SECOND DIVISION

[G.R. No. 114331. May 27, 1997]

CESAR E. A. VIRATA, Petitioner, v. THE HONORABLE

SANDIGANBAYAN and THE REPUBLIC OF THE
PHILIPPINES, Respondents.

DECISION

TORRES, JR., J.:

In times past, when due process was more of a myth - empty

accusations have had its day. In a more enlightened age, a sage
was heard to say - Strike me if you must, but hear me first! We
have come a long way, indeed, for in our time one who is required
to answer for an alleged wrong must at least know what is it all
about.

This is the case before Us.

In this case, petitioner Cesar E. A. Virata (Virata, for brevity) is one

of the defendants in Civil Case No. 0035, entitled Republic of the
Philippines versus Benjamin (Kokoy) Romualdez, et. al.. The case,
which was filed by the Presidential Commission on Good
Government in behalf of the Republic of the Philippines (Republic,
for brevity) against fifty three persons (53)1 including Virata,
involves the recovery of ill-gotten wealth amassed by the
defendants during the twenty year reign of former President
Ferdinand Marcos.

The complaint against the defendants was amended three times.

The last amended complaint filed with the Sandiganbayan, hereafter
known as the expanded Second Amended Complaint, states, inter
alia, the following relevant allegations against petitioner Virata:

V. SPECIFIC AVERMENTS OF DEFENDANTS ILLEGAL ACTS

xxx.
14. Defendants Benjamin (Kokoy) Romualdez and Juliette Gomez
Romualdez, acting by themselves and/or in unlawful concert with
Defendants Ferdinand E. Marcos and Imelda R. Marcos, and taking
undue advantage of their relationship, influence and connection with
the latter Defendant spouses, engaged in devises, schemes and
strategems to unjustly enrich themselves at the expense of plaintiff
and the Filipino people, among others:

xxx

(b) gave MERALCO undue advantage (i) by effecting the increase of

power rates with automatic authority to tack into the consumers
electric bills the so-called purchase and currency adjustment, and
(ii) with the active collaboration of Defendant Cesar E. A. Virata, by
reducing the electric franchise tax from 5% to 2% of gross receipts
and the tariff duty on fuel oil imports by public utilities from 20% to
10%, resulting in substantial savings for MERALCO but without any
significant benefit to the consumers of electric power and loss of
millions of pesos in much needed revenues to the government;

xxx

(g) secured, in a veiled attempt to justify MERALCOs anomalous

acquisition of the electric cooperatives, with the active
collaborations of Defendants Cesar E. A. Virata, Juanito R. Remulla,
Isidro Rodriguez, Jose C. Hernandez, Pedro Dumol, Ricardo C.
Galing, Francisco C. Gatmaitan, Mario D. Camacho and the rest of
the Defendants, the approval by Defendant Ferdinand E. Marcos and
his cabinet of the so-called Three-Year Program for the Extension of
MERALCOs Services to Areas Within the 60-Kilometer Radius of
Manila, which required government capital investment amounting to
millions of pesos;

xxx

(m) manipulated, with the support, assistance and collaboration of

Philguarantee officials led by Chairman Cesar E. A. Virata and the
senior managers of FMMC/PNI Holdings Incorporated led by Jose S.
Sandejas, Jr., Jose M. Mantecon and Kurt S. Bachman, Jr., among
others, the formation of Erectors Holdings, Inc. without infusing
additional capital solely for the purpose of making it assume the
obligation of Erectors Incorporated with Philguarantee in the amount
of P527,387,440.71 with insufficient securities/collaterals just to
enable Erectors Inc. to appear viable and to borrow more capitals,
so much so that its obligation with Philguarantee has reached a total
of more than P2 Billion as of June 30, 1987.

xxx

17. The following Defendants acted as dummies, nominees and/or

agents by allowing themselves (i) to be used as instruments in
accumulating ill-gotten wealth through government concessions,
orders and/or policies prejudicial to plaintiff, or (ii) to be
incorporators, directors or members of corporations beneficially held
and/or controlled by Defendants Ferdinand E. Marcos, Imelda R.
Marcos, Benjamin (Kokoy) T. Romualdez and Julliette Gomez
Romualdez in order (to) conceal and prevent recovery of assets
illegally obtained: xxx Cesar E. A. Virata xxx.

