the complaint under this section shall be without prejudice to notice from the drawee banks or from FEBTC that these checks were a petition for review. They succeeded in obtaining a favorable judgment when the CA
the prosecution in the same or separate action of a counterclaim pleaded in dishonored. They explained that, considering this and the fact that the checks set aside the RTCs Decision and reinstated the MeTCs Decision on July 12,
the answer. were issued three years ago, they believed in good faith that their obligation 2006.[14] On February 13, 2007, the CA denied the petitioners motion for
had already been fully paid. They alleged that the complaint is frivolous and reconsideration.[15]
plainly vexatious. They then prayed that they be awarded moral and exemplary
damages, attorneys fees and costs of suit.[9] The issues submitted for resolution in this petition for review are as
follows:
PBCom v. Spouses Go, G.R. No. 175514, February 14, 2011 (Supra.)
During trial, Mr. Vicente Magpusao testified that he had been
connected with FEBTC since 1994 and had assumed the position of Account I. WHETHER OR NOT RESPONDENTS WERE ABLE
Analyst since its merger with BPI. He admitted that they had, in fact, received TO PROVE FULL PAYMENT OF THEIR OBLIGATION
the eight checks from the respondents. However, two of these checks AS ONE OF THEIR AFFIRMATIVE DEFENSES.
BPI v. Spouses Royeca, G.R. No. 176664, July 21, 2008 (Landbank Check No. 0610947 and FEBTC Check No. 17A00-11551P)
amounting to P23,692.00 were dishonored. He recalled that the remaining two II. WHETHER OR NOT TENDER OF CHECKS
Bank of the Philippine Islands (BPI) seeks a review of the Court of Appeals (CA) checks were not deposited anymore due to the previous dishonor of the two CONSTITUTES PAYMENT.
Decision[1] dated July 12, 2006, and Resolution[2] dated February 13, 2007, which checks. He said that after deducting these payments, the total outstanding
dismissed its complaint for replevin and damages and granted the respondents balance of the obligation was P48,084.00, which represented the last four III. WHETHER OR NOT RESPONDENTS ARE ENTITLED
counterclaim for damages. monthly installments. TO MORAL AND EXEMPLARY DAMAGES AND
The case stems from the following undisputed facts: ATTORNEYS FEES.[16]
On August 23, 1993, spouses Reynaldo and Victoria Royeca On February 23, 2005, the MeTC dismissed the case and granted
(respondents) executed and delivered to Toyota Shaw, Inc. a Promissory the respondents counterclaim for damages, thus: The petitioner insists that the respondents did not sufficiently prove the
[3]
Note forP577,008.00 payable in 48 equal monthly installments of P12,021.00, with alleged payment. It avers that, under the law and existing jurisprudence, delivery of
a maturity date of August 18, 1997. The Promissory Note provides for a penalty of WHEREFORE, judgment is hereby checks does not constitute payment. It points out that this principle stands despite the
3% for every month or fraction of a month that an installment remains unpaid. rendered dismissing the complaint for lack of cause of fact that there was no notice of dishonor of the two checks and the demand to pay
action, and on the counterclaim, plaintiff is ordered to was made three years after default.
To secure the payment of said Promissory Note, respondents executed a indemnify the defendants as follows:
Chattel Mortgage[4] in favor of Toyota over a certain motor vehicle, more particularly On the other hand, the respondents postulate that they have established
described as follows: a) The sum of PhP30,000.00 as and by payment of the amount being claimed by the petitioner and, unless the petitioner
Make and Type 1993 Toyota Corolla 1.3 XL way of moral damages; proves that the checks have been dishonored, they should not be made liable to pay
Motor No. 2E-2649879 b) The sum of PhP30,000.00 as and by the obligation again.[17]
Serial No. EE100-9512571 way of exemplary damages;
Color D.B. Gray Met. c) The sum of PhP20,000.00 as and by The petition is partly meritorious.
way of attorneys fees; and
Toyota, with notice to respondents, executed a Deed of d) To pay the costs of the suit. In civil cases, the party having the burden of proof must establish his case
Assignment[5] transferring all its rights, title, and interest in the Chattel Mortgage to by a preponderance of evidence, or evidence which is more convincing to the court
Far East Bank and Trust Company (FEBTC). SO ORDERED. [10]
as worthy of belief than that which is offered in opposition thereto.[18] Thus, the party,
whether plaintiff or defendant, who asserts the affirmative of an issue has the onus to
Claiming that the respondents failed to pay four (4) monthly amortizations On appeal, the Regional Trial Court (RTC) set aside the MeTC prove his assertion in order to obtain a favorable judgment. For the plaintiff,
covering the period from May 18, 1997 to August 18, 1997, FEBTC sent a formal Decision and ordered the respondents to pay the amount claimed by the the burden to prove its positive assertions never parts. For the defendant, an
demand to respondents on March 14, 2000 asking for the payment thereof, plus petitioner. The dispositive portion of its Decision[11] dated August 11, affirmative defense is one which is not a denial of an essential ingredient in the
penalty.[6] The respondents refused to pay on the ground that they had already paid 2005 reads: plaintiffs cause of action, but one which, if established, will be a good defense i.e. an
their obligation to FEBTC. avoidance of the claim.[19]
WHEREFORE, premises considered, the
On April 19, 2000, FEBTC filed a Complaint for Replevin and Damages Decision of the Metropolitan Trial Court, Branch 9 In Jimenez v. NLRC,[20] cited by both the RTC and the CA, the Court
against the respondents with the Metropolitan Trial Court (MeTC) of Manila praying dated February 23, 2005 is REVERSED and a new elucidated on who, between the plaintiff and defendant, has the burden to prove the
for the delivery of the vehicle, with an alternative prayer for the payment one entered directing the defendants-appellees to pay affirmative defense of payment:
of P48,084.00 plus interest and/or late payment charges at the rate of 36% per the plaintiff-appellant, jointly and severally,
annum from May 18, 1997 until fully paid. The complaint likewise prayed for the
payment of P24,462.73 as attorneys fees, liquidated damages, bonding fees and 1. The sum of P48,084.00 As a general rule, one who pleads payment has
other expenses incurred in the seizure of the vehicle. The complaint was later plus interest and/or late the burden of proving it. Even where the plaintiff must allege
amended to substitute BPI as plaintiff when it merged with and absorbed FEBTC.[7] payment charges thereon non-payment, the general rule is that the burden rests on the
at the rate of 36% per defendant to prove payment, rather than on the plaintiff to
In their Answer, respondents alleged that on May 20, 1997, they delivered to the Auto annum from May 18, prove non-payment. The debtor has the burden of showing
Financing Department of FEBTC eight (8) postdated checks in different amounts 1997 until fully paid; with legal certainty that the obligation has been discharged by
totaling P97,281.78. The Acknowledgment Receipt,[8] which they attached to the 2. The sum of P10,000.00 as attorneys payment.
Answer, showed that FEBTC received the following checks: fees; and
3. The costs of suit.
DATE BANK CHECK NO. AMOUNT When the existence of a debt is fully established
26 May 97 Landbank #610945 P13,824.15 SO ORDERED.[12] by the evidence contained in the record, the burden of proving
6 June 97 Head Office #610946 12,381.63 that it has been extinguished by payment devolves upon the
30 May 97 FEBTC #17A00-11550P 12,021.00 debtor who offers such a defense to the claim of the creditor.
15 June 97 Shaw Blvd. #17A00-11549P 12,021.00 Where the debtor introduces some evidence of payment, the
30 June 97 " #17A00-11551P 12,021.00 burden of going forward with the evidence - as distinct from
18 June 97 Landbank #610947 11,671.00 The RTC denied the respondents motion for the general burden of proof - shifts to the creditor, who is then
18 July 97 Head Office #610948 11,671.00 reconsideration.[13] under a duty of producing some evidence to show
18 August 97 #610949 11,671.00 non-payment.[21]

In applying these principles, the CA and the RTC, however, arrived at
different conclusions. While both agreed that the respondents had the burden of
proof to establish payment, the two courts did not agree on whether the respondents
were able to present sufficient evidence of payment enough to shift the burden of
evidence to the petitioner. The RTC found that the respondents failed to discharge
this burden because they did not introduce evidence of payment, considering that
mere delivery of checks does not constitute payment.[22] On the other hand, the CA
concluded that the respondents introduced sufficient evidence of payment, as
opposed to the petitioner, which failed to produce evidence that the checks were in
fact dishonored. It noted that the petitioner could have easily presented the
dishonored checks or the advice of dishonor and required respondents to replace the
dishonored checks but none was presented. Further, the CA remarked that it is
absurd for a bank, such as petitioner, to demand payment of a failed amortization
only after three years from the due date.
The divergence in this conflict of opinions can be narrowed down to the
issue of whether the Acknowledgment Receipt was sufficient proof of payment. As
correctly observed by the RTC, this is only proof that respondents delivered eight
checks in payment of the amount due. Apparently, this will not suffice to establish
actual payment.
Settled is the rule that payment must be made in legal tender. A check is
not legal tender and, therefore, cannot constitute a valid tender of payment.[23] Since
a negotiable instrument is only a substitute for money and not money, the delivery of
such an instrument does not, by itself, operate as payment. Mere delivery of checks
does not discharge the obligation under a judgment. The obligation is not
extinguished and remains suspended until the payment by commercial document is
actually realized.[24]
To establish their defense, the respondents therefore had to present
proof, not only that they delivered the checks to the petitioner, but also that the
checks were encashed. The respondents failed to do so. Had the checks been
actually encashed, the respondents could have easily produced the cancelled checks
as evidence to prove the same. Instead, they merely averred that they believed in
good faith that the checks were encashed because they were not notified of the
dishonor of the checks and three years had already lapsed since they issued the
checks.
Because of this failure of the respondents to present sufficient proof of
payment, it was no longer necessary for the petitioner to prove non-payment,
particularly proof that the checks were dishonored. The burden of evidence is shifted
only if the party upon whom it is lodged was able to adduce preponderant evidence to
prove its claim.[25]
To stress, the obligation to prove that the checks were not dishonored,
but were in fact encashed, fell upon the respondents who would benefit from such
fact. That payment was effected through the eight checks was the respondents
affirmative allegation that they had to establish with legal certainty. If the petitioner
were seeking to enforce liability upon the check, the burden to prove that a notice of
dishonor was properly given would have devolved upon it.[26] The fact is that the
petitioners cause of action was based on the original obligation as evidenced by the
Promissory Note and the Chattel Mortgage, and not on the checks issued in payment
thereof.
Further, it should be noted that the petitioner, as payee, did not have a
legal obligation to inform the respondents of the dishonor of the checks. A notice of
dishonor is required only to preserve the right of the payee to recover on the check. It
preserves the liability of the drawer and the indorsers on the check. Otherwise, if the
payee fails to give notice to them, they are discharged from their liability thereon, and
the payee is precluded from enforcing payment on the check. The respondents,
therefore, cannot fault the petitioner for not notifying them of the non-payment of the
checks because whatever rights were transgressed by such omission belonged only
to the petitioner.
In all, we find that the evidence at hand preponderates in favor of
the petitioner. The petitioners possession of the documents pertaining to the
obligation strongly buttresses its claim that the obligation has not been
extinguished. The creditors possession of the evidence of debt is proof that the
debt has not been discharged by payment.[27] A promissory note in the hands
of the creditor is a proof of indebtedness rather than proof of payment.[28] In an
action for replevin by a mortgagee, it is prima facie evidence that the
promissory note has not been paid.[29] Likewise, an uncanceled mortgage in
the possession of the mortgagee gives rise to the presumption that the
mortgage debt is unpaid.[30]
Finally, the respondents posit that the petitioners claim is barred by
laches since it has been three years since the checks were issued. We do not
agree. Laches is a recourse in equity. Equity, however, is applied only in the
absence, never in contravention, of statutory law. Thus, laches cannot, as a
rule, abate a collection suit filed within the prescriptive period mandated by the
New Civil Code.[31] The petitioners action was filed within the ten-year
prescriptive period provided under Article 1144 of the New Civil Code. Hence,
there is no room for the application of laches.
Nonetheless, the Court cannot ignore what the respondents have
consistently raised that they were not notified of the non-payment of the
checks. Reasonable banking practice and prudence dictates that, when a
check given to a creditor bank in payment of an obligation is dishonored, the
bank should immediately return it to the debtor and demand its replacement or
payment lest it causes any prejudice to the drawer. In light of this and the fact
that the obligation has been partially paid, we deem it just and equitable to
reduce the 3% per month penalty charge as stipulated in the Promissory Note
to 12% per annum.[32] Although a court is not at liberty to ignore the freedom of
the parties to agree on such terms and conditions as they see fit, as long as
they contravene no law, morals, good customs, public order or public policy, a
stipulated penalty, nevertheless, may be equitably reduced by the courts if it is
iniquitous or unconscionable, or if the principal obligation has been partly or
irregularly complied with.[33]
WHEREFORE, premises considered, the petition is PARTIALLY
GRANTED. The Court of Appeals Decision dated July 12, 2006, and
Resolution dated February 13, 2007, are REVERSED and SET ASIDE. The
Decision of the Regional Trial Court, dated August 11, 2005,
is REINSTATED with the MODIFICATION that respondents are ordered to
deliver the possession of the subject vehicle, or in the alternative, pay the
petitioner P48,084.00 plus late penalty charges/interest thereon at the rate of
12% per annum from May 18, 1997 until fully paid.
Sec. 6. Counterclaim
Section 6. Counterclaim. — A counterclaim is any claim which a defending
party may have against an opposing party.
Lafarge Cement v. Continental, G.R. No. 155173, November 23, 2004
May defendants in civil cases implead in their counterclaims persons
who were not parties to the original complaints? This is the main question to be
answered in this controversy.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court,
seeking to nullify the May 22, 2002[2] and the September 3, 2002 Orders[3] of
the Regional Trial Court (RTC) of Quezon City (Branch 80) in Civil Case No.
Q-00-41103. The decretal portion of the first assailed Order reads:
WHEREFORE, in the light of the foregoing as earlier stated, the plaintiffs motion to
dismiss claims is granted. Accordingly, the defendants claims against Mr. Lim and Mr.
Mariano captioned as their counterclaims are dismissed.[4]
The second challenged Order denied petitioners Motion for Reconsideration.
The Facts
Briefly, the origins of the present controversy can be traced to the Letter of
Intent (LOI) executed by both parties on August 11, 1998, whereby Petitioner Lafarge
Cement Philippines, Inc. (Lafarge) -- on behalf of its affiliates and other qualified
entities, including Petitioner Luzon Continental Land Corporation (LCLC) -- agreed to
purchase the cement business of Respondent Continental Cement Corporation
(CCC). On October 21, 1998, both parties entered into a Sale and Purchase
Agreement (SPA). At the time of the foregoing transactions, petitioners were well
aware that CCC had a case pending with the Supreme Court. The case was
docketed as GR No. 119712, entitled Asset Privatization Trust (APT) v. Court of
Appeals and Continental Cement Corporation.
In anticipation of the liability that the High Tribunal might adjudge against CCC,
the parties, under Clause 2 (c) of the SPA, allegedly agreed to retain from the
purchase price a portion of the contract price in the amount of P117,020,846.84 -- the
equivalent of US$2,799,140. This amount was to be deposited in an interest-bearing
account in the First National City Bank of New York (Citibank) for payment to APT,
the petitioner in GR No. 119712.
However, petitioners allegedly refused to apply the sum to the payment to
APT, despite the subsequent finality of the Decision in GR No. 119712 in favor of the
latter and the repeated instructions of Respondent CCC. Fearful that nonpayment to
APT would result in the foreclosure, not just of its properties covered by the SPA with
Lafarge but of several other properties as well, CCC filed before the Regional Trial
Court of Quezon City on June 20, 2000, a Complaint with Application for Preliminary
Attachment against petitioners. Docketed as Civil Case No. Q-00-41103, the
Complaint prayed, among others, that petitioners be directed to pay the APT
Retained Amount referred to in Clause 2 (c) of the SPA.
Petitioners moved to dismiss the Complaint on the ground that it violated the
prohibition on forum-shopping. Respondent CCC had allegedly made the same claim
it was raising in Civil Case No. Q-00-41103 in another action, which involved the
same parties and which was filed earlier before the International Chamber of
Commerce. After the trial court denied the Motion to Dismiss in its November 14,
2000 Order, petitioners elevated the matter before the Court of Appeals in CA-GR SP
No. 68688.
In the meantime, to avoid being in default and without prejudice to the
outcome of their appeal, petitioners filed their Answer and Compulsory
Counterclaims ad Cautelam before the trial court in Civil Case No. Q-00-41103. In
their Answer, they denied the allegations in the Complaint. They prayed -- by way of
compulsory counterclaims against Respondent CCC, its majority stockholder and
president Gregory T. Lim, and its corporate secretary Anthony A. Mariano -- for the
sums of (a) P2,700,000 each as actual damages, (b) P100,000,000 each as
exemplary damages, (c) P100,000,000 each as moral damages, and (d) P5,000,000
each as attorneys fees plus costs of suit.
Petitioners alleged that CCC, through Lim and Mariano, had filed the baseless
Complaint in Civil Case No. Q-00-41103 and procured the Writ of Attachment in bad
faith. Relying on this Courts pronouncement in Sapugay v. CA,[5] petitioners prayed
that both Lim and Mariano be held jointly and solidarily liable with Respondent CCC.
On behalf of Lim and Mariano who had yet to file any responsive pleading,
CCC moved to dismiss petitioners compulsory counterclaims on grounds that
essentially constituted the very issues for resolution in the instant Petition.
Ruling of the Trial Court
On May 22, 2002, the Regional Trial Court of Quezon City (Branch 80)
dismissed petitioners counterclaims for several reasons, among which were the
following: a) the counterclaims against Respondents Lim and Mariano were not
compulsory; b) the ruling in Sapugay was not applicable; and c) petitioners Answer
with Counterclaims violated procedural rules on the proper joinder of causes of
action.[6]
Acting on the Motion for Reconsideration filed by petitioners, the trial court -- in
an Amended Order dated September 3, 2002[7] -- admitted some errors in its May 22,
2002 Order, particularly in its pronouncement that their counterclaim had been
pleaded against Lim and Mariano only. However, the RTC clarified that it was
dismissing the counterclaim insofar as it impleaded Respondents Lim and Mariano,
even if it included CCC.
Hence this Petition.[8]
Issues
In their Memorandum, petitioners raise the following issues for our
consideration:
[a] Whether or not the RTC gravely erred in refusing to rule that
Respondent CCC has no personality to move to dismiss
petitioners compulsory counterclaims on Respondents Lim
and Marianos behalf.
[b] Whether or not the RTC gravely erred in ruling that (i) petitioners
counterclaims against Respondents Lim and Mariano are
not compulsory; (ii) Sapugay v. Court of Appeals is
inapplicable here; and (iii) petitioners violated the rule on
joinder of causes of action.[9]
For clarity and coherence, the Court will resolve the foregoing in reverse
order.
The Courts Ruling
The Petition is meritorious.
First Issue: Counterclaims and Joinder of Causes of Action.
Petitioners Counterclaims
Compulsory
Counterclaims are defined in Section 6 of Rule 6 of the Rules of Civil
Procedure as any claim which a defending party may have against an opposing party.
They are generally allowed in order to avoid a multiplicity of suits and to facilitate the
disposition of the whole controversy in a single action, such that the defendants
demand may be adjudged by a counterclaim rather than by an independent suit. The
only limitations to this principle are (1) that the court should have jurisdiction over the
subject matter of the counterclaim, and (2) that it could acquire jurisdiction over third
parties whose presence is essential for its adjudication.[10]
A counterclaim may either be permissive or compulsory. It is permissive if it
does not arise out of or is not necessarily connected with the subject matter of the
opposing partys claim.[11] A permissive counterclaim is essentially an independent
claim that may be filed separately in another case.
A counterclaim is compulsory when its object arises out of or is
necessarily connected with the transaction or occurrence constituting the
subject matter of the opposing partys claim and does not require for its
adjudication the presence of third parties of whom the court cannot acquire
jurisdiction.[12]
Unlike permissive counterclaims, compulsory counterclaims should be
set up in the same action; otherwise, they would be barred forever. NAMARCO
v. Federation of United Namarco Distributors[13] laid down the following criteria
to determine whether a counterclaim is compulsory or permissive: 1) Are
issues of fact and law raised by the claim and by the counterclaim largely the
same? 2) Would res judicata bar a subsequent suit on defendants claim,
absent the compulsory counterclaim rule? 3) Will substantially the same
evidence support or refute plaintiffs claim as well as defendants counterclaim?
4) Is there any logical relation between the claim and the counterclaim? A
positive answer to all four questions would indicate that the counterclaim is
compulsory.
Adopted in Quintanilla v. CA[14] and reiterated in Alday v. FGU
Insurance Corporation,[15] the compelling test of compulsoriness characterizes
a counterclaim as compulsory if there should exist a logical relationship
between the main claim and the counterclaim. There exists such a relationship
when conducting separate trials of the respective claims of the parties would
entail substantial duplication of time and effort by the parties and the court;
when the multiple claims involve the same factual and legal issues; or when
the claims are offshoots of the same basic controversy between the parties.
We shall now examine the nature of petitioners counterclaims against
respondents with the use of the foregoing parameters.
Petitioners base their counterclaim on the following allegations:
Gregory T. Lim and Anthony A. Mariano were the persons responsible for
making the bad faith decisions for, and causing plaintiff to file this baseless suit
and to procure an unwarranted writ of attachment, notwithstanding their
knowledge that plaintiff has no right to bring it or to secure the writ. In taking
such bad faith actions, Gregory T. Lim was motivated by his personal interests
as one of the owners of plaintiff while Anthony A. Mariano was motivated by his
sense of personal loyalty to Gregory T. Lim, for which reason he disregarded
the fact that plaintiff is without any valid cause.
Consequently, both Gregory T. Lim and Anthony A. Mariano are the plaintiffs
co-joint tortfeasors in the commission of the acts complained of in this answer
and in the compulsory counterclaims pleaded below. As such they should be
held jointly and solidarily liable as plaintiffs co-defendants to those compulsory
counterclaims pursuant to the Supreme Courts decision in Sapugay v. Mobil.
xxxxxxxxx
The plaintiffs, Gregory T. Lim and Anthony A. Marianos bad faith filing of this
baseless case has compelled the defendants to engage the services of
counsel for a fee and to incur costs of litigation, in amounts to be proved at trial,
but in no case less than P5 million for each of them and for which plaintiff
Gregory T. Lim and Anthony A. Mariano should be held jointly and solidarily
liable.
The plaintiffs, Gregory T. Lims and Anthony A. Marianos actions have
damaged the reputations of the defendants and they should be held jointly and
solidarily liable to them for moral damages of P100 million each.
In order to serve as an example for the public good and to deter similar baseless, bad
faith litigation, the plaintiff, Gregory T. Lim and Anthony A. Mariano should be held
jointly and solidarily liable to the defendants for exemplary damages of P100 million
each. [16]
The above allegations show that petitioners counterclaims for damages were
the result of respondents (Lim and Mariano) act of filing the Complaint and securing
the Writ of Attachment in bad faith. Tiu Po v. Bautista[17] involved the issue of whether
the counterclaim that sought moral, actual and exemplary damages and attorneys
fees against respondents on account of their malicious and unfounded complaint was
compulsory. In that case, we held as follows:
Petitioners counterclaim for damages fulfills the necessary requisites of a compulsory
counterclaim. They are damages claimed to have been suffered by petitioners as a
consequence of the action filed against them. They have to be pleaded in the same
action; otherwise, petitioners would be precluded by the judgment from invoking the
same in an independent action. The pronouncement in Papa vs. Banaag (17 SCRA
1081) (1966) is in point:
Compensatory, moral and exemplary damages, allegedly suffered by the creditor in
consequence of the debtors action, are also compulsory counterclaim barred by the
dismissal of the debtors action. They cannot be claimed in a subsequent action by
the creditor against the debtor.
Aside from the fact that petitioners counterclaim for damages cannot be the subject
of an independent action, it is the same evidence that sustains petitioners
counterclaim that will refute private respondents own claim for damages. This is an
additional factor that characterizes petitioners counterclaim as compulsory.[18]
Moreover, using the compelling test of compulsoriness, we find that, clearly,
the recovery of petitioners counterclaims is contingent upon the case filed by
respondents; thus, conducting separate trials thereon will result in a substantial
duplication of the time and effort of the court and the parties.
Since the counterclaim for damages is compulsory, it must be set up in the
same action; otherwise, it would be barred forever. If it is filed concurrently with the
main action but in a different proceeding, it would be abated on the ground of litis
pendentia; if filed subsequently, it would meet the same fate on the ground of res
judicata.[19]
Sapugay v. Court of Appeals
Applicable to the Case at Bar
Sapugay v. Court of Appeals finds application in the present case.
In Sapugay, Respondent Mobil Philippines filed before the trial court of Pasig an
action for replevin against Spouses Marino and Lina Joel Sapugay. The Complaint
arose from the supposed failure of the couple to keep their end of their Dealership
Agreement. In their Answer with Counterclaim, petitioners alleged that after incurring
expenses in anticipation of the Dealership Agreement, they requested the plaintiff to
allow them to get gas, but that it had refused. It claimed that they still had to post a
surety bond which, initially fixed at P200,000, was later raised to P700,000.
The spouses exerted all efforts to secure a bond, but the bonding companies
required a copy of the Dealership Agreement, which respondent continued to
withhold from them. Later, petitioners discovered that respondent and its manager,
Ricardo P. Cardenas, had intended all along to award the dealership to Island Air
Product Corporation.
 In their Answer, petitioners impleaded in the counterclaim Mobil Philippines
and its manager -- Ricardo P. Cardenas -- as defendants. They prayed that judgment
be rendered, holding both jointly and severally liable for pre-operation expenses,
rental, storage, guarding fees, and unrealized profit including damages. After both
Mobil and Cardenas failed to respond to their Answer to the Counterclaim, petitioners
filed a Motion to Declare Plaintiff and its Manager Ricardo P. Cardenas in Default on
Defendants Counterclaim.