xxx

18. The acts of Defendants, singly or collectively, and/or in unlawful

concert with one another, constitute gross abuse of official position
and authority, flagrant breach of public trust and fiduciary
obligations, acquisition of unexplained wealth, brazen abuse of right
and power, unjust enrichment, violation of the Constitution and laws
of the Republic of the Philippines, to the grave and irreparable
damage of Plaintiff and the Filipino people."2
chanrob lesvi rtua llawlib ra ry

Asserting that the foregoing allegations are vague and are not
averred with sufficient definiteness as to enable him to effectively
prepare his responsive pleading, petitioner Virata filed a motion for
a bill of particulars on January 31, 1992.

In a Resolution promulgated on 4 August 1992, the Sandiganbayan

partially granted the said motion by requiring the Republic to submit
a bill of particulars concerning the charges against petitioner Virata
stated only in paragraph 17 (acting as dummy, nominee and/or
agent) and paragraph 18 (gross abuse of authority and violation of
laws and the Constitution) of the expanded Second Amended
Complaint. However, as to the other charges, namely: 1) Viratas
alleged active collaboration in the reduction of electric franchise tax
and the tariff duty on fuel oil imports, as stated in paragraph 14 b
(ii), 2) his active collaboration in securing the approval by Ferdinand
Marcos of the Three Year Program for the Extension of MERALCOs
Services to Areas within the 60 Kilometer Radius of Manila,
mentioned in paragraph 14 g, and 3) his support, assistance and
collaboration in the formation of Erectors Holdings Incorporated as
reflected in paragraph 14 m of the expanded Second Amended
Complaint, the Sandiganbayan declared that these accusations are
clear and specific enough to allow Virata to submit an intelligent
responsive pleading, hence, the motion for a bill of particulars
respecting the foregoing three charges was denied.

In view of the Sandiganbayans order of August 4, 1992 requiring

the Republic to amplify the charges in paragraphs 17 and 18 of the
expanded Second Amended Complaint, the Republic through the
Office of the Solicitor General submitted the bill of particulars dated
October 22, 1992, hereafter called as the Limited Bill of Particulars,
which was signed by a certain Ramon A. Felipe IV, who was
designated in the bill of particulars as private counsel, the relevant
portion of which provides that:

xxx

1. Defendant Virata, while being one of the members of the

Central Banks Monetary Board, approved Resolution No.
2320 dated December 14, 1973, allowing the Benpres
Corporation, Meralco Securities Corporation (MSC) and
Manila Electric Company (MERALCO) to refinance/restructure
their outstanding loan obligations, a sweetheart or behest
accommodation which enabled Meralco Foundation, Inc. to
acquire ownership and control of Manila Electric Company.
Meralco Foundation, Inc. was then controlled by the Marcos-
Romualdez Group with Benjamin (Kokoy) Romualdez being
the beneficial owner and, thereby, expanding the said groups
accumulation of ill-gotten wealth.
2. On July 11, 1978 defendant Virata representing the
Republic of the Philippines as Finance Minister, executed an
Agreement with the Manila Electric Company (MERALCO)
whereby the government agreed to buy the parcels of land,
improvements and facilities known as Gardner Station Unit
No. 1, Gardner Station Unit No. 2, Snyder Station Unit No. 1,
Snyder Station Unit No. 2 and Malaya Station Unit No. 1 for
One Billion One Hundred Million Pesos (P1,100,000,000.00),
a transaction which was so disadvantageous to the
government and most favorable to MERALCO which gained a
total of P206.2 million. As a result of this transaction,
MERALCO is relieved of its heavy burden in servicing its
foreign loans which were assumed by the government.
Furthermore, the agreement clearly showed the sweetheart
deal and favors being given by the government to MERALCO
which was then owned/and or controlled by Benjamin
Romualdez representing the Marcos-Romualdez group, when
it provided that the sale is subject to the reservation of
rights, leases and easements in favor of Philippine Petroleum
Corp., First Philippine Industrial Corp. (formerly MERALCO
Securities Industrial Corp.) and Pilipinas Shell Petroleum
Corp. insofar as the same are presently in force and
applicable. This enabled the Marcos-Romualdez Group to
further accumulate and expand the ill-gotten wealth and
plunder the nation.
3. At the meeting of the Board of Directors of the Philippine
Export and Foreign Loan Guarantee Corp. held on September
16, 1983 defendant Virata acting as Chairman, together with
the other members of the board, approved the request of
Erectors, Inc., a Benjamin Romualdez owned and/or
controlled corporation, for a guarantee to cover 100 % of its
proposed behest loan of US $33.5 Million under the Central
Bank Consolidated Foreign Borrowing Program with the
Philippine National Bank, Development Bank of the
Philippines, Interbank, Philippine Commercial International
Bank and Associated Bank as conduit banks, to refinance
Erectors, Inc.s short term loans guaranteed by Philguarantee,
which at present forms part of the governments huge foreign
debt. Such act of defendant Virata was a flagrant breach of
public trust as well as a violation of his duty to protect the
 financial condition and economy of the country against,
among others, abuses and corruption.3 chanroblesv irt uallawl ibra ry

On 3 December 1992, a motion to strike out the Limited Bill of

Particulars and to defer the filing of the answer was filed by Virata
on the grounds that the Limited Bill of Particulars avers for the first
time new actionable wrongs allegedly committed by him in various
official capacities and that the allegations therein do not indicate
that Virata acted as dummy, nominee or agent but rather as a
government officer, acting as such in his own name. This motion
was not acted upon by the Sandiganbayan.

Way back on September 1, 1992, Virata, who was dissatisfied with

the Sandiganbayan Resolution of August 4, 1992, filed a petition
for certiorari (G.R. No. 106527) with this Court questioning the
Sandiganbayan s denial of his motion for a bill of particulars as
regards the first three charges stated in paragraph 14 b(ii),
paragraph 14g and paragraph 14m of the expanded Second
Amended Complaint. The petition was granted by this Court in our
decision promulgated on April 6, 1993. Accordingly, the
Sandiganbayan Resolution of August 4, 1992 to the extent that it
denied the motion for a bill of particulars with respect to the first
three (3) charges was set aside and the Republic was required by
this Court to submit to Virata a bill of particulars containing the
facts prayed for by the latter insofar as to these first three (3)
actionable wrongs are concerned.4 chanrob lesvirtual lawlib rary

On August 20, 1993, the Office of the Solicitor General (OSG) filed a
manifestation and motion dated August 18, 1993 alleging, inter alia,
that the OSG and PCGG agreed that the required bill of particulars
would be filed by the PCGG since the latter is the investigating body
which has the complete records of the case, hence, in a better
position to supply the required pleading. The Sandiganbayan took
note of this manifestation in a Resolution dated August 26, 1993.
On the basis of this arrangement, the PCGG submitted the bill of
particulars dated November 3, 1993, which was apparently signed
by a certain Reynaldo G. Ros, who was named in the bill of
particulars as deputized prosecutor of the PCGG. This bill of
particulars, which incorporates by reference the Limited Bill of
Particulars of October 22, 1992, states, inter alia:

xxx

1. On the Specific Averments of Defendants Illegal Acts a

(i) [paragraph 14 b (ii) of the expanded Second Amended
Complaint]

Immediately after defendants Ferdinand E. Marcos and Benjamin

Kokoy Romualdez took complete control of Meralco and its
subsidiaries, defendant Ferdinand E. Marcos issued Presidential
Decree No. 551 on September 11, 1974 which effected the
reduction of electric franchise tax being paid by Meralco from 5% to
2% as well as lowered tariff duty of fuel oil imports from 20% to
10% and allowed Meralco to retain 3% reduction in franchise tax
rates thereby allowing it to save as much as P258 million as of
December 31, 1992.

Defendant Cesar Virata then Minister of Finance, supported PD 551

and in fact issued the guidelines on its implementation which were
heavily relied upon by the Board of Energy in its questioned ruling
dated 25 November 1982 by allowing Meralco to continue charging
higher electric consumption rates despite their savings from the
aforesaid reduction of franchise tax without any significant benefit
to the consumers of electric power and resulting in the loss of
millions of pesos in much needed revenues to the government.