Among the issues raised in Sapugay was whether Cardenas, who was not a
party to the original action, might nevertheless be impleaded in the counterclaim. We
disposed of this issue as follows:
A counterclaim is defined as any claim for money or other relief which a defending
party may have against an opposing party. However, the general rule that a
defendant cannot by a counterclaim bring into the action any claim against persons
other than the plaintiff admits of an exception under Section 14, Rule 6 which
provides that when the presence of parties other than those to the original action is
required for the granting of complete relief in the determination of a counterclaim or
cross-claim, the court shall order them to be brought in as defendants, if jurisdiction
over them can be obtained. The inclusion, therefore, of Cardenas in petitioners
counterclaim is sanctioned by the rules.[20]
The prerogative of bringing in new parties to the action at any stage before
judgment is intended to accord complete relief to all of them in a single action and to
avert a duplicity and even a multiplicity of suits thereby.
In insisting on the inapplicability of Sapugay, respondents argue that new
parties cannot be included in a counterclaim, except when no complete relief can be
had. They add that [i]n the present case, Messrs. Lim and Mariano are not necessary
for petitioners to obtain complete relief from Respondent CCC as plaintiff in the lower
court. This is because Respondent CCC as a corporation with a separate [legal
personality] has the juridical capacity to indemnify petitioners even without Messrs.
Lim and Mariano.[21]
We disagree. The inclusion of a corporate officer or stockholder -- Cardenas
in Sapugay or Lim and Mariano in the instant case -- is not premised on the
assumption that the plaintiff corporation does not have the financial ability to answer
for damages, such that it has to share its liability with individual defendants. Rather,
such inclusion is based on the allegations of fraud and bad faith on the part of the
corporate officer or stockholder. These allegations may warrant the piercing of the
veil of corporate fiction, so that the said individual may not seek refuge therein, but
may be held individually and personally liable for his or her actions.
In Tramat Mercantile v. Court of Appeals,[22] the Court held that generally, it
should only be the corporation that could properly be held liable. However,
circumstances may warrant the inclusion of the personal liability of a corporate
director, trustee, or officer, if the said individual is found guilty of bad faith or gross
negligence in directing corporate affairs.
Remo Jr. v. IAC[23] has stressed that while a corporation is an entity separate
and distinct from its stockholders, the corporate fiction may be disregarded if used to
defeat public convenience, justify a wrong, protect fraud, or defend crime. In these
instances, the law will regard the corporation as an association of persons, or in case
of two corporations, will merge them into one. Thus, there is no debate on whether, in
alleging bad faith on the part of Lim and Mariano the counterclaims had in effect
made them indispensable parties thereto; based on the alleged facts, both are clearly
parties in interest to the counterclaim.[24]
Respondents further assert that Messrs. Lim and Mariano cannot be held
personally liable [because their assailed acts] are within the powers granted to them
by the proper board resolutions; therefore, it is not a personal decision but rather that
of the corporation as represented by its board of directors.[25] The foregoing assertion,
however, is a matter of defense that should be threshed out during the trial; Such factual circumstances are unavailing in the instant case. The records do
whether or not fraud is extant under the circumstances is an issue that must be not show that Respondents Lim and Mariano are either aware of the counterclaims
established by convincing evidence.[26] filed against them, or that they have actively participated in the proceedings involving
them. Further, in dismissing the counterclaims against the individual respondents, the
Suability and liability are two distinct matters. While the Court does rule court a quo -- unlike in Sapugay -- cannot be said to have treated Respondent CCCs
that the counterclaims against Respondent CCCs president and manager may Motion to Dismiss as having been filed on their behalf.
be properly filed, the determination of whether both can in fact be held jointly
and severally liable with respondent corporation is entirely another issue that Rules on Permissive Joinder of Causes
should be ruled upon by the trial court.
of Action or Parties Not Applicable
However, while a compulsory counterclaim may implead persons not
parties to the original complaint, the general rule -- a defendant in a
compulsory counterclaim need not file any responsive pleading, as it is
Respondent CCC contends that petitioners counterclaims violated the rule on
deemed to have adopted the allegations in the complaint as its answer -- does
joinder of causes of action. It argues that while the original Complaint was a suit for
not apply. The filing of a responsive pleading is deemed a voluntary
specific performance based on a contract, the counterclaim for damages was based
submission to the jurisdiction of the court; a new party impleaded by the
on the tortuous acts of respondents.[28] In its Motion to Dismiss, CCC cites Section 5
plaintiff in a compulsory counterclaim cannot be considered to have
of Rule 2 and Section 6 of Rule 3 of the Rules of Civil Procedure, which we quote:
automatically and unknowingly submitted to the jurisdiction of the court. A
contrary ruling would result in mischievous consequences whereby a party
may be indiscriminately impleaded as a defendant in a compulsory Section 5. Joinder of causes of action. A party may in one pleading assert, in the
counterclaim; and judgment rendered against it without its knowledge, much alternative or otherwise, as many causes of action as he may have against an
less participation in the proceedings, in blatant disregard of rudimentary due opposing party, subject to the following conditions:
process requirements.
(a) The party joining the causes of action shall comply with the rules on joinder of
The correct procedure in instances such as this is for the trial court, per
parties; x x x
Section 12 of Rule 6 of the Rules of Court, to order [such impleaded parties] to
be brought in as defendants, if jurisdiction over them can be obtained, by
directing that summons be served on them. In this manner, they can be
Section 6. Permissive joinder of parties. All persons in whom or against whom
properly appraised of and answer the charges against them. Only upon service
any right to relief in respect to or arising out of the same transaction or
of summons can the trial court obtain jurisdiction over them.
series of transactions is alleged to exist whether jointly, severally, or in the
alternative, may, except as otherwise provided in these Rules, join as plaintiffs or be
In Sapugay, Cardenas was furnished a copy of the Answer with
joined as defendants in one complaint, where any question of law or fact common to
Counterclaim, but he did not file any responsive pleading to the counterclaim
all such plaintiffs or to all such defendants may arise in the action; but the court may
leveled against him. Nevertheless, the Court gave due consideration to certain
make such orders as may be just to prevent any plaintiff or defendant from being
factual circumstances, particularly the trial courts treatment of the Complaint
as the Answer of Cardenas to the compulsory counterclaim and of his seeming embarrassed or put to expense in connection with any proceedings in which he may
have no interest.
acquiescence thereto, as evidenced by his failure to make any objection
despite his active participation in the proceedings. It was held thus:
The foregoing procedural rules are founded on practicality and convenience.
It is noteworthy that Cardenas did not file a motion to dismiss the counterclaim They are meant to discourage duplicity and multiplicity of suits. This objective is
against him on the ground of lack of jurisdiction. While it is a settled rule that negated by insisting -- as the court a quo has done -- that the compulsory
the issue of jurisdiction may be raised even for the first time on appeal, this counterclaim for damages be dismissed, only to have it possibly re-filed in a separate
does not obtain in the instant case. Although it was only Mobil which filed an proceeding. More important, as we have stated earlier, Respondents Lim and
opposition to the motion to declare in default, the fact that the trial court denied Mariano are real parties in interest to the compulsory counterclaim; it is imperative
said motion, both as to Mobil and Cardenas on the ground that Mobils that they be joined therein. Section 7 of Rule 3 provides:
complaint should be considered as the answer to petitioners compulsory
counterclaim, leads us to the inescapable conclusion that the trial court treated Compulsory joinder of indispensable parties. Parties in interest without whom no final
the opposition as having been filed in behalf of both Mobil and Cardenas and
determination can be had of an action shall be joined either as plaintiffs or
that the latter had adopted as his answer the allegations raised in the defendants.
complaint of Mobil. Obviously, it was this ratiocination which led the trial court
to deny the motion to declare Mobil and Cardenas in default. Furthermore,
Cardenas was not unaware of said incidents and the proceedings therein as Moreover, in joining Lim and Mariano in the compulsory counterclaim,
he testified and was present during trial, not to speak of the fact that as petitioners are being consistent with the solidary nature of the liability alleged therein.
manager of Mobil he would necessarily be interested in the case and could
Second Issue:
readily have access to the records and the pleadings filed therein.
CCCs Personality to Move to Dismiss
By adopting as his answer the allegations in the complaint which seeks the Compulsory Counterclaims
affirmative relief, Cardenas is deemed to have recognized the jurisdiction of
the trial court over his person and submitted thereto. He may not now be heard
to repudiate or question that jurisdiction.[27]
Characterizing their counterclaim for damages against Respondents CCC,
Lim and Mariano as joint and solidary, petitioners prayed:
WHEREFORE, it is respectfully prayed that after trial judgment be rendered:
1. Dismissing the complaint in its entirety;
2. Ordering the plaintiff, Gregory T. Lim and Anthony A. Mariano jointly
and solidarily to pay defendant actual damages in the sum of at
least P2,700,000.00;
3. Ordering the plaintiff, Gregory T. Lim and Anthony A,
Mariano jointly and solidarily to pay the
defendants LPI, LCLC, COC and Roseberg:
a. Exemplary damages of P100 million
each;
b. Moral damages of P100 million each;
and
c. Attorneys fees and costs of suit of
at least P5 million each.
Other reliefs just and equitable are likewise prayed for.[29]
Obligations may be classified as either joint or solidary. Joint or jointly or
conjoint means mancum or mancomunada or pro rata obligation; on the other hand,
solidary obligations may be used interchangeably with joint and several or several.
Thus, petitioners usage of the term joint and solidary is confusing and ambiguous.
The ambiguity in petitioners counterclaims notwithstanding, respondents liability,
if proven, is solidary. This characterization finds basis in Article 1207 of the Civil Code,
which provides that obligations are generally considered joint, except when otherwise
expressly stated or when the law or the nature of the obligation requires solidarity.
However, obligations arising from tort are, by their nature, always solidary. We have
assiduously maintained this legal principle as early as 1912 in Worcester v.
Ocampo,[30] in which we held:
x x x The difficulty in the contention of the appellants is that they fail to recognize that
the basis of the present action is tort. They fail to recognize the universal doctrine that
each joint tort feasor is not only individually liable for the tort in which he participates,
but is also jointly liable with his tort feasors. x x x
It may be stated as a general rule that joint tort feasors are all the persons who
command, instigate, promote, encourage, advise, countenance, cooperate in, aid or
abet the commission of a tort, or who approve of it after it is done, if done for their
benefit. They are each liable as principals, to the same extent and in the same
manner as if they had performed the wrongful act themselves. x x x
Joint tort feasors are jointly and severally liable for the tort which they commit. The
persons injured may sue all of them or any number less than all. Each is liable for the
whole damages caused by all, and all together are jointly liable for the whole damage.
It is no defense for one sued alone, that the others who participated in the wrongful
act are not joined with him as defendants; nor is it any excuse for him that his
participation in the tort was insignificant as compared to that of the others. x x x
Joint tort feasors are not liable pro rata. The damages can not be apportioned among
them, except among themselves. They cannot insist upon an apportionment, for the
purpose of each paying an aliquot part. They are jointly and severally liable for the
whole amount. x x x
A payment in full for the damage done, by one of the joint tort feasors, of
course satisfies any claim which might exist against the others. There can be
but satisfaction. The release of one of the joint tort feasors by agreement
generally operates to discharge all. x x x
Of course the court during trial may find that some of the alleged tort feasors
are liable and that others are not liable. The courts may release some for lack
of evidence while condemning others of the alleged tort feasors. And this is
true even though they are charged jointly and severally.
In a joint obligation, each obligor answers only for a part of the whole
liability; in a solidary or joint and several obligation, the relationship between
the active and the passive subjects is so close that each of them must comply
with or demand the fulfillment of the whole obligation.[31] The fact that the
liability sought against the CCC is for specific performance and tort, while that
sought against the individual respondents is based solely on tort does not
negate the solidary nature of their liability for tortuous acts alleged in the
counterclaims. Article 1211 of the Civil Code is explicit on this point:
Solidarity may exist although the creditors and the debtors may not be bound
in the same manner and by the same periods and conditions.
The solidary character of respondents alleged liability is precisely why
credence cannot be given to petitioners assertion. According to such assertion,
Respondent CCC cannot move to dismiss the counterclaims on grounds that
pertain solely to its individual co-debtors.[32] In cases filed by the creditor, a
solidary debtor may invoke defenses arising from the nature of the obligation,
from circumstances personal to it, or even from those personal to its
co-debtors. Article 1222 of the Civil Code provides:
A solidary debtor may, in actions filed by the creditor, avail itself of all defenses
which are derived from the nature of the obligation and of those which are
personal to him, or pertain to his own share. With respect to those which
personally belong to the others, he may avail himself thereof only as
regards that part of the debt for which the latter are
responsible.(Emphasis supplied).
The act of Respondent CCC as a solidary debtor -- that of filing a
motion to dismiss the counterclaim on grounds that pertain only to its individual
co-debtors -- is therefore allowed.
However, a perusal of its Motion to Dismiss the counterclaims shows
that Respondent CCC filed it on behalf of Co-respondents Lim and Mariano; it
did not pray that the counterclaim against it be dismissed. Be that as it may,
Respondent CCC cannot be declared in default. Jurisprudence teaches that if
the issues raised in the compulsory counterclaim are so intertwined with the
allegations in the complaint, such issues are deemed automatically
joined.[33] Counterclaims that are only for damages and attorneys fees and that
arise from the filing of the complaint shall be considered as special defenses
and need not be answered.[34]
CCCs Motion to Dismiss the
Counterclaim on Behalf of
Respondents Lim and
Mariano Not Allowed
While Respondent CCC can move to dismiss the counterclaims against it by
raising grounds that pertain to individual defendants Lim and Mariano, it cannot file
the same Motion on their behalf for the simple reason that it lacks the requisite
authority to do so. A corporation has a legal personality entirely separate and distinct
from that of its officers and cannot act for and on their behalf, without being so
authorized. Thus, unless expressly adopted by Lim and Mariano, the Motion to
Dismiss the compulsory counterclaim filed by Respondent CCC has no force and
effect as to them.
In summary, we make the following pronouncements:
1. The counterclaims against Respondents CCC, Gregory T. Lim and
Anthony A. Mariano are compulsory.
2. The counterclaims may properly implead Respondents Gregory T. Lim and
Anthony A. Mariano, even if both were not parties in the original
Complaint.
3. Respondent CCC or any of the three solidary debtors (CCC, Lim or
Mariano) may include, in a Motion to Dismiss, defenses available to
their co-defendants; nevertheless, the same Motion cannot be deemed
to have been filed on behalf of the said co-defendants.
4. Summons must be served on Respondents Lim and Mariano before the
trial court can obtain jurisdiction over them.
WHEREFORE, the Petition is GRANTED and the assailed Orders
REVERSED. The court of origin is hereby ORDERED to take cognizance of the
counterclaims pleaded in petitioners Answer with Compulsory Counterclaims and to
cause the service of summons on Respondents Gregory T. Lim and Anthony A.
Mariano. No costs.
Yulienco v. Court of Appeals, G.R. No. 131692, June 10, 1999
In this petition for review on certiorari, petitioner Felipe Yulienco (hereafter
YULIENCO) seeks to reverse the decision[1] of 4 December 1997 of the Court of
Appeals in CA-G.R. SP No. 42835, which dismissed for lack of merit the petition
therein which sought to set aside the orders of 3 May 1996[2] and 30 August 1996[3] of
the Regional Trial Court (RTC) of Quezon City, Branch 93, in Civil Case
No. Q-95-23691. In said orders, the RTC denied petitioner's motion to dismiss the
complaint and his motion for reconsideration, respectively.
The relevant facts are summarized by the Court of Appeals as follows:
Civil Case No. Q-95-23691 was instituted by private respondent Advance Capital
Corporation (ACC) against petitioner Felipe Yulienco to recover the amount of
P30,631,162.19 plus interests and penalty, which was apparently extended as a loan
to the petitioner, as evidenced by four promissory notes, namely:
P.N. Date Amount Date Due
P.N.#56 March 12, 1993 P7,447,656.93 June 11, 1993
P.N.#57 March 26,1993 P8,453,404.63 July 24, 1993
P.N.#59 April 23, 1993 P8,341,662.42 July 23, 1993
P.N.#60 May 7,1993 P6,408,438.21 Aug. 6, 1993
Each promissory note also provided for an interest rate of 30% per annum.
In its complaint, the ACC alleged that petitioner failed and refused to pay the amounts
reflected in the promissory notes upon their maturity and despite several demands to
pay made to the petitioner, the last one being sent on January 9, 1995.
Petitioner filed his answer on July 17, 1995, alleging in sum, that the trial court cannot
acquire jurisdiction over ACC's complaint because there is another case pending
between ACC and the petitioner involving the same subject matter, and that ACC's
complaint should have been filed as a necessary and compulsory counterclaim in the
said case. Also, ACC's complaint was allegedly in violation of the proscription against
splitting of a cause of action. Alternatively, petitioner countered that the promissory
notes upon which ACC based its claim are fake, and do not express the true intent of
the contracting parties.
On April 19, 1996, petitioner filed a memorandum/motion to dismiss with the trial
court, setting up the special and affirmative defenses in his answer as grounds for the
dismissal of ACC'ssuit.
The trial court struck down the said motion in its Order dated May 3, 1996, stating
that:
"The records show that the subject matters of the instant case at bar (Annex A PN
No. 56 dated 12 March 1993, Annex B PN No. 57 dated March 19, 1983 (sic), Annex
C PN No. 59 dated 23 April 1993 and Annex D PN No. 60 dated 7 May 1993) are not
among the subject matters of SP Civil Case No. 93-251, RTC, Makati case. The
records further show that defendant did notinvoke in his petition filed in the RTC
Makati case any cause of action against plaintiff regarding the promissory notes
which are the subject matters of the instant case.
After a careful and judicious consideration of the grounds being relied upon in
support of the motion under consideration as well as the opposition filed thereto, the
Court is inclined to hold that the promissory notes which comprise the subject matters
of the RTC, Makati case, involve separate and distinct causes of action. Moreover,
the Makati case involves real action whereas the instant case is only for collection of
sum of money."
Petitioner's subsequent motion for reconsideration was, likewise, denied in the trial
court's August 30, 1996 order, for lack of merit.[4]
Thereafter, YULIENCO filed before the Court of Appeals a petition
for certiorari, prohibition and/or injunction, docketed as CA-G.R. SP No. 42835,
questioning the aforementioned orders of the RTC of Quezon City. YULIENCO
challenged the jurisdiction of the RTC over Civil Case No. Q-95-23691 principally on
the ground of litis pendentia, because another case, Special Case No. Q-93-2521,
which, he claimed, involved the same parties (he and Advance Capital Corporation
[hereafter ACC]) and subject matter, is pending before the RTC of Makati City.
The Court of Appeals rejected YULIENCO's argument and consequently
dismissed the petition in its decision of 4 December 1997. It found that "bar of litis
pendencia [sic] will not operate in the present suit, inasmuch as there appears to be
no identity in the subject matter from which the reliefs prayed for in the actions
pending were premised," and in support thereof, made the following
observations:
There is no showing that the promissory notes involved in the present action
are in any way connected with the indebtedness of the petitioner, the
enforcement of which is sought to be restrained in SP Civil Case No. 93-2521,
pending in the Makati RTC. The promissory notes themselves (PN # 56, 57, 59
and 60) which are the primary repositories of the true intent of the contracting
parties, do not speak of any reasonable relevance of the promissory notes
subject of SP Civil Case No. 93-2521 to the present issue.
It follows, therefore, that ACC's quest for relief is not barred by the other
reasons furthered by the petitioner.
The theory that ACC's claim is now barred because it should have been filed
as a compulsory counterclaim in the Makati case is untenable. A compulsory
counterclaim is one, which being cognizable by the regular courts of justice,
arises out of or is connected with the transaction or occurrence constituting the
subject matter of the opposing party's claim and does not require for its
adjudication the presence of third parties of whom the court cannot acquire
jurisdiction. (Sec. 7, Rule 6,1997 Rules of Civil Procedure). As we have
observed, it was not shown that a reasonable connection was established
between ACC's present claim with the petitioner's attempt to restrain the
foreclosure of his properties. Neither can it be said, for the same reason, that
ACC is guilty of splitting a cause of action, or of forum-shopping.[5]
The Court of Appeals then ordered the RTC to proceed with the
pre-trial.
Unable to accept the decision, YULIENCO filed the instant petition. He
insists that the decision of the Court of Appeals is not in accord with law and
jurisprudence, because: (1) Civil Case No. Q-95-23691 violated the
fundamental rules on splitting of causes of action and/or necessary joinder of
causes of action in that the cause of action therein (complaint for collection of
sums of money covered by Promissory Notes Nos. 56, 57, 59 and 60) should
have been set up as compulsory counterclaim in Special Case No. Q-93-2521;
and (2) in filing Civil Case No. Q-95-23691, ACC was guilty of forum shopping.
On its part, ACC maintains that Civil Case No. Q-95-23691 of the RTC
of Quezon City is separate and distinct from Special Civil Case No. 93-2521 of
the RTC of Makati City. The first is an ordinary collection suit, while the second
is for injunction, and while both cases involve promissory notes, they are not
the same promissory notes. The dissimilarity arises from the disparate
obligations and transactions entered into or incurred by YULIENCO in different
years. Hence, there is no violation of the rule concerning splitting causes of
action or the necessary joinder of causes of action.
We agree with ACC.
A counterclaim is defined as any claim for money or other relief which a
defending party may have against an opposing party.[6] A counterclaim is
compulsory if (a) it arises out of, or is necessarily connected with, the
transaction or occurrence which is the subject matter of the opposing party's
claim; (b) it does not require for its adjudication the presence of third parties of
whom the court cannot acquire jurisdiction; and (c) the court has jurisdiction to
entertain the claim.[7] In other words, a compulsory counterclaim cannot be
made the subject of a separate action but should be asserted in the same suit
involving the same transaction or occurrence giving rise to it.[8]
The criteria or tests by which the compulsory or permissive nature of specific
counterclaims can be determined are as follows:
(1) Are the issues of fact and law raised by the claim and counterclaim
largely the same?
(2) Would res judicata bar a subsequent suit on defendant's claim
absent the compulsory counterclaim rule?
(3) Will substantially the same evidence support or refute plaintiff's
claim as well as defendant's counterclaim?
(4) Is there any logical relation between the claim and the
counterclaim?[9]
Stripped of its legalese and trivial details, Special Civil Case No. 93-2521 of
the RTC of Makati City is basically an injunction suit, a petition for prohibition. On the
other hand, Civil Case No. Q-95-23691 is an ordinary action for collection of sums of
money. In the former, YULIENCO essentially seeks to prohibit or enjoin the
disposition and/or sale of his property, the proceeds of which will answer for his
unpaid obligations to ACC. Specifically, YULIENCO attempts to prevent (1) the
foreclosure of the real estate mortgages which he executed to secure his monetary
obligations, (2) the issuance of certificates of sale in cases of mortgages already
foreclosed, and (3) the sale of his specific club membership certificates and shares of
stocks in ACC.Promissory notes are also involved in that case but they are
specifically identified as Promissory Notes Nos. 315, 317 and 318, and are intimately
related to or secured by the real estate mortgages. In Civil Case No. Q-95-23691,
ACC simply seeks to collect from YULIENCO his unpaid monetary obligations
covered by specific but unsecured Promissory Notes Nos. 56, 57, 59 and
60. Needless to say, they are not the promissory notes subject of the first
action. Neither are they substantially, intimately and reasonably relevant to nor even
remotely connected with the promissory notes and the cause of action in the
injunction suit. Simply put, the promissory notes in both cases differ from and are not
related to each other.
There is, therefore, a dissimilarity in the subject matter of both cases arising
from separate and distinct transactions and necessarily requiring different evidence
to support the divergent claims. More importantly, the "one compelling test of
compulsoriness" i.e., the logical relationship between the claim and counterclaim,
does not apply here. To reiterate, there is no logical relationship between
YULIENCO's petition for injunctive relief and ACC's collection suit, hence separate
trials of the respective claims of the parties will not entail a substantial duplication of
effort and time as the factual and/or legal issues involved, as already explained, are
dissimilar and distinct.[10] A judgment in Special Civil Action No. 93-2521 will not
therefore bar Civil Case No. Q-95-23691; "this, [additionally] on the theory that what
is barred by prior judgment are not only the matters squarely raised and litigated, but
all such matters as could have been raised but were not." [11] Obviously, each
averment by ACC for the collection of a sum of money covered by Promissory Notes
Nos. 56, 57 59 and 60 is not a "matter" that could have been raised as counterclaim
in the injunction suit.
In light of the above showing, there was no violation of the rule against
splitting causes of action or necessary joinder of causes of action.
As to YULIENCO'S contention that ACC should be found guilty of
forum-shopping, suffice it is to say that for forum-shopping to exist, both actions must
involve the same transactions, same essential facts and circumstances and must
raise identical causes of actions, subject matter, and issues.[12] Clearly, it does not
exist where two different orders were questioned, two distinct causes of action and
issues were raised, and two objectives were sought,[13] as in the abovementioned
cases. In other words, ACC did not engage in forum-shopping.
All told, the Court of Appeals did not therefore commit any reversible error in
rendering the assailed 4 December 1997 decision. The factual determinations of the
Court of Appeals therein are binding and conclusive upon this Court as no compelling
reasons exist necessitating a re-examination or reversal of the same.
WHEREFORE, the instant petition is hereby DENIED for lack of merit and the
appealed decision in CA-G.R. SP No. 42835 dismissing the petition therein and
ordering the RTC of Quezon City to proceed with the pre-trial of Civil Case No.
Q-95-23691 is hereby AFFIRMED.
Sec. 7. Compulsory Counterclaim
Section 7. Compulsory counterclaim. — A compulsory counterclaim is one
which, being cognizable by the regular courts of justice, arises out of or is
connected with the transaction or occurrence constituting the subject matter of
the opposing party's claim and does not require for its adjudication the
presence of third parties of whom the court cannot acquire jurisdiction. Such a
counterclaim must be within the jurisdiction of the court both as to the amount
and the nature thereof, except that in an original action before the Regional
Trial Court, the counter-claim may be considered compulsory regardless of the
amount.
See: Rule 11, Sec. 8
Section 8. Existing counterclaim or cross-claim. — A
compulsory counterclaim or a cross-claim that a
defending party has at the time he files his answer shall
be contained therein.