2. On the Specific Averments of Defendants Illegal Acts a (ii) [par.

14g of the expanded Second Amended Complaint]

Defendant Cesar E.A. Virata, then Prime Minester [sic], caused the
issuance of a confidential memorandum dated October 12, 1982 to
then President Ferdinand E. Marcos informing the latter of the
recommendation of the cabinet of the so called Three Year Program
for the Extension of Meralco Services of Areas within the 60
Kilometer Radius of Manila in order to justify Meralcos anomalous
acquisition of electric cooperatives and which later required the
Monetary Board and Philguarantee then headed by defendant Virata
to recommend the restructuring of Meralcos foreign and local
obligation which led to the extending of loan accommodations by
the Development Bank of the Philippines and Philippine National
Bank in favor of Meralco.

3. On the Specific Averments of Defendants Illegal Acts a (iii) [par.

14m of the expanded Second Amended Complaint]

Defendant Cesar Virata, as Chairman of Philguarantee and the

Senior Managers of FMMC/PNI Holdings Inc. led by Jose S.
Sandejas, J. Jose N. Mantecon and Kurt S. Bachmann, Jr.,
supported and assisted the formation of Erectors Holdings, Inc. for
the purpose of making it assume the obligation of Erectors Inc. with
Philguarantee in the amount of P527,387,440.71 without sufficient
securities/collateral and despite this outstanding obligation,
defendant Virata, as Chairman of Philguarantee, approved the
Erectors Inc. Applications for loan guarantees that reached more
than P2 Billion as of June 30, 1987.

4. On the Specific Averments of Defendants Illegal Acts a (iv) [par.

17 of the expanded Second Amended Complaint]

Plaintiff, hereby incorporates by reference plaintiffs Limited Bill of

Particulars previously submitted to this Honorable Court with the
qualification that defendant Cesar Virata merely acted as agent.5 chanroble svirtuallaw lib rary

Consequently, Virata filed on November 23, 1993 his comment on

the bill of particulars with motion to dismiss the expanded Second
Amended Complaint. He alleges that both the bills of particulars
dated October 22, 1992 and November 3, 1993 are pro forma and
should be stricken off the records. According to him, the bill of
particulars dated November 3, 1993 is merely a rehash of the
assertions made in the expanded Second Amended Complaint,
hence, it is not the bill of particulars that is required by this Court in
the previous case of Virata vs. Sandiganbayan, et. al. (G.R. No.
106527). Furthermore, a reading of the Limited Bill of Particulars
dated October 22, 1992 shows that it alleges new imputations which
are immaterial to the charge of being a dummy, nominee or agent,
and that Virata acted, not as a dummy, nominee or agent of his co-
defendants as what is charged in the complaint, but as a
government officer of the Republic. Virata also questions the
authority of PCGG and its deputized prosecutor to file the bill of
particulars in behalf of the Republic. He asserts that the legal
representation of the Republic by the OSG is mandated by law and
that the Sandiganbayan, through its Resolution dated August 26,
1993, should not have allowed the OSG to abdicate its duty as the
counsel of record for the Republic.

The Republic filed its Opposition to Viratas Comment to Bill of

Particulars on December 17, 1993. Subsequently, Virata filed his
Reply to Opposition on January 18, 1994.

After considering the relevant pleadings and motions submitted by

the parties, the Sandiganbayan, in a Resolution of February 16,
1994, admitted the bill of particulars submitted by the Republic and
ordered Virata to file his responsive pleading to the expanded
Second Amended Complaint. The relevant portion of the Resolution
states as follows:

In the resolution of this incident, We find that the bill of particulars,

filed by the plaintiff on November 3, 1993 in compliance with the
Supreme Courts directive, appears to have substantially set out
additional averments and particulars which were not previously
alleged in the Expanded Amended Complaint. We likewise consider
these additional averments and particulars to be sufficient enough
to enable defendant Virata to frame his responsive pleading or
answer and that what he feels are still necessary in preparing for
trial should be obtained by various modes of discovery, such as
interrogatories, depositions, etc. A bill of particulars is sufficient if
matters constituting the causes of action have already been
specified with sufficient particularity and which matters are within
the moving partys knowledge. It cannot be utilized to challenge the
sufficiency of the claim asserted.