Rule 9, Sec. 2
Section 2. Compulsory counterclaim, or
cross-claim, not set up barred. — A compulsory
counterclaim, or a cross-claim, not set up shall be
barred.
Lafarge Cement v. Continental, G.R. No. 155173, November 23, 2004 (Supra.)
Mercado v. Court of Appeals, G.R. No. 169576, October 17, 2008 (resolution only)
Leonides Mercado had been distributing respondent San Miguel Corporation’s
(SMC’s) beer products in Quiapo, Manila since 1967. In 1991, SMC extended to him
a ₱7.5 million credit line allowing him to withdraw goods on credit. To secure his
purchases, Mercado assigned three China Banking Corporation (CBC) certificates of
deposit amounting to ₱5 million1 to SMC and executed a continuing hold-out
agreement stating:
Any demand made by [SMC] on [CBC], claiming default on
my/our part shall be conclusive on [CBC] and shall serve as
absolute authority for [CBC] to encash the [CBC certificates of
deposit] in accordance with the third paragraph of this
Hold-Out Agreement, whether or not I/we have in fact
defaulted on any of my/our obligations with [SMC], it
being understood that the issue of whether or not there
was factual default must be threshed out solely
between me/us and [SMC]
He also submitted three surety bonds from Eastern Assurance and Surety
Corporation (EASCO) totaling ₱2.6 million.2
On February 10, 1992, SMC notified CBC that Mercado failed to pay for the
items he withdrew on credit. Consequently, citing the continuing hold-out
agreement, it asked CBC to release the proceeds of the assigned certificates
of deposit. CBC approved SMB’s request and informed Mercado.
On March 2, 1992, Mercado filed an action to annul the continuing hold-out
agreement and deed of assignment in the Regional Trial Court (RTC) of Manila,
Branch 55.3 He claimed that the continuing hold-out agreement allowed
forfeiture without the benefit of foreclosure. It was therefore void pursuant to
Article 2088 of the Civil Code.4Moreover, Mercado argued that he had already
settled his recent purchases on credit but SMC erroneously applied the said
payments to his old accounts not covered by the continuing hold-out
agreement (i.e., purchases made prior to the extension of the credit line).
On March 18, 1992, SMC filed its answer with counterclaim against Mercado.
It contended that Mercado delivered only two CBC certificates of deposit
amounting to ₱4.5 million5 and asserted that the execution of the continuing
hold-out agreement and deed of assignment was a recognized business
practice. Furthermore, because Mercado admitted his outstanding liabilities,
SMC sought payment of the lees products he withdrew (or purchased on credit)
worth ₱7,468,153.75.6
On April 23, 1992, SMC filed a third-party complaint against EASCO.7 It sought
to collect the proceeds of the surety bonds submitted by Mercado.
On September 14, 1994, Mercado filed an urgent manifestation and motion
seeking the dismissal of the complaint. He claimed that he was no longer
interested in annulling the continuing hold-out agreement and deed of
assignment. The RTC, however, denied the motion.8 Instead, it set the case for
pre-trial. Thereafter, trial ensued.
During trial, Mercado acknowledged the accuracy of SMC’s computation of his
outstanding liability as of August 15, 1991. Thus, the RTC dismissed the
complaint and ordered Mercado and EASCO (to the extent of ₱2.6 million or
the value of its bonds) to jointly and severally pay SMC the amount of
₱7,468,153.75.9
Aggrieved, Mercado and EASCO appealed to the Court of Appeals
(CA)10 insisting that Mercado did not default in the payment of his obligations
to SMC.
On December 14, 2004, the CA affirmed the RTC decision in toto.11 Mercado
and EASCO both moved for reconsideration but their respective motions were
denied.12
On October 28, 2005, EASCO filed a petition for review on certiorari in this
Court13 but eventually agreed to settle its liability with SMC.14 The petition was
terminated on September 19, 2007.15
Meanwhile, Mercado passed away and was substituted by his heirs, petitioners
Racquel D. Mercado, Jimmy D. Mercado, Henry D. Mercado, Louricar D. Mercado
and Virgilio D. Mercado.
Petitioners subsequently filed this petition asserting that the CA erred in affirming the
RTC decision in toto. The said decision (insofar as it ordered Mercado to pay SMC
₱7,468,153.75) was void. SMC’s counterclaim was permissive in nature. Inasmuch
as SMC did not pay docket fees, the RTC never acquired jurisdiction over the
counterclaim.
We deny the petition.
A counterclaim (or a claim which a defending party may have against any
party)16 may be compulsory17 or permissive. A counterclaim that (1) arises out of (or
is necessarily connected with) the transaction or occurrence that is the subject matter
of the opposing party’s claim; (2) falls within the jurisdiction of the court and (3) does
not require for its adjudication the presence of third parties over whom the court
cannot acquire jurisdiction, is compulsory.18 Otherwise, a counterclaim is merely
permissive.
When Mercado sought to annul the continuing hold-out agreement and deed of
assignment (which he executed as security for his credit purchases), he in effect
sought to be freed from them. While he admitted having outstanding obligations, he
nevertheless asserted that those were not covered by the assailed accessory
contracts. For its part, aside from invoking the validity of the said agreements, SMC
therefore sought to collect the payment for the value of goods Mercado purchased on
credit. Thus, Mercado’s complaint and SMC’s counterclaim both touched the issues
of whether the continuing hold-out agreement and deed of assignment were valid and
whether Mercado had outstanding liabilities to SMC. The same evidence would
essentially support or refute Mercado’s claim and SMC’s counterclaim.
Based on the foregoing, had these issues been tried separately, the efforts of the
RTC and the parties would have had to be duplicated. Clearly, SMC’s counterclaim,
being logically related to Mercado’s claim, was compulsory in nature.19 Consequently,
the payment of docket fees was not necessary for the RTC to acquire jurisdiction
over the subject matter.
WHEREFORE, the petition is hereby DENIED.
Calibre Traders v. Bayer, G.R. No. 161431, October 13, 2010
This petition for review on certiorari[1] assails the July 31, 2002 Decision[2] and the
December 19, 2003 Resolution[3] of the Court of Appeals (CA) in CA-G.R. CV No. 45546, that
denied petitioners action for damages against respondent Bayer Philippines Inc. (Bayerphil) and
instead granted the latters counterclaim for P1,272,103.07, representing unpaid purchases of
Bayerphils products.
Factual Antecedents
Calibre Traders, Inc. (Calibre) was one of Bayerphils distributors/dealers of its agricultural
chemicals within the provinces of Pangasinan and Tarlac.[4] Their last distributorship agreement
was effective from June 1989 to June 1991.[5] However, Bayerphil stopped delivering stocks to
Calibre on July 31, 1989 after the latter failed to settle its unpaid accounts in the total amount
of P1,751,064.56.[6]

As Bayerphils authorized dealer, Calibre then enjoyed discounts and rebates. Subsequently,
however, the parties had a disagreement as to the entitlement and computations of these
discounts. Calibre, although aware of the deadline to pay its debts with Bayerphil, nevertheless
withheld payment to compel Bayerphil to reconcile its accounts.[7]
In a letter dated August 16, 1989, Calibre requested Bayerphil for a reconciliation of
accounts. It enumerated the following claims that amounted to P968,265.82:
1. Interest charged to our 1984-1985 Volume Rebate. These were
charged to us without our acknowledgment and was under
protest since your people were not serving our account during
that period. This amounts to P60,000.00 more or less.
2. Request for retroactive application of your special rebate as
per our letter dated August 29, 1988 and your reply dated
September 3, 1988. The reply is not acceptable to us. This
amounts to P33,127.26.
3. Special rebates of Machete EC and EN for CY 1988 which
[were] not granted to us, [but were] given to the other
distributors after we have withdrawn a sizeable quantity. This
amounts to P68,244.30.
Following our October 27, 1989 discussions with yourself for
the final resolution of your overdue accounts with our company
in the amount of exactly P1,718,822.57, we have arrived at a
final arrangement which will no doubt be more than fair
specially for your firm.
We will now go by your claims per your letter of August 16,
1989[. We] now confirm the following:
1. The alleged interest charges of P60,000.00 x x x for
unpaid invoices against your volume rebate for the year
1984-1985 was not charged at all. Our records show
that we granted your year-end rebate per our
Credit Note #9089 of July 1985 - P 973,511.56
and
Credit Note #9149 of September 1985 - 181,441.15
Total rebate from retention scheme
1984-1985 P1,154,952.71
These credit notes do not bear any interest charges as you
claimed during that discussion. It means you were not charged
any penalty on delayed payments of subject invoices.
7. Special 8% rebates on Machete 5G in the amount
of P1,376.80. We have given you a Credit Note #12160 to
offset that claim.
8. Your volume rebate claim for the year 1988-1989 is in the
sum of P520,548.41, however, our computation stands
at P479,326.49. Enclosed herewith please find our CM#12250
in the amount of P320,849.42 representing your volume rebate
for 1988-1989 on the paid portion of your volume rebate year
purchases. As soon as payment is received on your balance
of P1,042,248.16 (net of additional volume rebate
of P158,477.07 on the unpaid portion and prompt payment
rebate of P63,196.06), we shall issue you the aforementioned
additional volume rebate and prompt payment rebate CMs.
9. Your claim of 5% prompt payment rebate per your note
dated June 30, 1989 has been computed to amount
to P63,196.06 in view of the returns and application of your
volume rebate against the total outstanding unpaid balances.
10. Your intention to return stocks per your letter of April 3,
1989. We have withdrawn the following products on October
28, 1989, as follows:

4. The difference between our claim dated March 31, 1989
amounting to P47,746.30 against your Credit Memo 11868
dated April 28, 1989 amounting to P21,214.85. The amount of
difference is P26,531.47.
5. The difference between our claim dated October 31, 1988
amounting to P23,342.09 against your Credit Memo 11693
dated January 31, 1989 amounting to P21,222.48. The amount
of difference is P2,119.61.
6. Sales Returns as per your CRR 2159 dated December 19,
1988 amounting to P8,047.71.
7. Special rebates of 8% for Machete 5G as per Invoice No.
834159 dated February 14, 1989. This amounts to [P1,376.80].
8. Request for Sales returns due to overdelivery as per our
letter dated April 3, 1989 amounting to P147,108.86.
9. Request for Sales returns due to leakage as per our letter
dated April 3, 1989 amounting to P8,681.24.
10. 1988-1989 Volume Rebate amounting to P520,548.41.
11. 5% Prompt Payment on P1,839,603.15 amounting
to P92,480.16 since your Sales Representative was not
servicing our account due to his [forth]coming resignation.[8]
Calibre sent follow-up letters dated September 17, October 13, and November 16,
[9]
1989.
On September 29, 1989, Bayerphils credit and collection officer, Leon Abesamis,
conferred with Calibres General Manager Mario Sebastian (Sebastian). The attempt to settle
failed. Again, on October 27, 1989, Bayerphils Sales Manager of the Agro Division, Vidal Lingan,
met with Sebastian. The results of their discussion were put in writing in Bayerphils letter dated
November 10, 1989, to wit:
xxxx
Gentlemen:
2. Retroactive application against inventory of special Basagran 250 ml. - 230
deal rebates have never been paid to any of our bottles
distributors nationwide since we began business 500 ml. - 102
operations in this country. As a matter of policy, we bottles
regret that we cannot grant this request. Baycarb 1000 ml. - 64 ‫״‬
Baythroid 100 ml. - 373 ‫״‬
3. Special rebates on Machete EN and Machete EC on 250 ml. - 336 ‫״‬
the basis of 30-day COD arrangement were granted Gusacarb 500 ml. - 20 ‫״‬
during the last quarter of 1988. This agreement did not Roundup 250 ml. - 30 ‫״‬
apply to your purchases on the same products from Machete EC 500 ml. - 12 ‫״‬
January 1, 1988 to September 30, 1988. We found your 1000 ml. - 12 ‫״‬
claim difficult to accept. The net value of the above materials has been
computed at P124,493.28, [for which]a credit note
4. Your claim for P26,531.47 from our 30-day COD will be issued shortly.
terms with 5% rebate on selected products only, i.e.,
Gusathion, Folidol, Machete EC & EN. You have, in We believe that we have been more than fair in meeting your
your claim included other products than those claims. We granted your requests as a gesture of benevolence in
listed. Inasmuch as our former Sales Representative assisting your firm in softening the burdens as inevitable
agreed to the inclusion of the other [products], we will consequences of business difficulties.
grant that claim for P26,531.47 net of our earlier issued
CM #11868, as an honorable business organization is And as the time tested physical law rightly states for every action,
expected to act. there must be an equal positive reaction. We feel that you now react
favorably in the final and complete resolution of your main problem.
5. Your claim on the difference of P2,119.61 [as stated
in] your letter of October 31, 1988 in the amount Yours faithfully,
of P23,342.09 and our Credit Note #11693 dated
January 31, 1989, is granted. Our computations are BAYER PHILIPPINES, INC.[10]
absolutely correct but we shall not argue over a trivial
figure. Bayerphils Assistant Sales Manager Rene Garcia (Garcia) gave this letter to
Sebastian[11] on November 17, and offered to grant Calibres claims just so that it may finally settle
6. Your claims on returned stocks on December 19, all its unpaid accounts with Bayerphil. Sebastian wrote Bayerphil to confirm Garcias offer.[12] In
1988 per CRR No. 2159 for P8,047.71. We issued the reply, Bayerphil specified in its November 24, 1989 letter the additional claims it granted and
corresponding credit note dated July 25, 1989 in the clarified the other claims:
amount of P7,242.26, which is based on the prices of
the returned goods at the time you acquired them, not at xxxx
the time when you returned them when there was a
corresponding increase in prices. The difference [Gentlemen]:
is P805.45. Any business house will reluctantly consider
this claim but we thought we should gallantly grant you We have your letter of November 22, 1989 with your request that we
that oversight. We are sure you did not intend to do that. confirm or deny the verbal offer of our Mr. Renato G. Garcia granting
all your claims with us per your letter of August 16, 1989.
 Please be informed that we confirm that offer subject to the conditions
hereunder made explicit, to wit:
1. We will grant you a credit note for P33,127.26 referring to
your Item #2 in your letter dated August 16, 1989.
2. We will also grant you a credit note for P68,244.30 referring
to your Item #3 in your above-named letter.
3. We will likewise grant the amount of P6,572.29 by CM to
cover your Item #4 in your above-named letter. We have
excluded the free goods portion in your claim.
4. We will further grant the sum of P2,119.61 by CM as
claimed in Item #5 of your above-named letter.
5. We will also grant P805.45 through a CM to complete our
CM #4975 as per your Item #6 in your said letter.
6. Items 7, 8 & 9 in your letter has [sic] been earlier granted by
our CM Nos. 12160 and 5263.
7. We will also grant your additional volume rebate amounting
to P147,590.03 (see also CM#12250 P320,849.42 VR earlier
granted upon full payment of the hereunder mentioned net
payable to us).
8. Lastly, we will grant you under Item #11 of your August 16
letter, the sum of P79,557.21 (credited free goods and volume
rebate which shall be applied against outstanding account are
excluded).
All the foregoing are premised on our receipt of your full payment of
the sum of P934,086.92, in full and total settlement of your outstanding
account after the crediting of the eight (8) above-named concessions
totaling to P338,016.15.
We strongly urge you to accept and adhere to the foregoing offer by
remitting to us the said sum of P934,086.92 through a bank demand
draft on or before close of business hours of December 8, 1989. Your
failure to remit the said demand draft within the allotted time shall
effectively cancel our herein offer, and much to our regret we shall be
left with no other recourse but to protect our interests by and through
an appropriately more drastic legal action.
Yours faithfully,
BAYER PHILIPPINES, INC.[13]
In his December 8, 1989 letter, Sebastian expressed discontent in Bayerphils
refusal to credit his claims in full and underscored the alleged inaction of Bayerphil in reconciling
Calibres accounts.[14]
This was followed by a demand letter requiring Bayerphil to pay the sum
of P10,000,000.00 for the damages it had allegedly caused to Calibre.[15] Bayerphil replied,
reminding that Calibre owed it P1,272,103.07 as of December 31, 1989.[16]
Accusing Bayerphil of maliciously breaching the distributorship agreement by
manipulating Calibres accounts, withholding discounts and rebates due it, charging unwarranted
penalties, refusing to supply goods, and favoring the new distributors/dealers to drive it out of
business, Calibre, on March 14, 1990, filed a suit for damages, docketed as Civil Case No.
59258, before the Regional Trial Court (RTC) of Pasig.[17] Calibre prayed for P8,000,000.00
actual damages, representing alleged actual losses and profits;[18] P2,000,000.00 award as
alleged damage to its goodwill and business reputation; P3,500,000.00 as exemplary damages;
and, attorneys fees of P1,500,000.00.
In its Answer with Counterclaim,[19] Bayerphil denied its alleged wanton appointment
of other distributors, reasoning that it could not be faulted for a difference in treatment between a
paying dealer and a non-paying one. It maintained that Calibre filed the damage suit to
avoid paying its overdue accounts. Considering that those purchased on credit remained
unpaid, Bayerphil had to refuse to further supply Calibre with its products.
Bayerphil also averred that the dealership agreement provides that rebates
and discounts would only be granted if the previous purchases had been first fully paid. It
denied that it failed to reconcile Calibres accounts since it conferred with Calibre, and
even acceded to a number of deductions demanded by Calibre subject to the latters
settlement of accounts. Bayerphil thus prayed for the collection of P1,272,103.07, with
interest of 14% per annum accruing daily and compounded monthly from the date of
default (as provided in the dealership agreement); P1,000,000.00 exemplary damages;
and, P200,000.00 attorneys fees and costs of suit.
Bayerphil also moved that Mario Sebastian and his wife Minda (Sebastians)
be impleaded as co-defendants, considering that the Sebastians bound themselves as
solidary debtors under the distributorship/dealership agreement.[20]
Calibre opposed Bayerphils motion to implead the Sebastians and moved
to strike out the counterclaim, reasoning that the spouses are not parties in its suit against
Bayerphil and thus are not the proper parties to the counterclaim. It stressed that the
issues between the damages suit it filed and Bayerphils counterclaim for collection of
money are totally unrelated.[21]
On the other hand, Bayerphil contended that both causes of action arose
from the same contract of distributorship, and that the Sebastians inclusion is necessary
for a full adjudication of Bayerphils counterclaim to avoid duplication of suits.[22]
In its October 24, 1990 Resolution,[23] the trial court rejected Calibres arguments and
granted the motion to implead the Sebastians as co-defendants in the counterclaim. The
spouses then filed their answer to Bayerphils counterclaim,[24] adopting all the allegations
and defenses of Calibre. They raised the issue that the counterclaim against them is
permissive, and since Bayerphil failed to pay the required docket fees, the trial court has
no jurisdiction over the counterclaim.
Ruling of the Regional Trial Court
On December 6, 1993, the trial court rendered judgment[25] favoring Calibre. It held that
Calibre was justified in withholding payment because there was deliberate
inaction/employment of dilatory tactics on the part of Bayerphil to reconcile accounts
making it liable for damages for abuse of rights and unfair competition under Articles 19,
20, and 28 of the Civil Code.[26] It opined that Bayerphil unfairly favored other dealers and
deliberately refused to supply the plaintiff with its products to drive it out of business. As for
Bayerphils counterclaim, the court a quo adjudged that aside from being unmeritorious for
lack of valid demand, the counterclaim was permissive in character.Therefore, it must be
dismissed for Bayerphils failure to pay the required docket fees. The dispositive portion of
the Decision states:
WHEREFORE, judgment is hereby rendered in favor of
plaintiff and against defendant Bayer Philippines, Inc., ordering
said defendant to pay to plaintiff the amounts of P8,000,000.00
as actual damages, plus P80,000.00 as attorneys fees, plus
costs.
The Counter-Complaint of defendant against the spouses
Mario and Minda Sebastian is DISMISSED, for defendants
failure to pay the required docket and filing fees, considering
that the counterclaim is permissive in character, and not
compulsory. Defendants counterclaim is likewise DISMISSED
for lack of merit.
SO ORDERED.[27]
Ruling of the Court of Appeals
The CA reversed the trial courts factual findings. In its July 31, 2002 Decision, the CA
found no reason to award Calibre anything as it has no cause of action against
Bayerphil.The CA said:
We agree with the appellant that nothing in the evidence suggests that
it deliberately and maliciously withheld approval of Calibres
claims. Indeed, the correspondences between the parties show that
either there was an honest difference in the computation of the
amount, and/or a variance in opinion as to the validity of the
claims. There is abundant evidence that Bayer actually examined its
records so much so that through a letter dated November 10, 1989, it
gave its explanation why it was denying certain claims. Bayer sent its
representatives to discuss the matter with Calibres General Manager
Mario Sebastian. Bayer exerted efforts to arrive at a compromise with
Calibre, and expressed its willingness to grant several concessions to
plaintiff-appellee (Exhibit N, Record, pp. 256-257)
Parenthetically, Bayers offer of compromise cannot be taken as an
admission of liability on its part for the entire claim of appellee
Calibre. In civil cases, an offer of compromise is not an admission of
any liability. The compromise settlement of a claim or cause of action
is not an admission that the claim is valid, but merely admits that there
is a dispute, and that the amount is being paid just to buy
peace. (Servicewide Specialists, Inc. vs. Court of Appeals, G.R. No.
117728, June 26, 1996, 257 SCRA 643) After all, it is the policy of the
law to encourage compromises.
xxxx
It must also be noted that plaintiff-appellee was not entitled to be the
sole distributor within its area of coverage for Bayer. Under number 3,
Part III of the latest Distributorship/Dealership Agreement (p. 231,
Record) between the parties, it was stipulated that unless otherwise
agreed upon, formally and in writing, plaintiff-appellees appointment as
distributor/dealer was to be on a non-exclusive basis. The
agreement expressly reserved Bayers right to appoint other
distributors and/or dealers, in any number desired and
anywhere in the appointed area. There is no evidence of a formal
and written agreement appointing plaintiff-appellee as sole distributor
in Pangasinan and Tarlac. Hence, it cannot validly claim that Bayer
caused its business injury by appointing other dealers and distributors
within its area.
Significantly, the Distributorship/Dealership Agreement also reserved
to both parties the right to cancel the agreement at any time. Under
the circumstances obtaining, Bayer was justified, in the exercise of
sound business decision, to stop supplying goods to plaintiff-appellee
until the latters outstanding account had been finally settled.[28]
Furthermore, the CA favored Bayerphils counterclaim. It ruled that Bayerphils counterclaim was
compulsory hence it need not pay the docket and filing fees. It noted that it arose out of the same
dealership agreement from which the claims of Calibre in its complaint were likewise
based. Finding that Calibre never denied that it owes Bayerphil, and that the evidence of
Bayerphil regarding the amount owed by Calibre was unrebutted, the CA deemed justified the
award of actual damages. Hence:
WHEREFORE, premises considered, the Decision of the lower court
is hereby REVERSED and SET ASIDE and a new one is entered
ordering plaintiff-appellee Calibre Traders and/or Mario Sison
Sebastian and Minda Blanco Sebastian to pay defendant-appellant
the amount of One Million Two Hundred Seventy-Two Thousand One
Hundred Three Pesos and Seven Centavos (P1,272,103.07) with
interest thereon at the rate of 14% per annum compounded from
December 31, 1989 until fully paid.
Without pronouncement as to costs.
SO ORDERED.[29]
In its December 19, 2003 Resolution,[30] the CA denied the motion for reconsideration. Q You said in Manaoag, this Rosalyn Agricultural Supply was Q You prepared a projection of your total sales for another ten (10)
there as early as 1980 is that correct? years from 1989.
Issues A At about. A Yes, sir.
Based on the parties contentions, the Court should now resolve the following issues: a) Calibres
entitlement to an award of damages; and, b) the propriety of granting relief to Bayerphils Q But somehow, it was a distributor for only 2 or 3 years? Q In the preparation of your projection, I assume that you based it on
counterclaim. A Yes, shortly, unlike those dealers who have several years. the records of your sales of previous years?
A No.
Q This Samson in Urdaneta was also short lived?
A It began in the area and operating until now. Q You did not in preparing your projection of sales to determine your
Our Ruling alleged lost profits refer at all to your previous records?
Q Would you know when Samson began as a distributor? A No.
No form of A Between the period 82 and 85.
damages can be Q What then was the basis of your projection?
awarded to Q This San Carlos Agricultural Center owned by William. A The basis of my projection is, as one of the valued clients of Bayer
Calibre for it A It is owned by Ricardo Rule. There are two operating in San Philippines which is a member of the World Club, we are
miserably failed Carlos. in the bracket of 10 million per year sales.
to prove its right
to the reliefs it Q There are two dealers operating in San Carlos? Q So you only had capability to sell?
sought. A Yes, Sir. A Yes.

Q How many in Urdaneta? Q Have you ever sold before in the 10 million per year sales?
While only questions of law are reviewed in petitions for review on certiorari, the A Calibre and Samson. Only those two. A Yes.
Court shall delve into the factual milieu of this case in view of the conflicting findings of facts by the
trial court and the CA.[31] The question arises whether Calibre has a cause of action against Q You would admit Mrs. Castillo that the Bayer Phils. Q That is why I am asking you, you did not at all base your
Bayerphil. The records before us though, highlight the lack of it. Salesmen of agro chemicals are experienced in assumption on your prior sales record of Bayer
the products of Bayer Philippines? Philippines products?
The lower courts ruling against the latter is premised on a finding of malice or bad A Having worked and dealt with Bayer chemicals, with the A I cannot possibly base it on the past sales. Cost of money is going
faith, i.e., a finding of an abuse of right on Bayerphils part in exercising inimical acts that training they got, I suppose they get that up so I based it on a bracket that Bayer Philippines put
prejudiced Calibres business. However, we agree with the CAs conclusion that there is no experience. us which is in the 10 million per year sales that is
adequate proof that Bayerphil was guilty of abusing its rights. [G]ood faith is presumed and that projected for another 10 years because we are the
the burden of proving bad faith rests upon a party alleging the same.[32] In civil cases, the law Q And this experience would be invaluable in their valued clients of Bayer.
requires that the party who alleges a fact and substantially asserts the affirmative of the issue has distributorship?
the burden of proving it.[33] This is where Calibre failed. A Valuable. Q You also projected your profits for the next 10 years?
A Yes, sir.