Simplicity of pleading is the idea of modern procedure, hence,

evidentiary facts and details should not be allowed to clutter a
complaint as much as possible, consistent with the right of the
moving party to compel disclosure in instances where it is beyond
cavil that He cannot adequately frame a responsive pleading. In the
instant case, the bill of particulars submitted by the plaintiff, in Our
considered opinion, is sufficient and adequate enough to fulfill its
mission.6chanroblesvi rtual lawlib rary

Dissatisfied, Virata filed this instant petition for certiorari under Rule
65 of the Rules of Court to challenge the foregoing Resolution of the
Sandiganbayan.

The issues to be resolved in the instant case are as follows:

1. WHETHER OR NOT THE SANDIGANBAYAN COMMITTED GRAVE

ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN ADMITTING THE BILL OF PARTICULARS
SUBMITTED BY THE REPUBLIC.

2. WHETHER OR NOT THE OFFICE OF THE SOLICITOR GENERAL

AND THE PCGG ARE AUTHORIZED BY LAW TO DEPUTIZE A
COUNSEL TO FILE THE BILL OF PARTICULARS IN BEHALF OF THE
REPUBLIC.

Petitioner maintains the view that the allegations in the bill of

particulars of November 3, 1993 remain vague, general and
ambiguous, and the purported illegal acts imputed to Virata have
not been averred with sufficient definiteness so as to inform Virata
of the factual and legal basis thereof.

Respecting the Limited Bill of Particulars dated October 22, 1992,

which amplifies paragraphs 17 and 18 of the expanded Second
Amended Complaint, Virata reiterates his basic arguments that the
Limited Bill of Particulars fails to provide the relevant and material
averments sought to be clarified by him and that it asserts for the
first time new matters allegedly committed by him in different
official capacities, to wit: a) as a member of the Central Bank
Monetary Board, he, with the other Monetary Board members,
approved Resolution No. 2320 dated December 14, 1973 regarding
the restructuring of the loans of Benpres Corporation, Meralco
Securities Corporation, and the Manila Electric Company, b) as
Finance Minister, he executed an agreement with Manila Electric
Company in connection with the sale of lands and facilities of the
Gardner Station Unit No. 1, Gardner Station Unit No. 2, Snyder
Station Unit No. 1, Snyder Station Unit No. 2, and Malaya Station
Unit No. 1, and, c) as Chairman of the Board of Directors of the
Philippine Export and Foreign Loan Guarantee Corporation,
approved the request of Erector, Incorporated, for a guarantee to
cover 100% of its proposed behest loan of US $ 33.5 Million under
the Central Bank Consolidated Foreign Borrowing Program. He
argues that the thrust of paragraphs 17 and 18 of the expanded
Second Amended Complaint is the charge that Virata acted as
dummy, nominee and/or agent, however, the foregoing allegations
in the Limited Bill of Particulars do not indicate that he acted as
dummy, nominee or agent, but rather, as a government officer.

Invoking Section 3, Rule 17 of the Rules of Court, Virata argued that

both the bills of particulars submitted by the Republic did not follow
the Rules of Court and the orders of the Sandiganbayan and this
Honorable Court, as such, the failure to comply with these legal
orders is a ground for dismissal of the action. Additionally, it is
asserted that under Rule 12, Section 1(c) of the Rules of Court, if an
order of the court for a bill of particulars is not obeyed, it may order
the striking out of the pleading to which the motion was directed.
Accordingly, Virata prayed for the striking out of the bills of
particulars dated October 22, 1992 and November 3, 1993 and the
dismissal of the expanded Second Amended Complaint in so far as
he is concerned.

We find the instant petition meritorious.