As regards the allegations of inaction/refusal to reconcile accounts, accounts
manipulation by withholding discounts/rebates, imposition of penalties, and refusal to supply Q Very valuable? Q And you did not consider the profits from the Bayer business of the
goods, the records reveal that Bayerphil never ignored the request for accounts A Very valuable. prior years in making your projection?
reconciliation. Bayerphil acted on Calibres letter and sent its representatives to meet with A Yes, sir.
Sebastian. It wrote a letter answering point-by-point why some demands for discounts and Q And in fact, you know of many salesmen of Bayer Phils who
rebates had to be refused. Bayerphils second letter, wherein some claims were additionally resigned? Q I assume then that in determining your profits for the previous years
granted, was on Bayerphils part an act of concession in its desire to be paid since Calibre A Yes, sir. you used the figures of the summary Exhibit O as to your
remained adamant in not paying its accounts. If ever Calibre found the second letter to be sales from 1977 to 1989?
apparently inconsistent with the first letter, bad faith cannot be immediately imputed to Bayerphil Q Because the chances of getting more is there if you are an A No, sir.
since the latter is not precluded from making prompt corrections in its computations. independent distributor?
A Yes, sir. Q You did not refer at all to your profits for the previous years?
We cannot subscribe to the accusation of accounts manipulation. As the CA had A No, sir.
found, this matter involves an honest difference in the computation of the amount, and/or a Q In fact, this is true not only in Pangasinan but all over the
variance in opinion as to the validity of the claims. Moreover, Bayerphil could not be blamed for country, Mrs. Castillo? Q Why did you not refer to your previous profits to determine your
disallowing some of the claimed discounts and rebates. Under the latest dealership agreement A Yes, because we have mentioned one in Cotabato, in San projection of probable profits?
and the volume rebate agreement executed, payment is a precondition for the discounts and Jose, Nueva Ecija, in Tuguegarao. A We projected our projection based on our being a valued client of
rebates.[34] Bayerphil, to minimize further losses, was justified in stopping the supply of its Bayer Philippines, and based on the contract of the
products when its dealer still had outstanding accounts. Lastly, Calibre did not specify during the Q And from the records that you mentioned earlier on, it would minimum 5% profit.[38]
trial the unwarranted penalties Bayerphil had allegedly imposed. seem some of them succeeded beautifully and
some closed shop afterwards?
Neither do we find any abuse in Bayerphils exercise of appointing other distributors A Yes, sir. To justify a grant of actual or compensatory damages, the amount of loss must be
within Calibres area. The fact that the distributors appointed were Calibres former customers or proved with a reasonable degree of certainty, based upon competent proof and the best
salesmen or their relatives does not prove any ill intention to drive Calibre out of Q It is just a matter of luck and yes, business luck? evidence obtainable by the injured party.[39] The projected sum of P10 million sales cannot thus
business. Notably, the distributorship/dealership agreement was on a non-exclusive A Yes, sir.[35] be the proper base in computing actual damages. Calibre computed its lost income based only
basis. Bayerphil merely accorded the same business opportunities to others to better on its capability to sell around P10 Million, not on the actual income earned in the past years to
themselves. Naturally, an increase in the number of distributors in an area will entail properly compute the average income/profit.
corresponding decline in volume sales of the individual distributors. Even then Bayerphils Incidentally, under actual or compensatory damages, indemnification
assistant sales manager for internal administration Ofelia Castillo, who named during the trial the comprises not only the value of the loss suffered, but likewise the profits the obligee failed At any rate, since Calibre had no cause of action at all against Bayerphil, there can
other distributors Bayerphil appointed in Pangasinan, not only acknowledged that Bayerphils to obtain.[36] In its attempt to support this claim for compensatory damages, Calibre, based be no basis to award it with damages.
former salesmen had resigned to be dealers, but also admitted that competition is part of its computation of more or less a loss of P8 million on a 10-year sales projection.[37] But as
business risk: could be gleaned from Sebastians testimony, there is no solid evidence upon which this Bayerphils
sales projection was based: counterclaim is
permissive, but
the trial court
should have
given it the
opportunity to
pay the docket
fees since it did
not avoid paying
said fees.
A compulsory counterclaim is any claim for money or other relief, which a defending party may
have against an opposing party, which at the time of suit arises out of, or is necessarily
connected with, the same transaction or occurrence that is the subject matter of plaintiffs
complaint. It is compulsory in the sense that it is within the jurisdiction of the court, does not
require for its adjudication the presence of third parties over whom the court cannot acquire
jurisdiction, and will be barred x x x if not set up in the answer to the complaint in the same
case. Any other claim is permissive.[40] [The] Court has already laid down the following tests to
determine whether a counterclaim is compulsory or not, to wit: (1) Are the issues of fact or law
raised by the claim and the counterclaim largely the same? (2) Would res judicata bar a
subsequent suit on defendant's claims, absent the compulsory counterclaim rule? (3) Will
substantially the same evidence support or refute plaintiff's claim as well as the defendant's
counterclaim? and (4) Is there any logical relation between the claim and the counterclaim, such
that the conduct of separate trials of the respective claims of the parties would entail a substantial
duplication of effort and time by the parties and the court?[41] The fourth test is the compelling test
of compulsoriness.[42]
Bayerphils suit may independently proceed in a separate action. Although the rights and
obligations of the parties are anchored on the same contract, the causes of action they filed
against each other are distinct and do not involve the same factual issues. We find no logical
relationship between the two actions in a way that the recovery or dismissal of plaintiffs suit will
establish a foundation for the others claim. The counterclaim for collection of money is not
intertwined with or contingent on Calibres own claim for damages, which was based on the
principle of abuse of rights. Both actions involve the presentation of different pieces of
evidence. Calibres suit had to present evidence of malicious intent, while Bayerphils objective
was to prove nonpayment of purchases. The allegations highlighting bad faith are different from
the transactions constituting the subject matter of the collection suit. Respondents counterclaim
was only permissive. Hence, the CA erred in ruling that Bayerphils claim against the petitioners
partakes of a compulsory counterclaim.
Be that as it may, the trial court was incorrect in dismissing Bayerphils counterclaim
for non-payment of docket fees.
All along, Bayerphil has never evaded payment of the docket fees on the honest
belief that its counterclaim was compulsory. It has always argued against Calibres contention that
its counterclaim was permissive ever since the latter opposed Bayerphils motion before the RTC
to implead the Sebastian spouses. Lastly, Bayerphils belief was reinforced by Judge Claravalls
October 24, 1990 Resolution when she denied Calibres motion to strike out Bayerphils
counterclaim. Thus:
With respect to the motion to strike out the counterclaim,
the Rejoinder and Reply of CALIBRE mentioned two reasons to
support it. These are: 1) that the counterclaim is not against the
opposing party only, and 2) that the plaintiffs claim against the
defendant is totally unrelated to the latters claim against the Sebastian
spouses because they are not the same.
To resolve the issues abovementioned, the elements of a
compulsory counterclaim are thus given:
A counterclaim is compulsory and is
considered barred if not set up where
the following circumstances are present:
1) that it arises out of the, or is
necessarily connected with the
transaction or occurrence that is the
subject matter of the opposing partys
claim, 2) that it does not require for its
adjudication the presence of third
parties of whom the court cannot
acquire jurisdiction, and 3) that
the court has jurisdiction to
entertain the claim. (Javier vs.
IAC, 171 SCRA 605)
The provisions of Section 8, Rule 6 must necessarily be
mentioned also. To wit:
Sec. 8, Rule 6. Counterclaim or
cross-claim in the answer. The
answer may contain any
counterclaim or crossclaim which a
party may have at the time against
the opposing party or a
co-defendant provided, that the
court has jurisdiction to entertain the
claim and can, if the presence of
third parties is essential for its
adjudication, acquire jurisdiction of
such parties.
The rules and jurisprudence do not require that the parties to
the counterclaim be the original parties only. In fact, the
presence of third parties is allowed, the only provision being
their capacity to be subjected under the courts jurisdiction. As
regards the nature of the claims of the parties, neither is it
required that they be of the same nature, only that they arise
from the same transaction or occurrence.[43]
It cannot be gainsaid that the emerging trend in the rulings of this Court is to
afford every party litigant the amplest opportunity for the proper and just determination of
his cause, free from the constraints of technicalities.[44] Rules on the payment of filing fees
have already been relaxed:
1. It is not simply the filing of the complaint or
appropriate initiatory pleading, but the payment of the
prescribed docket fee, that vests a trial court with jurisdiction
over the subject-matter or nature of the action. Where the
filing of the initiatory pleading is not accompanied by
payment of the docket fee, the court may allow payment
of the fee within a reasonable time but in no case beyond
the applicable prescriptive or reglementary period.
2. The same rule applies to permissive
counterclaims, third-party claims and similar pleadings,
which shall not be considered filed until and unless the
filing fee prescribed therefor is paid. The court may also
allow payment of said fee within a reasonable time but
also in no case beyond its applicable prescriptive or
reglementary period.
3. Where the trial court acquires jurisdiction over a
claim by the filing of the appropriate pleading and payment of
the prescribed filing fee but, subsequently, the judgment
awards a claim not specified in the pleading, or if specified the
same has been left for determination by the court, the
additional filing fee therefor shall constitute a lien on the
judgment. It shall be the responsibility of the Clerk of Court or
his duly authorized deputy to enforce said lien and assess and
collect the additional fee.[45]
It is a settled doctrine that although the payment of the prescribed docket
fees is a jurisdictional requirement, its non-payment x x x should not result in the
automatic dismissal of the case provided the docket fees are paid within the applicable
prescriptive period.[46] The prescriptive period therein mentioned refers to the period within which
a specific action must be filed. It means that in every case, the docket fee must be paid before
the lapse of the prescriptive period. Chapter 3, Title V, Book III of the Civil Code is the principal
law governing prescription of actions.[47]
In accordance with the aforementioned rules on payment of docket fees, the trial
court upon a determination that Bayerphils counterclaim was permissive, should have instead
ordered Bayerphil to pay the required docket fees for the permissive counterclaim, giving it
reasonable time but in no case beyond the reglementary period.[48] At the time Bayerphil filed its
counter-claim against Calibre and the spouses Sebastian without having paid the docket fees up
to the time the trial court rendered its Decision on December 6, 1993, Bayerphil could still be
ordered to pay the docket fees since no prescription has yet set in.[49] Besides, Bayerphil should
not suffer from the dismissal of its case due to the mistake of the trial court.
Considering the foregoing discussion, we find no need to remand the case to the
trial court for the resolution of Bayerphils counterclaim. In Metromedia Times Corporation v.
Pastorin,[50] we discussed the rule as to when jurisdiction by estoppel applies and when it does
not, thus:
Lack of jurisdiction over the subject matter of the suit is
yet another matter. Whenever it appears that the court has no
jurisdiction over the subject matter, the action shall be dismissed
(Section 2, Rule 9, Rules of Court). This defense may be interposed at
any time, during appeal (Roxas vs. Rafferty, 37 Phil. 957) or even after
final judgment (Cruzcosa vs. Judge Concepcion, et al., 101 Phil.
146). Such is understandable, as this kind of jurisdiction is conferred
by law and not within the courts, let alone the parties, to themselves
determine or conveniently set aside. In People vs. Casiano (111 Phil.
73, 93-94), this Court, on the issue of estoppel, held:
The operation of the principle
of estoppel on the question of jurisdiction
seemingly depends upon whether the
lower court actually had jurisdiction or not. If
it had no jurisdiction, but the case was tried
and decided upon the theory that it had
jurisdiction, the parties are not barred, on
appeal, from assailing such jurisdiction, for
the same must exist as a matter of law, and
may not be conferred by consent of the
parties or by estoppel (5 C.J.S.,
861-863). However, if the lower court had
jurisdiction, and the case was heard and
decided upon a given theory, such, for
instance, as that the court had no
jurisdiction, the party who induced it to
adopt such theory will not be permitted, on
appeal, to assume an inconsistent position
that the lower court had jurisdiction. Here,
the principle of estoppel applies. The rule
that jurisdiction is conferred by law, and
does not depend upon the will of the parties,
has no bearing thereon.
In this case, the trial court had jurisdiction over the counterclaim although it
erroneously ordered its automatic dismissal. As already discussed, the trial court should have
instead directed Bayerphil to pay the required docket fees within a reasonable time. Even then,
records show that the trial court heard the counterclaim although it again erroneously found the
same to be unmeritorious. Besides, it must also be mentioned that Bayerphil was lulled into
believing that its counterclaim was indeed compulsory and thus there was no need to pay docket
fees by virtue of Judge Claravalls October 24, 1990 Resolution. Petitioners also actively
participated in the adjudication of the counterclaim which the trial court adjudge to be
unmeritorious.
However, we are more inclined to affirm the CAs ruling anent Bayerphils
counterclaim. It held thus:
 What remains to be determined now is whether or not
defendant-appellant is entitled to its counterclaim. On this score, We
note that plaintiff-appellee never denied that it still owes
defendant-appellant for purchases it had made. Bayer had already
recognized that Calibre was entitled to a volume rebate for the years
1988-1989 in the amount of P320,849.42 on paid purchases, and a
5% prompt payment rebate of P63,196.06 in view of the application of
the volume rebate to Calibres outstanding balance, or a total of
P384,045.48, as stated in Bayers letter dated November 10, 1989
(Exhibit 10, Record, pp. 373-375) earlier quoted.
Since no evidence was presented by plaintiff-appellee to
rebut the correctness of Bayers computation. We therefore assume it
to be correct. Moreover, We note that the stocks Bayer had withdrawn
per plaintiff-appellees request under Claims 10 and 11 amounting
to P124,493.28 had been credited to plaintiff-appellee as shown by
the Statement of Account (Exhibit 4, Record, pp. 366-367) which
shows that Calibres outstanding indebtedness as of December 31,
1989 was One million Two Hundred Seventy-Two Thousand, One
Hundred Three Pesos and Seventeen Centavos (P1,272,103.17)
(Exhibit 4-E, p. 367). We also note that the Distributorship/Dealership
Agreement entered into by the parties provides that default in
payment on any account by the DISTRIBUTOR/DEALER when and
as they fall due shall entitle BAYERPHIL to interests thereon at the
then maximum lawful interest rates which in no case shall be lower
than twelve per cent (12%) per annum for accounts fully secured by a
mortgage on realty or fourteen per cent (14%) per annum when
otherwise unsecured. (Exhibit 1-F, Record, p. 328).[51]
WHEREFORE, the July 31, 2002 Decision of the Court of Appeals in CA-G.R. CV
No. 45546 is AFFIRMED. Considering that the counterclaim is permissive, respondent Bayer
Philippines, Inc. is ORDERED to pay the prescribed docket
the Regional Trial Court of Pasig City within fifteen (15) days from receipt of this Decision.
Dio v. Subic Bay, G.R. No. 189532, June 11, 2014
This is a Petition for Review on Certiorari1 pursuant to Rule 45 of the Revised Rules
of Court, assailing the 3 April 2009 Order2 of the Regional Trial Court (RTC) of
Balanga City, Bataan, on pure question of law. In its assailed Order, the RTC denied
the motion filed by petitioners to set their counterclaims for hearing on the ground that
the main case was already dismissed with finality by the Court of Appeals in CA-G.R.
CV No. 87117.
In an Order3 dated 26 August 2009, the RTC refused to reconsider its earlier
disposition.
The Facts
Petitioner H.S. Equities, Ltd., (HSE) is a foreign corporation duly organized and
existing under the laws of the British Virgin Islands, with registered address at Akara
Building, 24 De Castro Street, Wickhams Cay I, Road Town, Tortola, British Virgin
Islands. It entered into an isolated transaction subject of the instant case. It is
represented in this action by petitioner Virginia S. Dio (Dio).
Respondent Subic Bay Marine Exploratorium, Inc. (SBME) is a domestic corporation,
duly organized and existing under the Philippine laws and is represented in this
action by its Chief Executive Officer, respondent Timothy Desmond (Desmond).
In 2002, SBME decided to expand its business by operating a beach resort
inside the property administered by the Subic Bay Metropolitan Authority
(SBMA). For the business venture to take off, SBME needed to solicit investors
who are willing to infuse funds for the construction and operation of the beach
resort project. HSE (formerly known as Westdale Assets Limited) thru its
authorized director, Dio, agreed to invest the amount of US$2,500,000.00 with
SBME by purchasing 750,000 common shares with a par value of ₱100 per
share from the increase in its authorized capital stock. The agreement was
reduced into writing wherein HSE, in order to protect its interest in the
company, was afforded minority protection rights such as the right to appoint a
member of the board of directors and the right to veto certain board resolutions.
After HSE initially paid US$200,000.00 for its subscription, it refused to further
lay out money for the expansion project of the SBME due to the alleged
mismanagement in the handling of corporate funds.
Consequently, SBME initiated an intra-corporate dispute before the RTC of
Balanga City, Bataan against petitioners HSE and Dio.4 Before petitioners
could file their answer to the complaint, respondents impleaded its Corporate
Secretary, Atty. Winston Ginez, as additional defendant. In their Amended
Complaint5 docketed as Civil Case No. 7572, SBME essentially alleged that
HSE unjustly refused to pay the balance of its unpaid subscription effectively
jeopardizing the company’s expansion project. Apart from their refusal to honor
their obligation under the subscription contract, it was further alleged by SBME
that Dio tried to dissuade local investors and financial institutions from putting
in capital to SBME by imputing defamatory acts against Desmond. To protect
the interest of the corporation and its stockholders, SBME sought that
petitioners be enjoined from committing acts inimical to the interest of the
company.
fees with
To refute the claims of respondents, petitioners maintained in their Answer
with Compulsory Counterclaim6 that it would be highly preposterous for them
to dissuade investors and banks from putting in money to SBME considering
that HSE and Dio are stakeholders of the company with substantial
investments therein. In turn, petitioners countered that their reputation and
good name in the business community were tarnished as a result of the filing of
the instant complaint, and thus prayed that they be indemnified in the amount
of US$2,000,000.00 as moral damages. Constrained to litigate to protect their
rights, petitioners asked that they be indemnified in the amount
of₱1,000,000.00 in litigation expenses. Petitioners likewise sought to recover
their investment of US$1,500,000.00 since they were purportedly inveigled by
Desmond into putting in money to SBME under the pretext that they will be
accorded with minority protection rights. It was alleged that after the filing of
the instant complaint, Desmond, in collusion with other Board of Directors of
SBME, managed to unjustly deny HSE and Dio their rights under the
Subscription Agreement. To curb similar socially abhorrent actions, petitioners
prayed that SBME and its Board of Directors, namely, Desmond, John
Corcoran, Gaile Laule and Gregorio Magdaraog, be jointly and severally held
liable to pay exemplary damages in the amount of US$2,000,000.00.
After petitioners filed their Answer with Compulsory Counterclaim, the RTC,
instead of setting the case for pre-trial, issued an Order7 dated 15 August 2005
motu proprio dismissing Civil Case No. 7572. The dismissal was grounded on
the defective certificate of non-forum shopping which was signed by Desmond
without specific authority from the Board of Directors of SBME.
Armed with a board resolution specifically authorizing Desmond to sign the
certificate of non-forum shopping on behalf of SBME, respondents moved that
Civil Case No. 7572 be reinstated and further proceedings thereon be
conducted. A copy of such authority was attached by respondents to their
Motion for Reconsideration.
For lack of merit, RTC denied respondents’ motion and affirmed the dismissal in an
Order8 dated 22 September 2005. In refusing to reinstate respondents’ complaint, the
court a quo ruled that the belated submission of a board resolution evidencing
Desmond’s authority to bind the corporation did not cure the initial defect in the
complaint and declared that strict compliance with procedural rules is enjoined for the
orderly administration of justice.
Aggrieved by the lower court’s refusal to reinstate their complaint, respondents
elevated the matter before the Court of Appeals assailing the propriety of the 15
August 2005 and 22 September 2005 RTC Orders via Petition for Review which was
docketed as CA-G.R. CV No. 87117.
For failure of the respondents to file their appellants’ brief, the appellate court
proceeded to dismiss CA-G.R.CV No. 87117 and considered the case closed and
terminated in its Resolution9 dated 2 January 2007.
After respondents failed to seasonably move for the reconsideration of the
aforementioned Resolution, the dismissal of CA-G.R. CV No. 87117 became final
and executory, as shown in the Entry of Judgment10 dated 3 May 2007.
The procedural incidents before the appellate court having been resolved with finality,
petitioners went back to the RTC to file a motion to set their counterclaims for
hearing11 which was opposed by the respondents on the ground that the filing of the
compulsory counterclaims was not accompanied by payment of the required docket
fees precluding the court from acquiring jurisdiction over the case.12
Acting on the motions filed by the opposing parties, the RTC, in an Order13 dated 3
April 2009 granted the motion of the respondents, thereby directing the dismissal of
petitioners’ counterclaims but not on the ground of non-payment of docket fees. In
disallowing petitioners’ counterclaims to proceed independently of respondents’
complaint, the lower court pointed out that in view of the dismissal of the main case,
which has already been affirmed with finality by the appellate court, it has already lost
its jurisdiction to act on petitioners’ counterclaim, the compulsory counterclaim being
merely ancillary to the principal controversy.
In an Order14 dated 26 August 2009, the RTC refused to reconsider its earlier
disposition. Petitioners filed this instant Petition for Review on Certiorari15 on pure
question of law seeking the reversal of the 3 April 2009 and 26 August 2009 RTC
Orders on the ground that:
THE TRIAL COURT COMMITTED AN ERROR OF LAW
WHEN IT REFUSED TO SET [PETITIONERS’]
COUNTERCLAIMS FOR HEARING ON THE GROUND
THATTHE CASE WAS DEEMED "CLOSED AND
TERMINATED" BYTHE COURT OF APPEALS AFTER THE
LATTER DISMISSED RESPONDENTS’ APPEAL BECAUSE
OF THEIR FAILURE TOFILE THEIR APPELLANTS’
BRIEF.16
The Court’s Ruling
Petitioners argue that despite the dismissal of the main case, the counterclaim may
still remain for independent adjudication under Section 6, Rule 16 of the Revised
Rules of Court.17 Petitioners pointed out that while the dismissal of respondents’
complaint is a confirmation of Desmonds’ lack of legal personality to file the case, this
does not, however, mean that they also do not have the qualification to pursue their
counterclaim. To fault petitioners for the fatal infirmity in the respondents’ complaint
would not only work injustice to the former but would result to an absurd situation
where the fate of their counterclaims is placed entirely in the hands of the
respondents.
For their part, respondents posit that, in directly assailing the adverse RTC Orders
before the Court, petitioners erroneously availed themselves of an erroneous remedy
arguing that this petition should have been initially filed with the appellate court. By
seeking relief directly from the Court, petitioners ignored the judicial hierarchy
warranting the peremptory dismissal of their petition. Unless special and important
reasons were clearly and specifically set out in the petition, and in this case it was not,
a direct invocation of this Court’s original jurisdiction may not be allowed.
The established policy of strict observance of the judicial hierarchy of courts, as a rule,
requires that recourse must first be made to the lower ranked court exercising
concurrent jurisdiction with a higher court. A regard for judicial hierarchy clearly
indicates that petitions for the issuance of extraordinary writs against first level courts
should be filed in the RTC and those against the latter should be filed in the Court of
Appeals. The rule is not iron-clad, however, as it admits of certain exceptions.18
Thus, a strict application of the rule is unnecessary when cases brought before the
appellate courts do not involve factual but purely legal questions.19 In fact, Rule 41,
Section 2(c)20 of the Revised Rules of Court provides that a decision or order of the
RTC may as it was done in the instant case, be appealed to the Supreme Court by
petition for review on certiorari under Rule 45, provided that such petition raises only
questions of law.
A question of law exists when the doubt or controversy concerns the correct
application of law or jurisprudence to a certain set of facts; or when the issue does
not call for the examination of the probative value of the evidence presented, the truth
or falsehood of facts being admitted. A question of fact exists when the doubt or
difference arises as to the truth or falsehood of facts or when the query invites
calibration of the whole evidence considering mainly the credibility of the witnesses,
the existence and relevancy of specific surrounding circumstances, as well as their
relation to each other and to the whole, and the probability of the whole
situation.21 Thus, the test of whether a question is one of law or of fact is not the
appellation given to such question by the party raising the same; rather, it is whether
the appellate court can determine the issue raised without reviewing or evaluating the
evidence, in which case, it is a question of law; otherwise it is a question of fact.22
Petitioners here raise the solitary issue of the propriety of the dismissal of their
counterclaim on the basis of the reasoning of the lower court that the counterclaim
derives its jurisdictional support from the complaint which has already been
dismissed. Petitioners maintain that the court a quo erred in arriving at the legal
conclusion that the counterclaim can no longer stand for independent adjudication
after the main case was already dismissed with finality. In order to resolve this issue,
the Court need only to look into the pleadings, depositions, admissions, and affidavits
submitted by the respective parties without going into the truth or falsity of such
documents. Consequently, the petitioners’ remedy for assailing the correctness of the
dismissal of their counterclaims, involving as it does a pure question of law, indeed
lies with this Court. Now to the issue of the propriety of the dismissal of the
counterclaim.
The dismissal of the complaint resulted from respondents’ failure to append to the
complaint a copy of the board resolution authorizing Desmond to sign the certificate
of non-forum shopping on behalf of SBME. The subsequent dismissal of the
counterclaim, in turn, erroneously proceeded from the ratio that since the main action
has already been dismissed with finality by the appellate court, the lower court has
lost its jurisdiction to grant any relief under the counterclaim.
In the significant case of Pinga v. Heirs of German Santiago,23 this Court
speaking through Justice Dante Tinga, resolved the nagging question as to
whether or not the dismissal of the complaint carries with it the dismissal of the
counterclaim. Putting to rest the remaining confusion occasioned by Metals
Engineering Resources Corp. v. Court of Appeals24 and BA Finance
Corporation v. Co,25 the Court articulated that, in light of the effectivity of the
1997 Rules of Civil Procedure, the correct and prevailing doctrine is as follows:
To be certain, when the Court promulgated the 1997 Rules of Civil Procedure,
including the amended Rule17, those previous jural doctrines that were
inconsistent with the new rules incorporated in the 1997 Rules of Civil
Procedure were implicitly abandoned insofar as incidents arising after the
effectivity of the new procedural rules on 1 July 1997. BA Finance, or even the
doctrine that a counterclaim may be necessarily dismissed along with the
complaint, clearly conflicts with the 1997 Rules of Civil Procedure. The
abandonment of BA Finance as doctrine extends as far back as 1997, when
the Court adopted the new Rules of Civil Procedure. If, since then, such
abandonment has not been affirmed in jurisprudence, it is only because no
proper case has arisen that would warrant express confirmation of the new rule.
That opportunity is here and now, and we thus rule that the dismissal of a
complaint due to fault of the plaintiff is without prejudice to the right of the
defendant to prosecute any pending counterclaims of whatever nature in the
same or separate action. We confirm that BA Finance and all previous rulings
of the Court that are inconsistent with this present holding are now abandoned.
xxxx
Thus, the present rule embodied in Sections 2 and 3 of Rule 17 ordains a more
equitable disposition of the counterclaims by ensuring that any judgment
thereon is based on the merit of the counterclaim itself and not on the survival
of the main complaint. Certainly, if the counterclaim is palpably without merit or
suffers jurisdictional flaws which stand independent of the complaint, the trial
court is not precluded from dismissing it under the amended rules, provided
that the judgment or order dismissing the counterclaim is premised on those
defects. At the same time, if the counterclaim is justified, the amended rules
now unequivocally protect such counterclaim from peremptory dismissal by
reason of the dismissal of the complaint.26 Reviewing the vacated position, in
Metals Engineering Resources Corp., severance of causes of action was not
be permitted in order to prevent circuity of suits and to avert the possibility of
inconsistent rulings based on the same set of facts, viz:
For all intents and purposes, such proposition runs counter to the nature of a
compulsory counterclaim in that it cannot remain pending for independent
adjudication by the court. This is because a compulsory counterclaim is
auxiliary to the proceeding in the original suit and derives its jurisdictional
support therefrom, inasmuch as it arises out of or is necessarily connected with
the transaction or occurrence that is the subject matter of the complaint. It
follows that if the court does not have jurisdiction to entertain the main action of
the case and dismisses the same, then the compulsory counterclaim, being
ancillary to the principal controversy, must likewise be dismissed since no
jurisdiction remained for any grant of relief under the counterclaim.
The aforementioned doctrine is in consonance with the primary objective of a
counterclaim which is to avoid and prevent circuity of action by allowing the
entire controversy between the parties to be litigated and finally determined in
one action, wherever this can be done with entire justice to all parties before
the court. The philosophy of the rule is to discourage multiplicity of
suits.1âwphi1 It will be observed that the order of the trial court allowing herein
private respondent to proceed with the presentation of his evidence in support
of the latter's counterclaim is repugnant to the very purpose and intent of the rule on
counterclaims.27
In BA Finance Corporation, we likewise refused to entertain the compulsory
counterclaim after the trial court lost its jurisdiction in the main case, thus:
The rule is that a compulsory counterclaim cannot "remain pending for independent
adjudication by the court." This is because a compulsory counterclaim is auxiliary to
the proceeding in the original suit and merely derives its jurisdictional support
therefrom.
Thus, it necessarily follows that if the trial court no longer possesses jurisdiction to
entertain the main action of the case, as when it dismisses the same, then the
compulsory counterclaim being ancillary to the principal controversy, must likewise
be similarly dismissed since no jurisdiction remains for the grant of any relief under
the counterclaim.28
As the rule now stands, the nature of the counterclaim notwithstanding, the dismissal
of the complaint does not ipso jure result in the dismissal of the counterclaim, and the
latter may remain for independent adjudication of the court, provided that such
counterclaim, states a sufficient cause of action and does not labor under any
infirmity that may warrant its outright dismissal. Stated differently, the jurisdiction of
the court over the counterclaim that appears to be valid on its face, including the
grant of any relief thereunder, is not abated by the dismissal of the main action. The
court’s authority to proceed with the disposition of the counterclaim independent of
the main action is premised on the fact that the counterclaim, on its own, raises a
novel question which may be aptly adjudicated by the court based on its own merits
and evidentiary support.
In Perkin Elmer Singapore Pte Ltd. v. Dakila Trading Corporartion,29 a case on all
fours with the present one, we expounded our ruling in Pinga and pointed out that the
dismissal of the counterclaim due to the fault of the plaintiff is without prejudice to the
right of the defendant to prosecute any pending counterclaims of whatever nature in
the same or separate action, thus: Based on the aforequoted ruling of the Court, if the
dismissal of the complaint somehow eliminates the cause of the counterclaim, then
the counterclaim cannot survive. Conversely, if the counterclaim itself states
sufficient cause of action then it should stand independently of and survive the
dismissal of the complaint. Now, having been directly confronted with the problem of
whether the compulsory counterclaim by reason of the unfounded suit may prosper
even if the main complaint had been dismissed, we rule in the affirmative.
It bears to emphasize that petitioner's counterclaim against respondent is for
damages and attorney's fees arising from the unfounded suit. While respondent's
Complaint against petitioner is already dismissed, petitioner may have very well
already incurred damages and litigation expenses such as attorney's fees since it
was forced to engage legal representation in the Philippines to protect its rights and
to assert lack of jurisdiction of the courts over its person by virtue of the improper
service of summons upon it. Hence, the cause of action of petitioner's counterclaim is
not eliminated by the mere dismissal of respondent's complaint.30 (Emphasis theirs).
Once more, we allow the counterclaim of the petitioners to proceed independently of
the complaint of the respondents.
WHEREFORE, premises considered, the petition is GRANTED. The assailed R TC
Orders dated 3 April 2009 and 26 August 2009 are hereby REVERSED and SET
ASIDE. The case is REMANDED to the Regional Trial Court of Balanga City, Bataan
for further proceedings, on the matter of petitioners Virginia S. Dio and H.S. Equities,
Ltd. 's counterclaims. No pronouncement as to costs.
Cabaero v. Hon. Cantos, G.R. No. 102942, April 18, 1997
May the accused-petitioners who were charged with estafa, file an answer
with counterclaim for moral and exemplary damages plus attorney's fees and
litigation expenses against the private complainant in the same criminal action?
This is the main issue raised in this petition[1] filed under Rule 65 of the Rules
of Court assailing the Orders dated July 1, 1991,[2] and August 21, 1991,[3] of
respondent Judge "for being contrary to law and (for) having been issued by the
respondent judge in excess of his jurisdiction and with grave abuse of discretion
tantamount to lack of jurisdiction."[4]
The Order of July 1, 1991, reads:
"THE Answer with Counterclaim filed by the accused through counsel, dated
February 12, 1991, as well as the Opposition thereto; the Memorandum filed by the
Private Prosecutor, in Support of Motion to Expunge from the Records And/Or to
Dismiss Answer with Counterclaim; the Supplement; and Comment on Supplement,
are all ordered expunged from the Records, considering that this is a criminal case
wherein the civil liability of the acused (sic) is impliedly instituted therein."
Petitioners pleaded for reconsideration[5] of said Order but respondent judge,
in the Order of August 21, 1991, denied their motion, thus:
"ACTING on the Motion for Reconsideration dated July 17, 1991, of the accused
through counsel, this Court finds no merit therein, such that said motion is hereby
denied."
The Facts
This petition emanated from Crim. Case No. 90-18826 of the Regional Trial
Court ("RTC") of Manila. Said case commenced on October 18, 1990, with the filing
of an Information[6] against petitioners charging them with estafa for allegedly
defrauding private respondent Epifanio Ceralde of the sum of P1,550,000.00. The
accusatory portion of the Information reads as follows:
"That in or about and during the period comprised between September, 1987 and
October 30, 1987, both dates inclusive, in the City of Manila, Philippines, the said
accused, conspiring and confederating together and mutually helping each other, did
then and there wilfully, unlawfully and feloniously defraud one EPIFANIO CERALDE
in the following manner, to wit: the said accused induced and succeeded in inducing
the said EPIFANIO CERALDE to advance the total amount of P1,550,000.00 to be
paid to M.C. Castro Construction, Co. representing the purchase price of six (6)
parcels of land located in Pangasinan which the Aqualand Ventures & Management
Corporation, a joint business venture organized by accused AMADO F. CABAERO
and the said EPIFANIO CERALDE, purchased from the said company, with the
understanding that the said amount would be returned to the said EPIFANIO
CERALDE as soon as the loan for P1,500,000.00 applied for by the said Aqualand
Ventures & Management Corporation with Solid Bank, of which said accused
AMADO F. CABAERO is the Senior Vice-President, is released, but both accused,
once the said loan has (sic) been approved by the bank, in furtherance of their
conspiracy and falsely pretending that accused CARMEN C. PEREZ had been
authorized by the said Aqualand Ventures & Management Corporation to receive the
check for P1,500,000.00 for and in its own behalf, succeeded in inducing the
cashier of said Solid Bank to release the same to accused CARMEN C.
PEREZ, thereby enabling her to encash the aforesaid check, and instead of
turning over the said amount to the said EPIFANIO CERALDE; accused failed
and refused, and still fail and refuse, to do so despite repeated demands made
to that effect, and with intent to defraud, misappropriated, misapplied and
converted the said amount to their own personal use and benefit, to the
damage and prejudice of the said EPIFANIO CERALDE in the aforesaid
amount of P1,550,000.00, Philippine currency.
Contrary to law."
Arraigned on January 7, 1991, petitioners entered a plea of not guilty.
On February 5, 1991, Atty. Ambrosio Blanco entered his appearance as
private prosecutor.[7]
The Presiding Judge of the RTC of Manila, Branch IV, Hon. Elisa R.
Israel, in an Order[8] dated February 11, 1991, inhibited herself "out of
delicadeza" from further hearing the case pursuant to Section 1 of Rule 137 of
the Rules of Court after "considering that the complainant is a relative by
affinity of a nephew of her husband." Thereafter, the case was re-raffled to
Branch VII presided over by respondent Judge Alfredo Cantos.
On April 2, 1991, petitioners filed an Answer with
Counterclaim[9] alleging that the money loaned from Solidbank mentioned in
the Information was duly applied to the purchase of the six (6) parcels of land
in Pangasinan, and that the filing of said Information was unjustified and
malicious. Petitioners included the following prayer:[10]
"WHEREFORE, it is respectfully prayed that after trial judgment be rendered:
1. Dismissing, or quashing the information, and the civil action
impliedly instituted in the criminal action;
2. Ordering the complaining witness Ceralde to pay to the
accused the following amounts:
(a) P1,500,000.00 as moral
damages;
(b) P500,000.00 as exemplary
damages;
(c) P100,000.00 as attorney's fees;
and
(d) P20,000.00, as litigation
expenses.
Accused pray for such other reliefs, legal and equitable in the premises."
During the initial hearing on April 15, 1991, the prosecution verbally
moved that the answer with counterclaim be expunged from the records and/or
be dismissed. The respondent judge, after the exchange of arguments
between the prosecution and the defense, gave the contending parties time to
submit a Memorandum and Comment or Opposition, respectively.
The Memorandum of the private prosecutor justified his Motion to
Expunge the answer with counterclaim for two reasons: (1) the trial court had
no jurisdiction over the answer with counterclaim for non-payment of the
prescribed docket fees and (2) the "compulsory counterclaim against
complainant is barred for failure to file it before arraignment."[11] In their Opposition,
petitioners argued that this Court in Javier vs. Intermediate Appellate Court[12] laid
down, for "procedural soundness," the rule that a counterclaim should be permitted in
a criminal action where the civil aspect is not reserved. Further, inasmuch as
petitioners' counterclaim was compulsory in nature, they were not required to pay
docket fees therefor. Additionally, the Rules do not specifically provide for the period
for filing of counterclaims in criminal cases, whereas Section 3 of Rule 9 and Section
9 of Rule 6 allow the filing, with leave of court, of a counterclaim at any time before
judgment. Thus, petitioners contended that their filing was within the proper period.[13]
As previously indicated, respondent Judge Cantos granted the prosecution's
motion to expunge in an Order dated July 1, 1991, and denied the petitioners' motion
for reconsideration in an Order dated August 21, 1991.
On the theory that there is no plain, speedy and adequate remedy in the
ordinary course of law, the petitioners, through counsel, filed this instant petition.
The Issue
The sole issue raised by petitioners is:[14]
"Whether or not the respondent judge committed grave abuse of discretion,
amounting to lack or excess of jurisdiction in ordering that the answer with
counterclaim of the petitioners in Criminal Case No. 90-88126, together with all
pleadings filed in relation thereto, be expunged from the records."
Petitioners invoke Section 1, Rule 111 of the Rules on Criminal Procedure,
which provides that unless the offended party waived, reserved or instituted the civil
action prior to the criminal action, the civil action for recovery of civil liability is
impliedly instituted with the criminal action. They contend that it is not only a right but
an "outright duty" of the accused to file an answer with counterclaim since failure to
do so shall result in the counterclaim being forever barred.
Petitioners argue that under Rule 136 of the Rules of Court, particularly
Section 8 thereof, clerks of court are instructed to "keep a general docket, each page
of which shall be numbered and prepared for receiving all the entries in a single case,
and shall enter therein all cases x x x." Thus, respondent Judge Cantos allegedly
erred in expunging all records with respect to the Answer with Counterclaim for, on
appeal, "if the records elevated x x x are incomplete and inaccurate, there arises a
grave danger that the ends of justice and due process shall not be served and
instead frustrated."[15]
Petitioners further allege that the Order of July 1, 1991, failed to resolve the
legal issues raised by the parties as it neglected to state the legal basis therefor, as
required by Section 14, Article VIII of the Constitution, "thereby leaving the petitioners
to speculate on why they were being deprived of their right to plead and prove their
defenses and counter-claim as far as the civil aspect of the case was concerned."[16]
This Court, realizing the significance of the present case, required on August 3,
1992, the appearance of the Solicitor General as counsel for respondent court. The
Republic's counsel, in his Manifestation dated December 22, 1992, cited Javier and
sided with petitioners in maintaining that the instant "petition is meritorous."
Preliminary Matters
Litis Pendentia as a Defense
In his Memorandum dated September 30, 1992, private respondent belatedly
interposes litis pendentia to defeat the petition. He alleges that the present petition is
barred by the cross-claim of the petitioners against Aqualand Ventures and
Management Corporation, of which petitioners are stockholders and officers, in Civil
Case No. 90-53035 (filed against both petitioners and the private respondent by
Solidbank on May 14, 1990). Considerations of due process prevent us from taking
up the merits of this argument in favor of private respondent.[17] This cross-claim was
never raised in the trial court -- certainly not in the Memorandum dated April 19, 1991,
submitted to the court a quo in support of respondent Ceralde's motion to expunge
the answer with counterclaim. The Rules[18] require that "(a) motion attacking a
pleading or a proceeding shall include all objections then available, and all objections
not so included shall be deemed waived." Consequently and ineluctably, the ground
of litis pendentia which was not argued in the court a quo is deemed waived.[19]
The Payment of Filing Fees
Anent filing fees, we agree with petitioners that inasmuch as the counterclaim
is compulsory, there is no necessity to pay such fees, as the Rules do not require
them. This Court already clarified in Sun Insurance Office, Ltd. (SIOL), vs.
Asuncion[20] the instances when docket fees are required to be paid to enable the
court to acquire jurisdiction:
"1. It is not simply the filing of the complaint or appropriate initiatory pleading, but the
payment of the prescribed docket fee, that vests a trial court with jurisdiction over the
subject-matter or nature of the action. Where the filing of the initiatory pleading is not
accompanied by payment of the docket fee, the court may allow payment of the fee
within a reasonable time but in no case beyond the applicable prescriptive or
reglementary period.
2. The same rule applies to permissive counterclaims, third-party claims and similar
pleadings, which shall not be considered filed until and unless the filing fee
prescribed therefor is paid. The court may also allow payment of said fee within a
reasonable time but also in no case beyond its applicable prescriptive or
reglementary period." (Underscoring supplied.)
Obviously, no docket fees are required to be paid in connection with the filing
of a compulsory counterclaim.
The Main Issue: Propriety of
Answer with Counterclaim
In Javier upon which petitioners anchor their thesis, the Court held that a
counterclaim for malicious prosecution is compulsory in nature; thus, it should be filed
in the criminal case upon the implied institution of the civil action.
The facts in Javier may be summarized as follows:
Leon S. Gutierrez, Jr., private respondent therein, was charged with violation
of BP Blg. 22 before the Regional Trial Court of Makati. The civil case had not
been expressly reserved, hence it was impliedly instituted with the criminal
action.
Later, Accused Gutierrez filed a complaint for damages against Private
Complainants (Petitioners) Javiers before the Regional Trial Court of
Catarman, Northern Samar, wherein he alleged that he had been merely
inveigled by the Javiers into signing the very check that was the subject of the
criminal case.
In resolving the question of whether he can raise that claim in a
separate civil action for damages filed by him against petitioners therein, this
Court, speaking through Mr. Justice Isagani A. Cruz (Ret.), ruled:[21]
"It was before the Makati court that the private respondent, as defendant in the
criminal charge of violation of B.P. Blg. 22, could explain why he had issued
the bouncing check. As the civil action based on the same act was also
deemed filed there, it was also before that same court that he could offer
evidence to refute the claim for damages made by the petitioners. This he
should have done in the form of a counterclaim for damages for his alleged
deception by the petitioners. In fact, the counterclaim was compulsory and
should have been filed by the private respondent upon the implied institution of
the civil action for damages in the criminal action.
A counterclaim is compulsory and is considered barred if not set up where the
following circumstances are present: (1) that it arises out of, or is necessarily
connected with the transaction or occurrence that is the subject matter of the
opposing party's claim; (2) that it does not require for its adjudication the
presence of third parties of whom the court cannot acquire jurisdiction, and (3)
that the court has jurisdiction to entertain the claim.
All these circumstances are present in the case before the Regional Trial Court
of Makati.
This being so, it was improper for the private respondent to file his civil
complaint in the Regional Trial Court of Northern Samar alleging the very
defense he should be making in the Regional Trial Court of Makati. It is, of
course, not possible for him now to invoke a different defense there because
he would be contradicting his own verified complaint in the Regional Trial Court
in Northern Samar. In effect, therefore, he is arguing that both courts have
jurisdiction to consider the same claim of deception he is making in connection
with the same transaction and involving the same parties." (Underscoring
supplied.)
In Javier, the accused maintained in his separate action for damages
that he had been inveigled by the private complainants into signing what was
alleged to be a bouncing check. In the present case, petitioners claim in their
answer with counterclaim that they never personally benefited from the
allegedly defrauded amount nor did they spend the same for a purpose other
than that agreed upon with Private Respondent Ceralde. Thus, in both cases,
the accused seek recovery of damages for what they perceive to be malicious
prosecution against them.
As categorically recognized in the case of Javier, a claim for malicious
prosecution or "grossly unfounded suit" as a compulsory counterclaim has no
appropriate venue other than the same criminal case which is alleged to be a
malicious suit. The counterclaim stands on the same footing and is to be tested
by the same rules as if it were an independent action.[22] A counterclaim is defined as
any claim for money or other relief which a defending party may have against an
opposing party.[23] Compulsory counterclaim is one which at the time of suit arises out
of, or is necessarily connected with, the same transaction or occurrence that is the
subject matter of plaintiff's complaint.[24] It is compulsory in the sense that if it is within
the jurisdiction of the court, and does not require for its adjudication the presence of
third parties over whom the court cannot acquire jurisdiction, it must be set up therein,
and will be barred in the future if not set up.[25]
In justifying his Order, Judge Cantos ruled that "this is a criminal case wherein
the civil liability of the acused (sic) is impliedly instituted therein." This justification
begs the question. Basically, that is the reason why petitioners herein filed their
answer with counterclaim for, apparently, in hiring a private prosecutor, Private
Respondent Ceralde intended to prosecute his civil claim together with the criminal
action. Hence, as a protective measure, petitioners filed their counterclaim in the
same case. Since under Section 1, Rule 111[26] of the Revised Rules of Court, the
civil action which is deemed impliedly instituted with the criminal action, if not waived
or reserved, includes recovery of indemnity under the Revised Penal Code, and
damages under Article 32, 33, 34 and 2176 of the Civil Code arising from the same
act or omission of the accused, should not the accused have the right to file a
counterclaim in the criminal case? Obviously, the answer is in the affirmative, as was
held in Javier.
In ruling that an action for damages for malicious prosecution should have
been filed as a compulsory counterclaim in the criminal action, the Court
in Javier sought to avoid multiplicity of suits. The Court there emphasized that the
civil action for malicious prosecution should have been filed as a compulsory
counterclaim in the criminal action. The filing of a separate civil action for malicious
prosecution would have resulted in the presentation of the same evidence involving
similar issues in two proceedings: the civil action impliedly instituted with the criminal
action, and the separate civil action for damages for malicious prosecution.
Some Reservations in
the Application of Javier
The logic and cogency of Javier notwithstanding, some reservations and
concerns were voiced out by members of the Court during the deliberations on the
present case. These were engendered by the obvious lacuna in the Rules of Court,
which contains no express provision for the adjudication of a counterclaim in a civil
action impliedly instituted in a criminal case. The following problems were noted:
1) While the rules on civil procedure[27] expressly recognize a defendant's entitlement
to plead his counterclaim and offer evidence in support thereof,[28] the rules on
criminal procedure[29]which authorize the implied institution of a civil action in a
criminal case are, in contrast, silent on this point [30] and do not provide specific
guidelines on how such counterclaim shall be pursued.
2) A judgment in a criminal action is not required to provide for the award of a
counterclaim. Thus, Section 2, Rule 120 of the Rules of Court, states:
"SEC. 2. Form and contents of judgment.
xxx xxx xxx
If it is for conviction, the judgment shall state (a) the legal qualifications of the offense
constituted by the acts committed by the accused, and the aggravating or mitigating
circumstances attending the commission thereof, if there are any; (b) the participation
of the accused in the commission of the offense whether as principal, accomplice, or
accessory after the fact; (c) the penalty imposed upon the accused; and (d) the civil
liability or damages caused by the wrongful act to be recovered from the accused by
the offended party, if there is any, unless the enforcement of the civil liability by a
separate action has been reserved or waived." (Underscoring supplied.)
3) Allowing and hearing counterclaims (and possibly cross-claims and third-party
complaints) in a criminal action will surely delay the said action. The primary issue in
a criminal prosecution that is under the control of state prosecutors is the guilt of the
accused and his civil liability arising from the same act or omission.[31] Extending the
civil action arising from the same act or omission to counterclaims, cross-claims and
third-party complaints, and allowing the accused and other parties to submit evidence
of their respective claims will complicate the disposition of the criminal case.
4) Adjudication of compulsory counterclaims and/or related claims or pleadings
logically includes the application of other rules which, by their very nature, apply only
to civil actions. The following matters may be invoked in connection with the filing of
an answer with a counterclaim: the genuineness and due execution of an actionable
document which are deemed admitted unless specifically denied under
oath;[32] affirmative defenses like res judicata, prescription and statute of frauds which
are deemed waived by failure to interpose them as affirmative defenses in an answer;
and the failure of a defendant to file an answer seasonably may result in his default in
the civil aspect but not in the criminal. As a consequence of these matters, the entry
of plea during arraignment will no longer signal joinder of issues in a criminal action.
5) In an impliedly instituted civil action, an accused is not sufficiently apprised of the
specific basis of the claims against him. An accused learns of the implied institution of
a civil action from the contents of an information. An information, however, is filed in
behalf of the People of the Philippines. Hence, it does not contain the ultimate facts
relating to the civil liability of the accused. Section 6, Rule 110 of the Rules of Court,
provides:
"SEC. 6. Sufficiency of complaint or information. A complaint or information is
sufficient if it states the name of the accused; the designation of the offense by the
statute; the acts or omissions complained of as constituting the offense; the name of
the offended party; the approximate time of the commission of the offense; and the
place wherein the offense was committed."
The foregoing section does not mandate the inclusion of the ultimate facts which can
be specifically admitted or denied in an answer.
6) Because an accused is not sufficiently apprised of the specific basis of the civil
action against him, he may file a motion for bill of particulars or take advantage of
discovery procedures. The end result, in any case, will be delay and complication in
the criminal action and even confusion among the parties.
7) The Rules of Court does not specify the reckoning date for the filing of an answer
in an impliedly instituted civil action. In an ordinary civil action, an answer should be
filed within fifteen (15) days from service of summons. The concept of summons,
however, is alien to a criminal action. So, when does the 15-day period begin?
8) Moreover, an accused can file his answer with counterclaim only after the initial
hearing, because the private complainant may still reserve his civil action at any time
before the prosecution commences to present evidence.[33] On the other hand, an
answer in an ordinary civil action should be filed before the start of hearing, because
hearing commences only after the issues have been joined, i.e., after the
responsive pleadings have been filed.
9) Confusion in the application of the rules on civil procedure will certainly
encourage litigants to challenge before appellate courts interlocutory incidents
of the impliedly instituted civil action. While these challenges are pending, the
criminal actions that demand speedy resolution, particularly where the
accused is denied bail in capital offenses, will stagnate. Witnesses may
disappear or lose recollection of their intended testimony, and the prosecutors
may lose momentum and interest in the case. And the accused is effectively
deprived of his right to speedy trial.
10) On top of the above procedural difficulties, some members of the Court
believe that a cause of action for malicious prosecution may be premature
because there is as yet no finding of such wrongful prosecution. This fact is
precisely what the trial court still has to determine.
By the foregoing discussion, we do not imply any fault in Javier. The
real problem lies in the absence of clear-cut rules governing the prosecution of
impliedly instituted civil actions and the necessary consequences and
implications thereof. For this reason, the counter-claim of the accused cannot
be tried together with the criminal case because, as already discussed, it will
unnecessarily complicate and confuse the criminal proceedings. Thus, the trial
court should confine itself to the criminal aspect and the possible civil liability of
the accused arising out of the crime. The counter-claim (and cross-claim or
third party complaint, if any) should be set aside or refused cognizance without
prejudice to their filing in separate proceedings at the proper time.[34]
At balance, until there are definitive rules of procedure[35] to govern the
institution, prosecution and resolution of the civil aspect (and the
consequences and implications thereof) impliedly instituted in a criminal case,
trial courts should limit their jurisdiction to the civil liability of the accused
arising from the criminal case.
On the other hand, this Court is only too well aware that the antecedent
case was filed in the Respondent Court on October 18, 1990. Although it has
dragged on for more than six (6) years now, trial has yet to start because of the
herein procedural question raised on certiorari. In view of this, it is to the best
interest of the parties that the trial of the criminal action should now proceed.
The trial has waited too long; it is time to continue and finish it with all
reasonable dispatch. In fairness to the accused, he may file separate
proceedings to litigate his counterclaim after the criminal case is terminated
and/or in accordance with the new Rules which may be promulgated as and
when they become effective.
WHEREFORE, premises considered, the questioned Orders dated July
1, 1991 and August 21, 1991 are hereby MODIFIED. The counterclaim of the
accused is hereby set aside without prejudice. The Respondent Regional Trial
Court of Manila is DIRECTED to proceed with the trial of the criminal action
and the civil action arising from the criminal offense that is impliedly instituted
therein, with all judicious dispatch. No costs.
Sec. 8. Cross-claim
Section 8. Cross-claim. — A cross-claim is any claim by one party against a
co-party arising out of the transaction or occurrence that is the subject matter
either of the original action or of a counterclaim therein. Such cross-claim may
include a claim that the party against whom it is asserted is or may be liable to
the cross-claimant for all or part of a claim asserted in the action against the
cross-claimant.
See: Rule 9, Sec. 2
Section 2. Compulsory counterclaim, or cross-claim, not set up barred. — A
compulsory counterclaim, or a cross-claim, not set up shall be barred.
Hon. Ruiz v. Court of Appeals, G.R. No. 101566, August 17, 1992
The petitioners fault the respondent court for reversing the dismissal of a complaint
by the trial court and remanding the case for further proceedings. However, there is
an important antecedent question we must first resolve before we can go to the
merits of this case.
The facts relevant to this petition are briefly narrated.
On September 12, 1976, the Crisologo family donated an island to the Sent of God
Foundation on the condition inter alia that it would "be used exclusively to provide a
monastic life and experience according to the Rule of St. Benedict and for such other
religious and charitable purposes as may be determined by the donee." This was
followed by a later donation of other lands, under the same conditions. The subject
properties were later transferred by the Foundation to the S of G Foundation Inc.,
which introduced improvements thereon that, for reasons we do not need to examine
here, it later demolished. On July 29, 1988, believing that the conditions of the
donations had been violated, the Crisologos filed a complaint for revocation of the
donations and the recovery of the properties donated. 1 Impleaded as defendants
were the Sent of God Foundation, the S of G Foundation, Inc., Raul G. Fores, Senen
F. Valero, and Father Odon de Castro, the last three as officers of the foundations.
Also included were Olegario Orbeta and his wife, Susana Rosario Orbeta, for their
role in facilitating the donations.
In their answer, the first-named defendants resisted the allegations in the complaint
and denied that the conditions of the donations had been violated. 2 For their part, the
Orbeta spouses confessed judgment in their answer but also filed a cross-claim for
damages against the other defendants for involving them in the litigation. 3
On December 5, 1988, the other defendants filed a motion to dismiss the complaint
on the ground that it did not state a cause of action and that only the S of G
Foundation was a real party-in-interest. A copy of the motion was furnished the
Orbeta spouses. On January 2, 1989, the trial court issued an order 4 dismissing the
complaint for lack of a cause of action. The cross-claim was also dismissed because
it "had no more leg to stand on."
On January 12, 1989, the plaintiffs filed a motion for reconsideration, which was
adopted by the Orbeta spouses in an urgent ex parte manifestation dated February 7,
1989. This motion was denied on February 8, 1989. The Crisologos then challenged
the order of dismissal before the Court of Appeals in a petition for certiorari under
Rule 65 of the Rules of Court. Docketed as CA-GR No. 16837, it was dismissed on
May 2, 1989, on the ground that the proper remedy was an ordinary appeal. The
appellate court stressed that "since the petitioner did not appeal from the questioned
order of January 2, 1989, of respondent court dismissing the complaint, said, order
had become final and executory." 5 This decision became final on May 25, 1989, and
entry of judgment was made on July 11, 1989.
The Orbeta spouses, who had not joined the Crisologos in CA-GR No. 16837, filed
their own petition for certiorari, also with the Court of Appeals. Docketed as CA-GR
No. 17013, this petition prospered. On September 28, 1990, the respondent court
annulled the dismissal of the complaint by the trial court and ordered its
reinstatement. 6Reconsideration of this decision was denied on August 27, 1991. The
petitioners then came to this Court, raising several issues which, as will appear
presently, are not decisive of this case.
The crucial question before us is whether the Orbeta spouses, as cross-claimants in
the original complaint, could still appeal its dismissal in their petition for review.
We think not.
The most important reason is that the order of dismissal issued by the trial court had
already become final and executory at the time it was sought to be reversed. The
reglementary period for appealing it had already lapsed when the Crisologos filed
their petition for certiorari under Rule 65. This was correctly dismissed by the Court of
Appeals on the ground, as earlier stated, that the special civil action was not a
substitute for a lost appeal.
When the Orbetas filed their own petition on March 6, 1989, it was also after the order
they were questioning had already become unappealable. On this score alone, the
present petition must fail. Even as the petition of the plaintiffs themselves had been
earlier dismissed, similar treatment should have been given to the petition of the
Orbetas, who were appealing only as cross-claimants.
A cross-claim is any claim by one party against a co-party arising out of the
transaction or occurrence that is the subject matter either of the original action or of a
counter-claim therein. Such cross-claim may include a claim that the party against
whom it is asserted is or maybe liable to the cross-claimant for all or part of a claim
asserted in the action against the cross-claimant. 7
The cross-claim in this case stemmed from the alleged unjust refusal of the donees to
return the donated properties, resulting in the Crisologos filing their complaint for
revocation of the donations. In their cross-claim, the Orbetas alleged that they were
dragged into the controversy because of the conduct of the petitioners. Their
contention was that they would not have been sued at all were it not for the failure of
the petitioners to comply with the conditions of the donations.
It is clear that the cross-claim arose from the complaint of the Crisologos and was not
separable from that main action. It had no independent existence and was based
entirely on that complaint. The cross-claim was defensive in character because it
could prosper only if the plaintiffs succeeded. As the plaintiffs failed to establish that
the petitioners' refusal was not justified, it necessarily followed that the private
respondents' own cross-claim, which was based on the same allegation, also had to
fail.
In Torres v. Court of Appeals, 8 this Court declared:
In any event, even viewing the situation in the light most favorable to the Laicos, their
cross-claim on Chivi's warranty to deliver title to them was so inextricably linked with
and so utterly dependent upon the success of the complaint of the Sierras for the
repurchase of the land that when the complaint was dismissed, the cross-claim could
not possibly survive. For as the cross-claimants themselves alleged, the
cross-defendants would be liable on the warranty "should the plaintiffs finally obtain
favorable judgment in their favor" (sic). The warranty became functus oficio after the
Sierras, who turned out after all to have a free patent title to the land issued way back
in 1932, agreed to transfer and did transfer said title to the
Laicos — first by the deed of sale executed directly in their favor by the Sierras
on January 17, 1960, and again in the amicable settlement of the case
between them. The fact that the Laicos paid P10,000.00 to the Sierras in that
amicable settlement created no liability on the part of the Chivis: first, because
the latter neither knew nor consented to such settlement; second, because the
Laicos had already acquired the land directly, from the Sierras by virtue of the
aforesaid sale of January 17, 1960; and third because the said sum of
P10,000.00 was not the subject of the cross-claim against them.
Apropos is the following statement of the legal principle:
A cross-bill strictly speaking is one brought by a defendant in an equity suit
against . . . other defendants in the same suit, touching the matters in question
in the original bill. It is considered as an auxiliary suit dependent upon the
original bill, and can be sustained only on matters growing out of the original
bill. There is a well-defined distinction between a cross-bill merely defensive in
character, and one seeking affirmative relief. The dismissal of the original bill
carries with it a purely defensive cross-bill but not one seeking affirmative relief.
(Osius vs. Barton, 88 A.L.R. 394, 402)
The cross-claim in this case was purely defensive in nature. It arose entirely
out of the complaint and could prosper only if the plaintiffs succeeded. Hence,
under the principle above enunciated, it could not be the subject of
independent adjudication once it lost the nexus upon which its life depended.
The cross-claimants cannot claim more rights than the plaintiffs themselves,
on whose cause of action the cross-claim depended. The dismissal of the
complaint divested the cross-claimants of whatever appealable interest they
might have had before and also made the cross-claim itself no longer viable.
A party has an appealable interest only when his property may be diminished,
his burdens increased or his rights prejudiced by the order sought to be
reviewed. 9 In the case at bar, the consequence of the dismissal of the
complaint was the cessation of the cross-claimants' exposure to injury, which
risk would in fact have continued if the Crisologos' appeal had succeeded. It
bears stressing that when the plaintiffs' petition was dismissed by the Court of
Appeals, the cross-claim lost its basis, which was the dismissed complaint
itself. Earlier, in fact, the dismissal of the cross-claim had already become
unappealable when the order dismissing the complaint became final and
executory.
It would be highly irregular to allow the reinstatement of the appeal lost by the
plaintiffs through another appeal made by the cross-claimants. Not only was
the cross-claim defensive in character and therefore deemed dismissed with
the complaint but, as pointed out by the petitioners, the cross-claimants and
the plaintiffs were supposed to be opposing parties and not in collusion with
each other.
Our ruling is that the Orbetas, as cross-claimants, had no personality to pursue
a remedy which properly belonged to the Crisologos who, through their fault or
negligence; failed to employ it. Accordingly, the petition filed by the Orbetas
should have been dismissed outright by the respondent court on the ground
that the cross-claimants were not proper parties to appeal the dismissal of the
complaint.
In view of the foregoing observations, the Court finds it unnecessary to resolve the
issues raised by the herein petitioners in their assignment of errors.
WHEREFORE, the decision rendered by the respondent court on September 28,
1990, and its resolution dated August 27, 1991, are SET ASIDE and the dismissal of
Civil Case No. 313-KC in the Regional Trial Court of Ilocos Sur is AFFIRMED. No.
costs.
Sec. 9. Counter-counterclaims and counter-crossclaims
Section 9. Counter-counterclaims and counter-crossclaims. — A
counter-claim may be asserted against an original counter-claimant.
A cross-claim may also be filed against an original cross-claimant.
Sec. 10. Reply
Section 10. Reply. — A reply is a pleading, the office or function of which is to
deny, or allege facts in denial or avoidance of new matters alleged by way of
defense in the answer and thereby join or make issue as to such new matters.
If a party does not file such reply, all the new matters alleged in the answer are
deemed controverted.
If the plaintiff wishes to interpose any claims arising out of the new matters so
alleged, such claims shall be set forth in an amended or supplemental
complaint.
See: Rule 8, Sec. 8
Section 8. How to contest such documents. — When an
action or defense is founded upon a written instrument,
copied in or attached to the corresponding pleading as
provided in the preceding section, the genuineness and
due execution of the instrument shall be deemed
admitted unless the adverse party, under oath
specifically denies them, and sets forth what he claims to
be the facts, but the requirement of an oath does not
apply when the adverse party does not appear to be a
party to the instrument or when compliance with an order
for an inspection of the original instrument is refused.
Casent Realty v. Philbank, G.R. No. 150731, September 14, 2007
On appeal to this Court through Rule 45 of the Rules of Court is the
March 29, 2001 Decision[1] and November 7, 2001 Resolution[2] of the Court of
Appeals (CA) in CA-G.R. CV No. 63979 entitled Philbanking Corporation v. Casent
Realty Development Corporation. The CA reversed the May 12, 1999 Order[3] of
the Makati City Regional Trial Court (RTC), Branch 145 in Civil Case No. 93-2612,
which granted petitioners demurrer to evidence and dismissed the complaint filed by
respondent.
The Facts
The facts according to the appellate court are as follows:

In 1984, petitioner Casent Realty Development Corporation executed two
promissory notes in favor of Rare Realty Corporation (Rare Realty) involving the
amounts of PhP 300,000 (PN No. 84-04) and PhP 681,500 (PN No. 84-05). It was
agreed in PN No. 84-04 that the loan it covered would earn an interest of 36% per
annum and a penalty of 12% in case of non-payment by June 27, 1985, while the
loan covered by PN No. 84-05 would earn an interest of 18% per annum and 12%
penalty if not paid by June 25, 1985.[4] On August 8, 1986, these promissory notes
were assigned to respondent Philbanking Corporation through a Deed of
Assignment.[5]
Respondent alleged that despite demands, petitioner failed to pay the
promissory notes upon maturity such that its obligation already amounted to
PhP 5,673,303.90 as of July 15, 1993. Respondent filed on July 20, 1993 a
complaint before the Makati City RTC for the collection of said amount. In its
Answer,[6]petitioner raised the following as special/affirmative defenses:
1. The complaint stated no cause of action or if there was any,
the same was barred by estoppel, statute of frauds, statute of limitations, laches,
prescription, payment, and/or release;
2. On August 27, 1986, the parties executed a Dacion en
Pago[7] (Dacion) which ceded and conveyed petitioners property
in Iloilo City to respondent,with the intention of totally extinguishing petitioners
outstanding accounts with respondent. Petitioner presented a Confirmation
Statement[8] dated April 3, 1989issued by respondent stating that petitioner had no
loans with the bank as of December 31, 1988.
3. Petitioner complied with the condition
in the Dacion regarding the repurchase of the property since the obligation was fully
paid. Respondent sent confirmation statements in the latter months of 1989, which
showed that petitioner had no more outstanding loan; and
4. Assuming that petitioner still owed respondent, the
latter was already estopped since in October 1988, it reduced its authorized capital
[9]
stock by 50% to wipe out a deficit of PhP 41,265,325.12.
Thus, petitioner, by way of compulsory counterclaim, alleged that it made
an overpayment of approximately PhP 4 million inclusive of interest based on Central
Bank Reference Lending Rates on dates of overpayment. Petitioner further claimed
moral and exemplary damages and attorneys fee, amounting to PhP 4.5 million plus
the costs of suit as a consequence of respondents insistence on collecting.[10]
executed by said parties, the instant complaint is
hereby DISMISSED, with prejudice. Without Cost.[14]
The Ruling of the Court of Appeals
On appeal, respondent alleged that the trial court gravely erred
because the promissory notes were not covered by the Dacion, and
that respondent was able to prove its causes of action and right to relief by
overwhelming preponderance of evidence. It explained that at the time of
execution of the Dacion, the subject of the promissory notes
was the indebtedness of petitioner to Rare Realty and not to the Bankthe party
to the Dacion. It was only in 1989 after Rare Realty defaulted in its obligation
to respondent when the latter enforced the security provided under the Deed
of Assignment by trying to collect from petitioner, because it was only then
that petitioner became directly liable to respondent. It was also for this reason
that the April 3, 1989 Confirmation Statement stated that petitioner had no
obligations to repondent as of December 31, 1988. On the other
hand, petitioner claimed that the Deed of Assignment provided that Rare
Realty lost its rights, title, and interest to directly proceed against petitioner on
the promissory notes since these were transferred
to respondent. Petitioner reiterated that the Dacion covered all conceivable
amounts including the promissory notes.[15]
The appellate court ruled that under the Rules of Civil Procedure,
the only issue to be resolved in a demurrer is whether the plaintiff has shown
any right to relief under the facts presented and the law. Thus, it held that the
trial court erred when it considered the Answer which alleged the Dacion, and
that its genuineness and due execution were not at issue. It added that the
court a quo should have resolved whether the two promissory notes were
covered by the Dacion, and thatsince petitioners demurrer was granted, it had
already lost its right to present its evidence.[16]
The CA found that under the Deed of
Assignment, respondent clearly had the right to proceed against the
promissory notes assigned by Rare Realty. Thus, the CA ruled, as follows:
WHEREFORE, premises considered, the Order
dated May 12, 1999 of the Regional Trial Court,
National Capital Judicial Region, Branch
145, Makati City is hereby REVERSED and SET
ASIDE.
Petitioner filed a Motion for Reconsideration[18] which was denied by the
CA in its November 7, 2001 Resolution.[19]
The Issues
WHETHER OR NOT THE COURT OF APPEALS ERRED IN
EXCLUDING THE PETITIONERS AFFIRMATIVE
DEFENSES IN ITS ANSWER IN RESOLVING A
DEMURRER TO EVIDENCE; AND
WHETHER OR NOT PETITIONER IS LIABLE TO PAY THE
RESPONDENT
In other words, the questions posed by this case are:
1. Does respondents failure to file a Reply and deny the Dacion and
Confirmation Statement under oath constitute a judicial admission of the
genuineness and due execution of these documents?
2. Should judicial admissions be considered in resolving a demurrer to
evidence? If yes, are the judicial admissions in this case sufficient to
warrant the dismissal of the complaint?
Petitioner asserts that its obligation to pay under the promissory notes
was already extinguished as evidenced by the Dacion and Confirmation
Statement.Petitioner submits that when it presented these documents in its Answer,
respondent should have denied the same under oath. Since respondent failed to file
a Reply, the genuineness and due execution of said documents were deemed
admitted, thus also admitting that the loan was already paid. On the other hand,
respondent states that while it failed to file a Reply, all the new matters were deemed
controverted pursuant to Section 10, Rule 6 of the Rules of Court. Also, the loan
which was covered by the Dacion refers to another loan of petitioner amounting to
PhP 3,921,750 which was obtained directly from the respondent as of August
1986.[20]Furthermore, petitioner argued that assuming respondent admitted the
genuineness and due execution of the Dacion and Confirmation Statement, said
admission was not all-encompassing as to include the allegations and defenses
pleaded in petitioners Answer.
The Courts Ruling

The parties failed to reach an amicable settlement during the pre-trial Judgment is hereby The petition is partly meritorious.
conference. Thereafter, respondent presented its evidence and formally offered its entered ORDERING [petitioner] Casent
exhibits. Petitioner then filed a Motion for Judgment on Demurrer to the Realty [Development] Corporation to: Rule 33, Section 1 of the 1997 Rules of Civil Procedure provides:
Evidence,[11] pointing out that the plaintiffs failure to file a Reply to the Answer which
raised the Dacion and Confirmation Statement constituted an admission of 1. pay [respondent] Philbanking Corporation Section 1. Demurrer to evidence.After the plaintiff has
the genuineness and execution of said documents; and that since the amount of P300,000.00 with an interest completed the presentation of his evidence, the defendant
the Dacion obliterated petitioners obligation covered by the promissory notes, the of 36% per annum and a penalty of 12% for may move for dismissal on the ground that upon the facts and
bank had no right to collect anymore. failure to pay the same on its maturity date, the law the plaintiff has shown no right to relief. If his motion is
June 27, 1985 as stipulated in Promissory denied, he shall have the right to present evidence. If the
Note No. 84-04; motion is granted but on appeal the order of dismissal is
Respondent subsequently filed an Opposition[12] which alleged reversed he shall be deemed to have waived the right to
that: (1) the grounds relied upon by petitioner in its demurrer involved its defense and 2. pay [respondent] Philbanking Corporation present evidence.
not insufficiency of evidence; (2) the Dacion and Confirmation Statement had yet to the amount of P681,500.00 with an interest
be offered in evidence and evaluated; and (3) since respondent failed to file a Reply, of 18% per annum and a penalty of 12% for In Gutib v. Court of Appeals, we defined a demurrer to evidence as an
then all the new matters alleged in the Answer were deemed controverted.[13] failure to pay the same on its maturity date, objection by one of the parties in an action, to the effect that the evidence which his
June 25, 1985 as stipulated in Promissory adversary produced is insufficient in point of law, whether true or not, to make out a
The trial court ruled in favor of petitioner and dismissed the complaint Note No. 84-05; and case or sustain the issue.[21]
through the May 12, 1999 Order, the dispositive portion of which reads:
What should be resolved in a motion to dismiss based on a demurrer to
WHEREFORE, premises considered[,] finding defendants 3.pay [respondent] Philbanking Corporation, evidence is whether the plaintiff is entitled to the relief based on the facts and the
Motion For Judgment On Demurrer To The Evidence to be the amount representing 25% of total law. The evidence contemplated by the rule on demurrer is that which pertains to the
meritorious[,] the same is hereby GRANTED.Consequently, amount due as attorneys fee as stipulated merits of the case, excluding technical aspects such as capacity to sue.[22]However,
considering that the obligation of the defendant to the plaintiff in the promissory notes. the plaintiffs evidence should not be the only basis in resolving a demurrer to
having been extinguish[ed] by a Dacion en Pago duly SO ORDERED.[17] evidence. The facts referred to in Section 8 should include all the means sanctioned
by the Rules of Court in ascertaining matters in judicial proceedings. These include
judicial admissions, matters of judicial notice, stipulations made during the pre-trial
and trial, admissions, and presumptions, the only exclusion being the defendants
evidence.
Petitioner points out that the defense of Dacion and Confirmation
Statement, which were submitted in the Answer, should have been specifically
denied under oath by respondent in accordance with Rule 8, Section 8 of the Rules of
Court:
Section 8. How to contest such documents.When an action or
defense is founded upon a written instrument, copied in or
attached to the corresponding pleading as provided in the
preceding section, the genuineness and due execution of the
instrument shall be deemed admitted unless the adverse
party, under oath, specifically denies them, and sets forth,
what he claims to be the facts; but the requirement of an oath
does not apply when the adverse party does not appear to be
a party to the instrument or when compliance with an order for
an inspection of the original instrument is refused.
Since respondent failed to file a Reply, in effect, respondent admitted the
genuineness and due execution of said documents. This judicial admission should
have been considered by the appellate court in resolving the demurrer to
evidence. Rule 129, Section 4 of the Rules of Court provides:
Section 4. Judicial admissions.An admission, verbal or written,
made by a party in the course of the proceeding in the same
case, does not require proof. The admission may be
contradicted only by showing that it was made through
palpable mistake or that no such admission was made.
On appeal to the CA, respondent claimed that even though it failed to file
a Reply, all the new matters alleged in the Answer are deemed controverted anyway,
pursuant to Rule 6, Section 10:
Section 10. Reply.A reply is a pleading, the office or function
of which is to deny, or allege facts in denial or avoidance of
new matters alleged by way of defense in the answer and
thereby join or make issue as to such new matters. If a party
does not file such reply, all the new matters alleged in the
answer are deemed controverted.
We agree with petitioner. Rule 8, Section 8 specifically applies to actions
or defenses founded upon a written instrument and provides the manner of
denying it. It is more controlling than Rule 6, Section 10 which merely provides the
effect of failure to file a Reply. Thus, where the defense in the Answer is based on an
actionable document, a Reply specifically denying it under oath must be made;
otherwise, the genuineness and due execution of the document will be deemed
admitted.[23] Since respondent failed to deny the genuineness and due execution of
the Dacion and Confirmation Statement under oath, then these are deemed admitted
and must be considered by the court in resolving the demurrer to evidence. We held
in Philippine American General Insurance Co., Inc. v. Sweet Lines, Inc. that [w]hen
the due execution and genuineness of an instrument are deemed admitted because
of the adverse partys failure to make a specific verified denial thereof, the instrument
need not be presented formally in evidence for it may be considered an admitted
fact.[24]
In any case, the CA found that:
From the facts of the case, the genuineness and
due execution of the Dacion en Pago were never put to
issue. Genuineness merely refers to the fact that the
signatures were not falsified and/or whether there was no
substantial alteration to the document. While due execution
refers to whether the document was signed by one with satisfaction of its outstanding indebtedness in the amount of
authority.[25] P3,921,750.00 to the BANK, subject to x x x terms and
The more important issue now is whether the Dacion and conditions.[27] (Emphasis supplied.)
Confirmation Statement sufficiently prove that petitioners liability was
extinguished. Respondent asserts that the admission of the genuineness and The language of the Dacion is unequivocalthe property serves in full
due execution of the documents in question is not all encompassing as to satisfaction of petitioners own indebtedness to respondent, referring to the loan of
include admission of the allegations and defenses pleaded in petitioners PhP 3,921,750. For this reason, the bank issued a Confirmation Statement saying
Answer. In executing the Dacion, the intention of the parties was to settle only that petitioner has no unpaid obligations with the bank as of December 31, 1988.
the loans of petitioner with respondent, not the obligation of petitioner arising
from the promissory notes that were assigned by Rare Realty to respondent. In 1989, however, Rare Realty defaulted in its payment
to respondent. Thus, respondent proceeded against the security assigned to it, that
We AGREE. is, the promissory notes issued by the petitioner. Under these promissory notes,
petitioner is liable for the amount of PhP 300,000 with an interest of 36% per annum
Admission of the genuineness and due execution of and a penalty of 12% for failure to pay on the maturity date, June 27, 1985; and for
the Dacion and Confirmation Statement does not prevent the introduction of the amount of PhP 681,500 with an interest of 18% per annum and a penalty of 12%
evidence showing that the Dacion excludes the promissory notes. Petitioner, for failure to pay on the maturity date, June 25, 1985.
by way of defense, should have presented evidence to show that
the Dacion includes the promissory notes. WHEREFORE, the March 29, 2001 Decision and November 7,
2001 Resolution of the CA are AFFIRMED. Costs against petitioner.
The promissory notes matured in June 1985, and Rare Realty
assigned these promissory notes to respondent through a Deed of Assignment
dated August 8, 1986. The Deed of Assignment provides, thus:
Rare Realty Corporation, a corporation duly organized
and existing in accordance with law, with office at 8th
Floor Philbanking Building, Ayala Ave., Makati, Metro
Manila (herein called Assignor) in consideration of the
sum of THREE MILLION SEVEN HUNDRED NINETY
THOUSAND & 00/100 pesos [PhP 3,790,000.00] and
as security fee or in the payment of the sum, obtained
or to be obtained as loan or credit accommodation of
whatever form or nature from
Sec. 11. Third (fourth, etc.)- party complaint
the [PHILBANKING] CORPORATION, with office at
Ayala Ave., Makati, Metro Manila (herein called
Section 11. Third, (fourth, etc.)—party complaint. — A third (fourth, etc.) —
Assignee), including renewals or extensions of such
loan or credit accommodation, now existing or party complaint is a claim that a defending party may, with leave of court, file
hereinafter incurred, due or to become due, whether against a person not a party to the action, called the third (fourth, etc.) — party
absolute or contingent, direct or indirect, and whether defendant for contribution, indemnity, subrogation or any other relief, in respect
incurred by the Assignor as principal, guarantor, surety, of his opponent's claim.
co-maker, or in any other capacity, including interest,
charges, penalties, fees, liquidated damage, collection
expenses and attorneys fee, the Assignor hereby
assigns, transfers and conveys to Assignee all its rights, Capayas v. CFI, 43 Off. Gaz., 2071, 2074; 77 Phil., 181
title and interest in and to: (a) contracts under which
monies are or will be due to Assignor, (b) moneys due
or to be due thereunder, or (c) letters of credit and/or This is a petition for mandamus to compel the respondent Court of First Instance of
proceeds or moneys arising from negotiations under Albay to admit the so-called amended third-party complaint filed by petitioner against
such credits, all which are herein called moneys or several persons named therein, on the ground that the refusal of the respondent
receivables assigned or assigned moneys or court to admit the same constitutes an unlawful neglect of the performance of a duty
receivables, and are attached, or listed and described specifically enjoined upon it by law, pursuant to Rule 12 of the Rules of Court,
in the Attached Annex A (for contracts) or Annex B (for sections 1 and 2 of which read as follows:
letters of credit).[26]
It is clear from the foregoing deed that the promissory notes were SECTION 1. Claim against one not a party to an action.—When a defendant claims
given as security for the loan granted by respondent to Rare Realty. Through to be entitled against a person not a party to the action, hereinafter called the
the Deed of Assignment, respondent stepped into the shoes of Rare Realty third-party defendant, to contribution, indemnity, subrogation or any other relief, in
as petitioners creditor. respect of the plaintiff's claim, he may file, with leave of court, against such person a
pleading which shall state the nature of his claim and shall be called the third-party
Respondent alleged that petitioner obtained a separate loan of
complaint.
PhP 3,921,750. Thus, when petitioner and respondent executed
the Dacion on August 27, 1986, what was then covered was petitioners loan
from the bank. The Dacion provides, thus: SEC. 2. Motion for leave.—Before the service of his answer a defendant may
move ex parte or, after the service of his answer, on notice to the plaintiff, for leave
NOW, THEREFORE, in consideration of the foregoing
as third-party plaintiff to file a complaint against a third-party defendant.
premises, the DEBTOR hereby transfers and
conveys in favor of the BANK by way of Dacion en
Pago, the above-described property in full Petitioner's contention is untenable.
First. Because from the said provisions it clearly appears that it is not a court's duty
especially enjoined by law to admit a third-party complaint. Were it a ministerial duty,
it would not be necessary for the defendant to obtain leave of court to file such
complaint; because if the court has the duty to admit, the defendant has the
correlative right to file, a third-party complaint without necessity of such leave. Of
course, when the law says that a third party complaint may be filed with leave of court,
it refers to a complaint that alleges facts which prima facie show that the defendant is
entitled against the third-party defendant to contribution, etc., etc. Otherwise the court
can not legally grant leave to a defendant to file it, because it would not be a
third-party complaint.
In the case of General Taxicab Assn., Inc. vs. O' Shea, U.S. Court of Appeals, Dist.
Court of Columbia, January 15, 1940, the court said: "Against this background of
statutes and decisions, the Supreme Court, in framing Rule 14(a), chose the
language "a defendant may move . . . for leave as a third-party plaintiff to serve a
summons and complaint upon a person not a party to the action, . . .' and the
language 'if the motion is granted. . . .' We think there can be no doubt that it was thus
intended to make the impleading of third parties in the Federal practice discretionary
with the trial court. See 1 Moore, op. cit., supra, 741: 'Whether a party to an action
shall be allowed to implead an additional party rests in the discretion of the court.
This is in accord with the English, New York and Wisconsin practices.'" (2 Fed. Rules
Service, 14a.15, Case No. 1.)
Secondly. Because the respondent court would have committed an error if it had
admitted the so-called third-party complaint filed by the petitioner against Isidora
Lladoc, Fulgencio Lladoc and Gregorio Navera, since the facts alleged therein do not
show that the petitioner is entitled to indemnify against them "in respect to plaintiff's
claim."The test to determine whether the claim is, whether it arises out of the same
transaction on which the plaintiff's claim is based, or the third-party's claim, although
arising out of another or different contract or transaction, is connected with the
plaintiff's claim.
According to the decision in the case of Crim vs. Lumberman's Mutual Casualty Co.
(26 Fed. Supp., 715 [1 Fed. Rules Service, 14a11. Case No. 1]),the test to determine
when a third-party defendant may be impleaded is whether he could have been
joined originally as a defendant by the plaintiff. But this could be applied only if there
could be asserted against the defendant as the third-party defendant, jointly and
severally or in the alternatives, any right to relief arising out of the same transaction.
For example in an action against the surety in a bond, the surety may bring in as a
third party defendant, the principle who had agreed to indemnify the surety, because
the surety's claim arises out of the same transaction (United States vs. United States
Fidelity and Guaranty Co. vs. Kolling, U.S. Dist. Ct., D. Minn., February 1, 1940, 2
Fed. Rules Service 14a.222, Case No. 1). The above test does not cover all cases in
which impleading a third-party may be and have been allowed, which are also
covered by the test we have laid down in the previous paragraph. Under Rule 14 of
Federal Rules of Civil Procedure, which corresponds to our Rule 12, the bringing in of
a third-party defendant is proper if he would be liable to the plaintiff or to the
defendant for all or part of the plaintiff's claim against the original defendant, although
the third-party defendant's liability arises out of another transaction. So in the case of
Carbola Chemical Co., Inc. vs Trundle Engineering Co. (U. S. Dist. Ct., S. D. N. Y.,
December 26, 1942), it was held that in an action for breach of contract to render
engineering services and to survey a plant, the defendant was allowed to bring as a
third-party defendant, the manufacturer which sold defendant's equipment to the
plaintiff (7 Fed. Rules Service, 14a.11, Case No. 1). And in a negligence action by the
purchaser of a confection in which it is alleged that the confection contained a foreign
object, the defendant may bring in the person who supplied him with the constituent
containing the foreign object, as a third-party defendant (Saunders vs. Southern
Dairies, Inc., U.S. Dist. Ct., District of Columbia, November 6, 1939 [2 Fed. Rules
Service, 14a.226, Case No. 31]).
Another test, provided for by section 4, Rule 12, of our Rules of Court, is
whether the third-party defendant may assert any defenses which the
third-party plaintiff has or may have to the plaintiff's claim. If he may properly
assert such defenses, then he is a proper third-party defendant; otherwise he
is not and the claim against him can not be considered as a third-party
complaint.
Petitioner's claim for indemnity against Lladoc and others does neither arise
out of the same transaction or the alleged petitioner's tortuous acts on which
plaintiff's action is based, nor is it based on a different transaction but
connected with the plaintiff's claim. Plaintiff's claim against petitioner and his
co-defendants is, according to the allegations in the complaint, (a) to recover
from them damages for the palay which have been illegally harvested from
certain lands belonging to the plaintiff, and (b) to enjoin them from entering
said lands and disturbing and molesting the plaintiff's right of ownership and
possession thereof. Whereas the petitioner's claim against Isidora Lladoc and
others is to recover from the latter the value of the three parcels of land and
their fruits amounting to P3,200 plus legal interest, for having said Isidora, as
administratrix of the intestate estate of Ceferino Guanzon, sold said lands in
1927 without authority of the court to Domingo Imperial, from whom said lands
were acquired by the plaintiff. And in the present case, it is clear that if the
so-called third-party complaint be allowed, Isidora Lladoc and others named
therein as third-party defendants could not assert any defense which the
petitioner has or may have to the plaintiff's claim.
Lastly. Because the causes of action in this complaint against the petitioner are
that "on the month of April, 1944, the defendants by force, intimidation and
threat . . . entered upon the aforesaid lands (described in the complaint) and
harvested and collected . . . 400 cavanes of palay produced therefrom"; and
that "the defendants persist in their threat to enter upon said lands with the
purpose of disturbing and molesting the plaintiff's right of ownership and
possession thereof." From these allegations it appears that the petitioner is
being sued in his personal capacity, and not as administrator of intestate
estate of Ceferino Guanzon; because he was appointed as administrator only
on July 1, 1944, according to petitioner's Exhibit A; and it is not within the
powers and duties conferred by law upon an administrator to do the acts
complained of. Being sued in his individual capacity, it is evident that the
petitioner can not file, in his capacity as administrator of the intestate estate of
Ceferino Guanzon, a third-party complaint against Isidora Lladoc and others. It
requires no elaborate argument to show that, under the provisions of section 1,
Rule 12, a defendant can not file a third-party complaint in a different capacity
in which he is being sued; otherwise his claim against the third-party defendant
would not be in respect to plaintiff's claim. In other words, the would be
third-party defendants can not be made liable to the petitioner for all or part of
the plaintiff's claim against the petitioner.
Petition is therefore denied with costs against the petitioner. So ordered.
Allied Bank v. Court of Appeals, G.R. No. 123871, August 31, 1998
As a general rule, a trial court that has established jurisdiction over the
main action also acquires jurisdiction over a third-party complaint, even if it
could not have done so had the latter been filed as an independent action. This
rule, however, does not apply to banks that have agreed to submit their
disputes over check clearings to arbitration under the rules of the Philippine
Clearing House Corporation. In that event, primary recourse should be to the
PCHC Arbitration Committee, without prejudice to an appeal to the trial
courts. In other words, without first resorting to the PCHC, the third-party
complaint would be premature.
The Case
Before us is a petition for review on certiorari under Rule 45, assailing the
Decision dated February 12, 1996 promulgated by the Court of Appeals[1] in CA-GR
CV No. 44804; which affirmed the trial courts Order dated September 16, 1991,
dismissing petitioners third-party complaint against private respondent.[2]
Facts of the Case
The facts are undisputed. Reproduced hereunder is Respondent Courts
narration:
Hyatt Terraces Baguio issued two crossed checks drawn against Allied Banking Corp.
(hereinafter, ALLIED) in favor of appellee Meszellen Commodities Services, Inc.
(hereinafter, MESZELLEN). Said checks were deposited on August 5, 1980 and
August 18, 1980, respectively, with the now defunct Commercial Bank and Trust
Company (hereinafter, COMTRUST). Upon receipt of the above
checks, COMTRUST stamped at the back thereof the warranty All prior
endorsements and/or lack of endorsements guaranteed. After the checks were
cleared through the Philippine Clearing House Corporation (hereinafter, PCHC),
ALLIED BANK paid the proceeds of said checks to COMTRUST as the collecting
bank.
On March 17, 1981, the payee, MESZELLEN, sued the drawee, ALLIED BANK, for
damages which it allegedly suffered when the value[s] of the checks were paid not to
it but to some other person.
Almost ten years later, or on January 10, 1991, before defendant ALLIED BANK
could finish presenting its evidence, it filed a third party complaint against Bank of the
Philippine Islands (hereinafter, BPI, appellee herein) as successor-in-interest of
COMTRUST, for reimbursement in the event that it would be adjudged liable in the
main case to pay plaintiff, MESZELLEN. The third party complaint was admitted [in]
an Order dated May 16, 1991 issued by the Regional Trial Court of Pasig, Branch
162. On July 16, 1991, BPI filed a motion to dismiss said third party complaint
grounded on the following: 1) that the court ha[d] no jurisdiction over the nature of the
action; and 2) that the cause of action of the third party plaintiff ha[d] already
prescribed.
On September 16, 1991, the trial court issued an order dismissing the third party
complaint. Defendant-third party plaintiffs motion for reconsideration of this order was
subsequently denied.[3]
Respondent Courts Ruling
Respondent Court affirmed the trial court thus:
x x x Appellants submission that the cause of action of the third party plaintiff against
the third party defendant accrued only when the complaint in the original case was
filed on March 17, 1981 is untenable. As earlier discussed, the defendant has a
separate cause of action (in respect of plaintiffs complaint) against a third party in the
original and principal case. Reviewing the third-party complaint below, that cause of
action is the supposed erroneous endorsement made by COMTRUST for which
ALLIED BANK is being held liable for damages by the payee-appellee. Without
COMTRUSTs warranties as a general endorser, ALLIED BANK allegedly would not
have paid on the checks.Should such warranties prove to be false and inaccurate,
COMTRUST may be held liable for any damage arising out of the falsity of its
representation.
Based on the records the subject endorsement of COMTRUST was made in August
1980[;] and in the same period, ALLIED BANK paid on the subject checks. From that
moment, ALLIED BANK could have instituted an action against COMTRUST. It is the
legal possibility of bringing the action which determines the starting point for the
computation of the period (Tolentino, Civil Code of the Philippines, Vol. IV, p. 41,
citing Manresa). This is the moment when a cause of action may be deemed to
accrue. Thus, considering that the third party complaint was filed more than ten years
from August 1980, specifically on January 10, 1991, the same can no longer be
entertained.
Even granting arguendo that the lower court had jurisdiction over the third party
complaint and the cause of action thereof had not yet prescribed, the filing of the third
party complaint should nevertheless be disallowed considering that defendant has
already presented several witnesses and is about ready to rest its case because,
then, the allowance of the third party complaint would only delay the resolution of the
original case. (Firestone Tire and Rubber Co. of the Phil. vs. Tempengko, supra, p.
423).
A final word. We have noted the curious situation here where, instead of the payee
suing its bank, i.e., the collecting bank (which is COMTRUST), it opted to sue the
drawee bank (ALLIED BANK). It is, however, up to the trial court to rule on the
propriety of the latter complaint.[4]
Not satisfied with the above ruling, petitioner filed the present petition before
this Court.[5]
The Issues
Petitioner raises the following issues:[6]
I. The Respondent Honorable Court of Appeals erred in holding that the cause of
action of the third-party complaint ha[d] already prescribed.
II. The Respondent Honorable Court of Appeals erred in holding that the filing of the
third party complaint should be disallowed as it would only delay the resolution of the
case.
On the other hand, private respondent argues that the trial court had no
authority to admit a third-party claim that was filed by one bank against another and
involved a check cleared through the Philippine Clearing House Corporation
(PCHC). To the mind of the Court, this is the critical issue.
The Courts Ruling
The petition is bereft of merit.
Critical Issue: Mandatory Recourse to PCHC
To buttress its claim, private respondent contends that petitioners
remedy rests with the PCHC, of which both Allied and BPI are members, in
consonance with the Clearing House Rules and Regulations which, in part,
states:
Sec. 38 - Arbitration
Any dispute or controversy between two or more clearing participants involving
any check/item cleared thru PCHC shall be submitted to the Arbitration
Committee, upon written complaint of any involved participant by filing the
same with the PCHC serving the same upon the other party or parties, who
shall within fifteen (15) days after receipt thereof file with the Arbitration
Committee its written answer to such written complaint and also within the
same period serve the same upon the complaining participant, xxx.
Private respondent cites Banco de Oro Savings and Mortgage Bank v.
Equitable Banking Corporation[7] and Associated Bank v. Court of
Appeals,[8] which upheld the right of the PCHC to settle and adjudicate
disputes between member banks. In Banco de Oro, the Court ruled:
The participation of the two banks, petitioner and private respondent, in the
clearing operations of PCHC is a manifestation of their submission to its
jurisdiction. Secs. 3 and 36.6 of the PCHC-CHRR clearing rules and
regulations provide:
Sec. 3. AGREEMENT TO THESE RULES. - It is the general agreement and
understanding that any participant in the Philippine Clearing House
Corporation, MICR clearing operations[,] by the mere fact of their participation,
thereby manifests its agreement to these Rules and Regulations and its
subsequent amendments.
Sec. 36.6. (ARBITRATION) - The fact that a bank participates in the clearing
operations of the PCHC shall be deemed its written and subscribed consent to
the binding effect of this arbitration agreement as if it had done so in
accordance with section 4 of (the) Republic Act. No. 876, otherwise known as
the Arbitration Law.
Further[,] Section 2 of the Arbitration Law mandates:
Two or more persons or parties may submit to the arbitration of one or more
arbitrators any controversy existing between them at the time of the
submission and which may be the subject of any action, or the parties of any
contract may in such contract agree to settle by arbitration a controversy
thereafter arising between them. Such submission or contract shall be valid
and irrevocable, save upon grounds as exist at law for the revocation of any
contract.
Such submission or contract may include question arising out of valuations,
appraisals or other controversies which may be collateral, incidental,
precedent or subsequent to any issue between the parties. (Italics supplied.)
Associated Bank also disallowed a similar third-party complaint, ruling
thus:
Under the rules and regulations of the Philippine Clearing House Corporation
(PCHC), the mere act of participation of the parties concerned in its operations in
effect amounts to a manifestation of agreement by the parties to abide by its rules
and regulations. As a consequence of such participation, a party cannot invoke the
jurisdiction of the courts over disputes and controversies which fall under the PCHC
Rules and Regulations without first going through the arbitration processes laid out
by the body. Since claims relating to the regularity of checks cleared by banking
institutions are among those claims which should first be submitted for resolution by
the PCHCs Arbitration Committee, petitioner Associated Bank, having voluntarily
bound itself to abide by such rules and regulations, is estopped from seeking relief
from the Regional Trial Court on the coattails of a private claim and in the guise of a
third party complaint without first having obtained a decision adverse to its claim from
the said body. It cannot bypass the arbitration process on the basis of its averment
that its third party complaint is inextricably linked to the original complaint in the
Regional Trial Court.
xxxxxxxxx
Clearly therefore, petitioner Associated Bank, by its voluntary participation and its
consent to the arbitration rules cannot go directly to the Regional Trial Court when it
finds it convenient to do so. The jurisdiction of the PCHC under the rules and
regulations is clear, undeniable and is particularly applicable to all the parties in the
third party complaint under their obligation to first seek redress of their disputes and
grievances [from] the PCHC before going to the trial court.
Finally, the contention that the third party complaint should not have been dismissed
for being a necessary and inseparable offshoot of the main case over which the
court a quo had already exercised jurisdiction misses the fundamental point about
such pleading. A third party complaint is a mere procedural device which under the
Rules of Court is allowed only with the courts permission. It is an action actually
independent of, separate and distinct from the plaintiffs complaint (s)uch that, were it
not for the Rules of Court, it would be necessary to file the action separately from the
original complaint by the defendant against the third party. (Italics supplied.)
Banco de Oro and Associated Bank are clear and unequivocal: a third-party
complaint of one bank against another involving a check cleared through the PCHC
is unavailing, unless the third-party claimant has first exhausted the arbitral authority
of the PCHC Arbitration Committee and obtained a decision from said body adverse
to its claim.
Recognizing the role of the PCHC in the arbitration of disputes between
participating banks, the Court in Associated Bank further held: Pursuant to its
function involving the clearing of checks and other clearing items, the PCHC has
adopted rules and regulations designed to provide member banks with a procedure
whereby disputes involving the clearance of checks and other negotiable instruments
undergo a process of arbitration prior to submission to the courts below. This
procedure not only ensures a uniformity of rulings relating to factual disputes
involving checks and other negotiable instruments but also provides a mechanism for
settling minor disputes among participating and member banks which would
otherwise go directly to the trial courts.
We defer to the primary authority of PCHC over the present dispute, because
its technical expertise in this field enables it to better resolve questions of this
nature. This is not prejudicial to the interest of any party, since primary recourse to
the PCHC does not preclude an appeal to the regional trial courts on questions of
law. Section 13 of the PCHC Rules reads:
Sec. 13. The findings of facts of the decision or award rendered by the Arbitration
Committee or by the sole Arbitrator as the case may be shall be final and conclusive
upon all the parties in said arbitration dispute. The decision or award of the operated by Inland Trailways, Inc. (Inland for brevity) After trial, the RTC (Branch 71) in Antipolo, Rizal rendered its judgment
Arbitration Committee or of the Sole Arbitrator shall be appealable only on questions and driven by its driver Calvin Coner (Coner for on July 18, 1997,[1] viz:
of law to any of the Regional Trial Courts in the National Capital Judicial Region brevity).
where the Head Office of any of the parties is located. The appellant shall perfect his WHEREFORE, third-party defendant Philtranco
appeal by filing a notice of appeal to the Arbitration Secretariat and filing a Petition At approximately 3:50 oclock in the and Apolinar Miralles are hereby ordered to pay plaintiff jointly
with the Regional Trial Court of the National Capital Region xxx. morning of 09 February 1987, while the said bus was and severally, the following amounts:
travelling along Maharlika Highway, Tiaong, Quezon, it
was bumped at the rear by another bus with Plate No. 1.P54,000.00 as actual damages;
Furthermore, when the error is so patent, gross and prejudicial as to constitute EVB 259, owned and operated by Philtranco Service
grave abuse of discretion, courts may address questions of fact already decided by Enterprises, Inc. (Philtranco for brevity). As a result of 2.P50,000.00 as moral damages;
the arbitrator.[9] the strong and violent impact, the Inland bus was
pushed forward and smashed into a cargo truck parked 3.P20,000.00 as attorneys fees and costs.
We are not unaware of the rule that a trial court, which has jurisdiction over along the outer right portion of the highway and the
shoulder thereof. Consequently, the said accident SO ORDERED.
the main action, also has jurisdiction over the third party complaint, even if the said
bought considerable damage to the vehicles involved
court would have had no jurisdiction over it had it been filed as an independent
and caused physical injuries to the passengers and All the parties appealed to the CA on different grounds.
action.[10] However, this doctrine does not apply in the case of banks, which have crew of the two buses, including the death of Coner
given written and subscribed consent to arbitration under the auspices of the PCHC. who was the driver of the Inland Bus at the time of the
incident.
By participating in the clearing operations of the PCHC, petitioner agreed to On his part, Paras ascribed the following errors to the RTC, to wit:
submit disputes of this nature to arbitration. Accordingly, it cannot invoke the Paras was not spared from the pernicious
jurisdiction of the trial courts without a prior recourse to the PCHC Arbitration effects of the accident. After an emergency treatment 1. THE TRIAL COURT ERRED IN HOLDING THAT ONLY
Committee. Having given its free and voluntary consent to the arbitration clause, at the San Pablo Medical Center, San Pablo City, THIRD-PARTY DEFENDANT-APPELLANT PHILTRANCO IS
petitioner cannot unilaterally take it back according to its whim. In the world of Laguna, Paras was taken to LIABLE FOR THE DAMAGES SUFFERED BY APPELLANT
commerce, especially in the field of banking, the promised word is crucial. Once the National Orthopedic Hospital. At the latter hospital, PARAS.
given, it may no longer be broken. he was found and diagnosed by Dr. Antonio Tanchuling,
Jr. to be affected with the following injuries: a) II. THE TRIAL COURT ERRED IN NOT HOLDING
Upon the other hand, arbitration as an alternative method of dispute-resolution contusion/hematoma; b) dislocation of hip upon APPELLANT INLAND TRAILWAYS INC. TO BE JOINTLY
is encouraged by this Court. Aside from unclogging judicial dockets, it also hastens fracture of the fibula on the right leg; c) fractured small AND SEVERALLY LIABLE FOR THE DAMAGES
solutions especially of commercial disputes. bone on the right leg; and d) close fracture on the tibial SUFFERED BY PARAS.
plateau of the left leg. (Exh. A, p. 157, record)
In view of the foregoing, a discussion of the issues raised by the petitioners is III. THE TRIAL COURT ERRED IN NOT AWARDING
unnecessary. On 04 March 1987 and 15 April 1987, UNEARNED INCOME AS ADDITIONAL ACTUAL DAMAGES
Paras underwent two (2) operations affecting the SUFFERED BY APPELLANT PARAS AS HIS PHYSICAL
WHEREFORE, the petition is DENIED for lack of merit. Costs against fractured portions of his body. (Exhs. A-2 and A-3, pp. DISABILITY IS PERMANENT IN NATURE.
petitioner. 159 and 160 respectively, record)
IV. THE TRIAL COURT ERRED IN NOT AWARDING
Unable to obtain sufficient financial EXEMPLARY DAMAGES IN FAVOR OF APPELLANT
assistance from Inland for the costs of his operations, PARAS.
Philtranco v. Court of Appeals, G.R. No. 161909, April 25, 2012 hospitalization, doctors fees and other miscellaneous
expenses, on 31 July 1989, Paras filed a complaint for
damages based on breach of contract of On the other hand, Inland assigned the following errors to the RTC,
In an action for breach of contract of carriage commenced by a
carriage against Inland. namely:
passenger against his common carrier, the plaintiff can recover damages from a
third-party defendant brought into the suit by the common carrier upon a claim based
In its answer, defendant Inland denied
on tort or quasi-delict. The liability of the third-party defendant is independent from
responsibility, by alleging, among others, that its driver
the liability of the common carrier to the passenger. THE TRIAL COURT ERRED WHEN IT FAILED TO AWARD
Coner had observed an utmost and extraordinary care
and diligence to ensure the safety of its passengers. In DAMAGES UNTO THE THIRD PARTY PLAINTIFF
Philtranco Service Enterprises, Inc. (Philtranco) appeals the affirmance NOTWITHSTANDING CLEAR FINDING THAT:
support of its disclaimer of responsibility, Inland
with modifications by the Court of Appeals (CA) of the decision of the Regional Trial
invoked the Police Investigation Report which
Court (RTC) awarding moral, actual and temperate damages, as well as attorneys It is clear from the evidence that the plaintiff
established the fact that the Philtranco bus driver of [sic]
fees and costs of suit, to respondent Felix Paras (Paras), and temperate damages to sustained injuries because of the reckless,
Apolinar Miralles was the one which violently bumped
respondent Inland Trailways, Inc. (Inland), respectively the plaintiff and the negligence, and lack of precaution of third
the rear portion of the Inland bus, and therefore, the
defendant/third-party plaintiff in this action for breach of contract of carriage, upon a party defendant Apolinar Miralles, an
direct and proximate cause of Paras injuries.
finding that the negligence of the petitioner and its driver had caused the serious employee of Philtranco.
physical injuries Paras sustained and the material damage Inlands bus suffered in a
On 02 March 1990, upon leave of court,
vehicular accident. AND, COMPLETELY DISREGARDED THE
Inland filed a third-party complaint against Philtranco
and Apolinar Miralles (Third Party defendants). In this UNCONTROVERTED ORAL AND DOCUMENTARY
Antecedents EVIDENCES ESTABLISHING THE EXTENT AND DEGREE
third-party complaint, Inland, sought for exoneration of
its liabilities to Paras, asserting that the latters cause of OF DAMAGES SUSTAINED BY THE THIRD PARTY
The antecedent facts, as summarized by the CA, are as follows: PLAINTIFF.
action should be directed against Philtranco
considering that the accident was caused by Miralles
Plaintiff-appellant [respondent] Felix Paras (Paras Lastly, Philtranco stated that the RTC erred thuswise:
lack of care, negligence and reckless imprudence. (pp.
for brevity), who hails from Cainta, Rizal is engaged in the buy
50 to 56, records).
and sell of fish products. Sometime on 08 February 1987, on
his way home to Manila from Bicol Region, he boarded a bus
with Body No. 101 and Plate No. EVE 508, owned and I
 THE COURT A QUO MISERABLY ERRED IN AWARDING
ACTUAL DAMAGES GREATER THAN WHAT WAS
ALLEGED IN THE COMPLAINT ITSELF, AND EVEN MUCH
MORE GREATER THAN WHAT WERE PROVED DURING
THE TRIAL, HENCE, PERPETUATING UNJUST
ENRICHMENT.
II
THE COURT A QUO SERIOUSLY ERRED IN AWARDING
MORAL DAMAGES TO A CAUSE OF ACTION OF
CULPA-CONTRACTUAL EVEN WITHOUT ANY EVIDENCE
OF GROSS BAD FAITH; HENCE, CONTRARY TO THE
ESTABLISHED DOCTRINE IN THE CASES OF PHIL.
RABBIT BUS LINES VS. ESGUERRA; SOBERANO VS.
BENGUET AUTO LINE AND FLORES VS. MIRANDA.
III
THE COURT A QUO MISERABLY ERRED IN HOLDING
THAT MIRALLES WAS THE ONE AT FAULT MERELY ON
THE STRENGHT OF THE TESTIMONY OF THE POLICE
INVESTIGATOR WHICH IS IN TURN BASED ON THE
STATEMENTS OF ALLEGED WITNESSES WHO WERE
NEVER PRESENTED ON THE WITNESS STAND.
IV
THE COURT A QUO COMMITTED A GRIEVOUS ERROR IN
DISREGARDING THE TESTIMONY OF APPELLANTS
WITNESSES WHO TESTIFIED AS TO THE DEFENSE OF
EXERCISE OF DUE DILIGENCE IN THE SELECTION AND
SUPERVISION OF EMPLOYEES PURSUANT TO ART.
2180, LAST PARAGRAPH, NEW CIVIL CODE.
On September 25, 2002, the CA promulgated its decision,[2] disposing:
WHEREFORE, in consideration of the foregoing
premises, the assailed decision dated 18 July 19(9)7 is
perforce affirmed with the following modifications:
1. Third party defendants-appellants Philtranco
and Apolinar Miralles are ordered to pay plaintiff-appellant
Felix Paras jointly and severally the following amounts:
a) P1,397.95 as actual damages;
b) P50,000.00 as temperate damages;
c) P50,000.00 as moral damages; and
d) P20,000.00 as attorneys fees and
costs of suit.
2. On the third party plaintiff-appellant Inlands
claims, the third party defendant-appellants Philtranco and
Apolinar Miralles are hereby ordered to pay the former (Inland)
jointly and severally the amount of P250,000.00 as and by
way of temperate damages.
SO ORDERED.
The CA agreed with the RTCs finding that no trace of negligence at the
time of the accident was attributable to Inlands driver, rendering Inland not guilty of
breach of contract of carriage; that faulty brakes had caused Philtrancos bus to
forcefully bump Inlands bus from behind, making it hit the rear portion of a parked
cargo truck; that the impact had resulted in considerable material damage to the
three vehicles; and that Paras and others had sustained various physical injuries.
Accordingly, the CA: (a) sustained the award of moral damages
of P50,000.00 in favor of Paras pursuant to Article 2219 of the Civil Code based
on quasi-delict committed by Philtranco and its driver; (b) reduced the actual
damages to be paid by Philtranco to Paras from P54,000.00 to P1,397.95
because only the latter amount had been duly supported by receipts; (c)
granted temperate damages of P50,000.00 (in lieu of actual damages in view
of the absence of competent proof of actual damages for his hospitalization
and therapy) to be paid by Philtranco to Paras; and (d) awarded temperate
damages of P250,000.00 under the same premise to be paid by Philtranco to
Inland for the material damage caused to Inlands bus.
Philtranco moved for reconsideration,[3] but the CA denied its
motion for reconsideration on January 21, 2004.[4]
Issues
Hence, this appeal, in which the petitioner submits that the CA
committed grave abuse of discretion amounting to lack of jurisdiction in
awarding moral damages to Paras despite the fact that the complaint had been
anchored on breach of contract of carriage; and that the CA committed a
reversible error in substituting its own judgment by motu proprio awarding
temperate damages of P250,000.00 to Inland and P50,000.00 to Paras
despite the clear fact that temperate damages were not raised on appeal by
Paras and Inland.
Ruling
The appeal lacks merit.
The Court does not disturb the unanimous findings by the CA and the RTC on
the negligence of Philtranco and its driver being the direct cause of the
physical injuries of Paras and the material damage of Inland.
Nonetheless, we feel bound to pass upon the disparate results the
CA and the RTC reached on the liabilities of Philtranco and its driver.
1.
Paras can recover moral damages
in this suit based on quasi-delict
Philtranco contends that Paras could not recover moral damages
because his suit was based on breach of contract of carriage, pursuant
to which moral damages could be recovered only if he had died, or if the
common carrier had been guilty of fraud or bad faith. It argues that Paras had
suffered only physical injuries; that he had not adduced evidence of fraud or
bad faith on the part of the common carrier; and that, consequently, Paras
could not recover moral damages directly from it (Philtranco), considering that
it was only being subrogated for Inland.
The Court cannot uphold the petitioners contention.
As a general rule, indeed, moral damages are not recoverable in
an action predicated on a breach of contract. This is because such action is not
included in Article 2219 of the Civil Code[5] as one of the actions in which moral
damages may be recovered. By way of exception, moral damages are
recoverable in an action predicated on a breach of contract: (a) where the
mishap results in the death of a passenger, as provided in Article 1764,[6] in
relation to Article 2206, (3),[7] of the Civil Code; and (b) where the common
carrier has been guilty of fraud or bad faith,[8] as provided in Article 2220[9] of
the Civil Code.
Although this action does not fall under either of the exceptions, the
award of moral damages to Paras was nonetheless proper and valid. There is
no question that Inland filed its third-party complaint against Philtranco and its
driver in order to establish in this action that they, instead of Inland, should be
directly liable to Paras for the physical injuries he had sustained because of
their negligence. To be precise, Philtranco and its driver were brought into the
action on the theory of liability that the proximate cause of the collision
between Inlands bus and Philtrancos bus had been the negligent, reckless and
imprudent manner defendant Apolinar Miralles drove and operated his driven
unit, the Philtranco Bus with Plate No. 259, owned and operated by third-party
defendant Philtranco Service Enterprises, Inc.[10] The apparent objective of
Inland was not to merely subrogate the third-party defendants for itself, as
Philtranco appears to suggest,[11] but, rather, to obtain a different relief whereby the
third-party defendants would be held directly, fully and solely liable to Paras and
Inland for whatever damages each had suffered from the negligence committed by
Philtranco and its driver. In other words, Philtranco and its driver were charged here
as joint tortfeasors who would be jointly and severally be liable to Paras and Inland.
Impleading Philtranco and its driver through the third-party complaint filed on March 2,
1990 was correct. The device of the third-party action, also known as impleader, was
in accord with Section 12, Rule 6 of the Revised Rules of Court, the rule then
applicable, viz:
Section 12. Third-party complaint. A third-party
complaint is a claim that a defending party may, with leave of
court, file against a person not a party to the action, called the
third-party defendant, for contribution, indemnity, subrogation
or any other relief, in respect of his opponents claim.[12]
Explaining the application of Section 12, Rule 6, supra, the Court said
in Balbastro v. Court of Appeals,[13] to wit:
Section 12 of Rule 6 of the Revised Rules of
Court authorizes a defendant to bring into a lawsuit any
person not a party to the action . . . for contribution, indemnity,
subrogation or any other relief in respect of his opponent's
claim. From its explicit language it does not compel the
defendant to bring the third-parties into the litigation, rather it
simply permits the inclusion of anyone who meets the
standard set forth in the rule. The secondary or derivative
liability of the third-party is central whether the basis is
indemnity, subrogation, contribution, express or implied
warranty or some other theory. The impleader of new
parties under this rule is proper only when a right to relief
exists under the applicable substantive law. This rule is
merely a procedural mechanism, and cannot be utilized
unless there is some substantive basis under applicable
law.
Apart from the requirement that the third-party
complainant should assert a derivative or secondary
claim for relief from the third-party defendant there are
other limitations on said partys ability to implead. The
rule requires that the third-party defendant is not a party
to the action for otherwise the proper procedure for
asserting a claim against one who is already a party to
the suit is by means of counterclaim or cross-claim
under sections 6 and 7 of Rule 6. In addition to the
aforecited requirement, the claim against the third-party
defendant must be based upon plaintiff's claim against
the original defendant (third-party claimant). The crucial
characteristic of a claim under section 12 of Rule 6, is
that the original defendant is attempting to transfer to the
third-party defendant the liability asserted against him by
the original plaintiff.
Accordingly, the requisites for a third-party action are, firstly, that the
party to be impleaded must not yet be a party to the action; secondly, that the claim
against the third-party defendant must belong to the original defendant; thirdly, the
claim of the original defendant against the third-party defendant must be based upon
the plaintiffs claim against the original defendant; and, fourthly, the defendant is
attempting to transfer to the third-party defendant the liability asserted against him by
the original plaintiff.[14]
As the foregoing indicates, the claim that the third-party complaint asserts
against the third-party defendant must be predicated on substantive law. Here, the
substantive law on which the right of Inland to seek such other relief through its Quite apparent from these arguments is the
third-party complaint rested were Article 2176 and Article 2180 of the Civil Code, misconception entertained by appellants with respect
which read: to the nature and office of a third party complaint.
Article 2176. Whoever by act or omission causes Section 16, Rule 6 of the Revised Rules of
damage to another, there being fault or negligence, is obliged Court defines a third party complaint as a claim that a
to pay for the damage done. Such fault or negligence, if there defending party may, with leave of court, file against a
is no pre-existing contractual relation between the parties, is person not a party to the action, called the third-party
called a quasi-delict and is governed by the provisions of this defendant, for contribution, indemnification,
chapter. (1902a) subrogation, or any other relief, in respect of his
opponents claim. In the case of Viluan vs. Court of
Article 2180. The obligation imposed by article Appeals, et al., 16 SCRA 742 [1966], this Court had
2176 is demandable not only for ones own acts or omissions, occasion to elucidate on the subjects covered by this
but also for those of persons for whom one is responsible. Rule, thus:
xxx
Employers shall be liable for the damages caused by their ... As explained in the
employees and household helpers acting within the scope of Atlantic Coast Line R. Co. vs.
their assigned tasks, even though the former are not engaged U.S. Fidelity & Guaranty Co.,
in any business or industry. 52 F. Supp. 177 (1943:)
xxx
The responsibility treated of in this article shall cease when From the sources of
the persons herein mentioned prove that they observed all Rule 14 and the decisions
the diligence of a good father of a family to prevent damage. herein cited, it is clear that this
(1903a) rule, like the admiralty rule,
covers two distinct subjects, the
Paras cause of action against Inland (breach of contract of carriage) did not need to addition of parties defendant to
be the same as the cause of action of Inland against Philtranco and its driver (tort the main cause of action, and
or quasi-delict) in the impleader. It is settled that a defendant in a contract action may the bringing in of a third party
join as third-party defendants those who may be liable to him in tort for the plaintiffs for a defendants remedy over.
claim against him, or even directly to the plaintiff.[15] Indeed, Prof. Wright, et al., xxx
commenting on the provision of the Federal Rules of Procedure of the United States
from which Section 12, supra, was derived, observed so, to wit:[16] If the third party
complaint alleges facts
The third-party claim need not be based on the showing a third partys direct
same theory as the main claim. For example, there are cases liability to plaintiff on the
in which the third-party claim is based on an express claim set out in plaintiffs
indemnity contract and the original complaint is framed in petition, then third party shall
terms of negligence. Similarly, there need not be any legal make his defenses as
relationship between the third-party defendant and any of the provided in Rule 12 and his
other parties to the action. Impleader also is proper even counterclaims against
though the third partys liability is contingent, and technically plaintiff as provided in Rule
does not come into existence until the original defendants 13. In the case of alleged
liability has been established. In addition, the words is or may direct liability, no amendment
be liable in Rule 14(a) make it clear that impleader is proper (to the complaint) is
even though the third-party defendants liability is not necessary or required. The
automatically established once the third-party plaintiffs liability subject-matter of the claim is
to the original plaintiff has been determined. contained in plaintiff's
complaint, the ground of
Nor was it a pre-requisite for attachment of the liability to Philtranco and third partys liability on that
its driver that Inland be first declared and found liable to Paras for the breach of its claim is alleged in third party
contract of carriage with him.[17] As the Court has cogently discoursed in Samala v. complaint, and third partys
Judge Victor:[18] defense to set up in his
answer to plaintiff's
Appellants argue that since plaintiffs filed a complaint. At that point and
complaint for damages against the defendants on a breach of without amendment, the
contract of carriage, they cannot recover from the third-party plaintiff and third party are at
defendants on a cause of action based on quasi-delict. The issue as to their rights
third party defendants, they allege, are never parties liable respecting the claim.
with respect to plaintiff s claim although they are with respect
to the defendants for indemnification, subrogation, The provision in the
contribution or other reliefs. Consequently, they are not rule that, The third-party
directly liable to the plaintiffs. Their liability commences only defendant may assert any
when the defendants are adjudged liable and not when they defense which the third-party
are absolved from liability as in the case at bar. plaintiff may assert to the
plaintiffs claim, applies to the
other subject, namely, the
alleged liability of third party
defendant. The next sentence in the
rule, The third-party defendant is
bound by the adjudication of the third
party plaintiffs liability to the plaintiff,
as well as of his own to the plaintiff or
to the third-party plaintiff applies to
both subjects. If third party is brought
in as liable only to defendant and
judgment is rendered adjudicating
plaintiff's right to recover against
defendant and defendants rights to
recover against third party, he is
bound by both adjudications.That part
of the sentence refers to the second
subject. If third party is brought in as
liable to plaintiff, then third party is
bound by the adjudication as between
him and plaintiff. That refers to the first
subject. If third party is brought in as
liable to plaintiff and also over to
defendant, then third party is bound
by both adjudications. xxx
Under this Rule, a person not a party to an action
may be impleaded by the defendant either (a) on an
allegation of liability to the latter; (b) on the ground of direct
liability to the plaintiff-; or, (c) both (a) and (b). The situation in
(a) is covered by the phrase for contribution, indemnity or
subrogation; while (b) and (c) are subsumed under the catch
all or any other relief, in respect of his opponents claim.
The case at bar is one in which the third party
defendants are brought into the action as directly liable
to the plaintiffs upon the allegation that the primary and
immediate cause as shown by the police investigation of
said vehicular collision between (sic) the
above-mentioned three vehicles was the recklessness
and negligence and lack of imprudence (sic) of the
third-party defendant Virgilio (should be Leonardo)
Esguerra y Ledesma then driver of the passenger bus.
The effects are that plaintiff and third party are at issue
as to their rights respecting the claim and the third party
is bound by the adjudication as between him and plaintiff.
It is not indispensable in the premises that the defendant
be first adjudged liable to plaintiff before the third-party
defendant may be held liable to the plaintiff, as precisely,
the theory of defendant is that it is the third party
defendant, and not he, who is directly liable to plaintiff.
The situation contemplated by appellants would properly
pertain to situation (a) above wherein the third party
defendant is being sued for contribution, indemnity or
subrogation, or simply stated, for a defendant's remedy
over.[19]
It is worth adding that allowing the recovery of damages by Paras based
on quasi-delict, despite his complaint being upon contractual breach, served the
judicial policy of avoiding multiplicity of suits and circuity of actions by disposing of the
entire subject matter in a single litigation.[20]
2.
Award of temperate damages was in order
Philtranco assails the award of temperate damages by the CA considering that, firstly,
Paras and Inland had not raised the matter in the trial court and in their respective
appeals; secondly, the CA could not substitute the temperate damages granted to
Paras if Paras could not properly establish his actual damages despite evidence of
his actual expenses being easily available to him; and, thirdly, the CA gravely abused
its discretion in granting motu proprio the temperate damages of P250,000.00 to
Inland although Inland had not claimed temperate damages in its pleading or during
trial and even on appeal.
The Court cannot side with Philtranco.
Actual damages, to be recoverable, must not only be capable of proof, but must
actually be proved with a reasonable degree of certainty. The reason is that the
court cannot simply rely on speculation, conjecture or guesswork in determining the
fact and amount of damages, but there must be competent proof of the actual amount
of loss, credence can be given only to claims which are duly supported by receipts.[21]
The receipts formally submitted and offered by Paras were limited to the
costs of medicines purchased on various times in the period from February 1987 to
July 1989 (Exhibits E to E-35, inclusive) totaling only P1,397.95.[22] The receipts by
no means included hospital and medical expenses, or the costs of at least two
surgeries as well as rehabilitative therapy. Consequently, the CA fixed actual
damages only at that small sum of P1,397.95. On its part, Inland offered no definite
proof on the repairs done on its vehicle, or the extent of the material damage except
the testimony of its witness, Emerlinda Maravilla, to the effect that the bus had been
damaged beyond economic repair.[23] The CA rejected Inlands showing of unrealized
income worth P3,945,858.50 for 30 months (based on alleged average weekly
income of P239,143.02 multiplied by its guaranteed revenue amounting to 55%
thereof, then spread over a period of 30 months, the equivalent to the remaining 40%
of the vehicles un-depreciated or net book value), finding such showing arbitrary,
uncertain and speculative.[24] As a result, the CA allowed no compensation to Inland
for unrealized income.
Nonetheless, the CA was convinced that Paras should not suffer from the
lack of definite proof of his actual expenses for the surgeries and rehabilitative
therapy; and that Inland should not be deprived of recourse to recover its loss of the
economic value of its damaged vehicle. As the records indicated, Paras was first
rushed for emergency treatment to the San Pablo Medical Center in San Pablo City,
Laguna, and was later brought to the National Orthopedic Hospital in Quezon City
where he was diagnosed to have suffered a dislocated hip, fracture of the fibula on
the right leg, fracture of the small bone of the right leg, and closed fracture on the
tibial plateau of the left leg. He underwent surgeries on March 4, 1987 and April 15,
1987 to repair the fractures.[25] Thus, the CA awarded to him temperate damages
of P50,000.00 in the absence of definite proof of his actual expenses towards that
end. As to Inland, Maravillas testimony of the bus having been damaged beyond
economic repair showed a definitely substantial pecuniary loss, for which the CA
fixed temperate damages of P250,000.00. We cannot disturb the CAs determination,
for we are in no position today to judge its reasonableness on account of the lapse of
a long time from when the accident occurred.[26]
In awarding temperate damages in lieu of actual damages, the CA did not
err, because Paras and Inland were definitely shown to have sustained substantial
pecuniary losses. It would really be a travesty of justice were the CA now to be held
bereft of the discretion to calculate moderate or temperate damages, and thereby
leave Paras and Inland without redress from the wrongful act of Philtranco and its
driver.[27] We are satisfied that the CA exerted effort and practiced great care to
ensure that the causal link between the physical injuries of Paras and the material
loss of Inland, on the one hand, and the negligence of Philtranco and its driver, on the
other hand, existed in fact. It also rejected arbitrary or speculative proof of loss.
Clearly, the costs of Paras surgeries and consequential rehabilitation, as well as the
fact that repairing Inlands vehicle would no longer be economical justly warranted the
CA to calculate temperate damages of P50,000.00 and P250,000.00 respectively for
Paras and Inland.
There is no question that Article 2224 of the Civil Code expressly
authorizes the courts to award temperate damages despite the lack of certain proof
of actual damages, to wit:
Article 2224. Temperate or moderate damages,
which are more than nominal but less than compensatory
damages, may be recovered when the court finds that
some pecuniary loss has been suffered but its amount
cannot, from the nature of the case, be proved with
certainty.
The rationale for Article 2224 has been stated in Premiere Development Bank
v. Court of Appeals[28] in the following manner:
Even if not recoverable as compensatory
damages, Panacor may still be awarded damages in
the concept of temperate or moderate damages. When
the court finds that some pecuniary loss has been
suffered but the amount cannot, from the nature of the
case, be proved with certainty, temperate damages
may be recovered. Temperate damages may be
allowed in cases where from the nature of the case,
definite proof of pecuniary loss cannot be adduced,
although the court is convinced that the aggrieved party
suffered some pecuniary loss.
The Code Commission, in explaining the
concept of temperate damages under Article 2224,
makes the following comment:
In some States of
the American Union, temperate
damages are allowed. There
are cases where from the
nature of the case, definite
proof of pecuniary loss cannot
be offered, although the court is
convinced that there has been
such loss. For instance, injury
to ones commercial credit or to
the goodwill of a business firm
is often hard to show with
certainty in terms of money.
Should damages be denied for
that reason? The judge should
be empowered to calculate
moderate damages in such
cases, rather than that the
plaintiff should suffer, without
redress from the defendants
wrongful act.
3.
Paras loss of earning capacity
must be compensated
In the body of its decision, the CA concluded that considering that
Paras had a minimum monthly income of P8,000.00 as a trader he was entitled
to recover compensation for unearned income during the 3-month period of his
hospital confinement and the 6-month period of his recovery and rehabilitation;
and aggregated his unearned income for those periods to P72,000.00.[29] Yet,
the CA omitted the unearned income from the dispositive portion.
The omission should be rectified, for there was credible proof of
Paras loss of income during his disability. According to Article 2205, (1), of
the Civil Code, damages may be recovered for loss or impairment of earning
capacity in cases of temporary or permanent personal injury. Indeed,
indemnification for damages comprehends not only the loss suffered (actual
damages or damnum emergens) but also the claimants lost profits
(compensatory damages or lucrum cessans).[30]Even so, the formula that has
gained acceptance over time has limited recovery to net earning capacity;
hence, the entire amount of P72,000.00 is not allowable. The premise is
obviously that net earning capacity is the persons capacity to acquire money,
less the necessary expense for his own living.[31] To simplify the determination,
therefore, the net earning capacity of Paras during the 9-month period of his
confinement, surgeries and consequential therapy is pegged at only half of his
unearned monthly gross income of P8,000.00 as a trader, or a total of P36,000.00 for
the 9-month period, the other half being treated as the necessary expense for his
own living in that period.
It is relevant to clarify that awarding the temperate damages (for the
substantial pecuniary losses corresponding to Parass surgeries and rehabilitation
and for the irreparability of Inlands damaged bus) and the actual damages to
compensate lost earnings and costs of medicines give rise to no incompatibility.
These damages cover distinct pecuniary losses suffered by Paras and Inland,[32] and
do not infringe the statutory prohibition against recovering damages twice for the
same act or omission.[33]
4.
Increase in award of attorneys fees
Although it is a sound policy not to set a premium on the right to litigate, [34] we
consider the grant to Paras and Inland of reasonable attorneys fees warranted. Their
entitlement to attorneys fees was by virtue of their having been compelled to litigate
or to incur expenses to protect their interests,[35] as well as by virtue of the Court now
further deeming attorneys fees to be just and equitable.[36]
In view of the lapse of a long time in the prosecution of the claim,[37] the Court
considers it reasonable and proper to grant attorneys fees to each of Paras and
Inland equivalent to 10% of the total amounts hereby awarded to them, in lieu of
only P20,000.00 for that purpose granted to Paras.
5.
Legal interest on the amounts awarded
Pursuant to Eastern Shipping Lines, Inc. v. Court of Appeals,[38] legal interest at the
rate of 6% per annum accrues on the amounts adjudged reckoned from July 18,
1997, the date when the RTC rendered its judgment; and legal interest at the rate of
12% per annum shall be imposed from the finality of the judgment until its full
satisfaction, the interim period being regarded as the equivalent of a forbearance of
credit.
WHEREFORE, the Court AFFIRMS WITH MODIFICATION the decision
of the Court of Appeals promulgated on September 25, 2002, by
ordering PHILTRANCO SERVICE ENTERPRISES, INC. and APOLINAR
MIRALLES to pay, jointly and severally, as follows:
1. To Felix Paras:
(a) P1,397.95, as reimbursement for the costs of medicines
purchased between February 1987 and July 1989;
(b) P50,000.00 as temperate damages;
(c) P50,000.00 as moral damages;
(d) P36,000.00 for lost earnings;
(e) 10% of the total of items (a) to (d) hereof as attorneys fees;
and
(f) Interest of 6% per annum from July 18, 1997 on the total of
items (a) to (d) hereof until finality of this decision, and
12% per annum thereafter until full payment.
2. To Inland Trailways, Inc.:
(a) P250,000.00 as temperate damages;
 (b) 10% of item (a) hereof; and

(c) Interest of 6% per annum on item (a) hereof from July 18,
1997 until finality of this decision, and 12% per
annum thereafter until full payment.

3. The petitioner shall pay the costs of suit.

SO ORDERED.

Sec. 12. Bringing new parties

Section 12. Bringing new parties. — When the presence of parties other than
those to the original action is required for the granting of complete relief in the
determination of a counterclaim or cross-claim, the court shall order them to be
brought in as defendants, if jurisdiction over them can be obtained.

Sec. 13. Answer to third (fourth, etc.)- party complaint

Section 13. Answer to third (fourth, etc.)—party complaint. — A third (fourth,

etc.) — party defendant may allege in his answer his defenses, counterclaims
or cross-claims, including such defenses that the third (fourth, etc.) — party
plaintiff may have against the original plaintiff's claim. In proper cases, he may
also assert a counterclaim against the original plaintiff in respect of the latter's
claim against the third-party plaintiff.