The rule is that a complaint must contain the ultimate facts

constituting plaintiffs cause of action. A cause of action has the
following elements, to wit: (1) a right in favor of the plaintiff by
whatever means and under whatever law it arises or is created; (2)
an obligation on the part of the named defendant to respect or not
to violate such right; and (3) an act or omission on the part of such
defendant violative of the right of the plaintiff or constituting a
breach of the obligation of the defendant to the plaintiff for which
the latter may maintain an action for recovery of damages.7 As long
as the complaint contains these three elements, a cause of action
exists even though the allegations therein are vague, and dismissal
of the action is not the proper remedy when the pleading is
ambiguous because the defendant may ask for more particulars. As
such, Section 1, Rule 12 of the Rules of Court, provides, inter alia,
that a party may move for more definite statement or for a bill of
particulars of any matter which is not averred with sufficient
definiteness or particularity to enable him properly to prepare his
responsive pleading or to prepare for trial. Such motion shall point
out the defects complained of and the details desired. Under this
Rule, the remedy available to a party who seeks clarification of any
issue or matter vaguely or obscurely pleaded by the other party, is
to file a motion, either for a more definite statement or for a bill of
particulars.8 An order directing the submission of such statement or
bill, further, is proper where it enables the party movant
intelligently to prepare a responsive pleading, or adequately to
prepare for trial.9 chan robl esvirt uallawl ibra ry

A bill of particulars is a complementary procedural document

consisting of an amplification or more particularized outline of a
pleading, and being in the nature of a more specific allegation of the
facts recited in the pleading.10 It is the office of the bill of particulars
to inform the opposite party and the court of the precise nature and
character of the cause of action or defense which the pleader has
attempted to set forth and thereby to guide his adversary in his
preparations for trial, and reasonably to protect him against surprise
at the trial.11 It gives information of the specific proposition for
which the pleader contends, in respect to any material and issuable
fact in the case, and it becomes a part of the pleading which it
supplements.12 It has been held that a bill of particulars must
inform the opposite party of the nature of the pleaders cause of
action or defense, and it must furnish the required items of the
claim with reasonable fullness and precision.13 Generally, it will be
held sufficient if it fairly and substantially gives the opposite party
the information to which he is entitled, as required by the terms of
the application and of the order therefor. It should be definite and
specific and not contain general allegations and conclusions. It
should be reasonably certain and as specific as the circumstances
will allow.14
chanroble svirtuallaw lib rary

Guided by the foregoing rules and principles, we are convinced that

both the bill of particulars dated November 3, 1993 and the Limited
Bill of Particulars of October 22, 1992 are couched in such general
and uncertain terms as would make it difficult for petitioner to
submit an intelligent responsive pleading to the complaint and to
adequately prepare for trial.

Let us examine the bill of particulars dated November 3, 1993:

1. The first paragraph of the foregoing bill of particulars provides

that (I)mmediately after defendants Ferdinand E. Marcos and
Benjamin Kokoy Romualdez took control of Meralco and its
subsidiaries, defendant Ferdinand E. Marcos issued Presidential
Decree No. 551 on September 11, 1974 which effected the
reduction of electric franchise tax being paid by Meralco from 5% to
2% as well as lowered tariff duty of fuel oil imports from 20% to
10% and allowed Meralco to retain the 3% reduction in franchise
tax rates thereby allowing it to save as much as P258 million as of
December 31, 1992. Further, it is stated that (D)efendant Cesar
Virata then Minister of Finance, supported PD 551 and in fact issued
the guidelines on its implementation which were heavily relied upon
by the Board of Energy in its questioned ruling dated 25 November
1982 by allowing Meralco to continue charging higher electric
consumption rates despite their savings from the aforesaid
reduction of franchise tax without any significant benefit to the
consumers of electric power and resulting in the loss of millions of
pesos in much needed revenues to the government.

The abovequoted paragraph of the said bill of particulars is

supposed to be the amplification of the charge against Virata stated
in paragraph 14(b) of the expanded Second Amended Complaint-
which is his alleged active collaboration in the reduction of electric
franchise tax and tariff duty of fuel oil imports. Yet, a careful perusal
of the said paragraph shows that nothing is said about his alleged
active collaboration in reducing the taxes. Aside from the bare
assertion that he supported PD 551 and issued the guidelines on its
implementation, the bill of particulars is disturbingly silent as to
what are the particular acts of Virata that establish his active
collaboration in the reduction of taxes. The allegation that he
supported PD 551 and issued its implementing guidelines is an
insufficient amplification of the charge because the same is but a
general statement bereft of any particulars. It may be queried-how
did Virata support PD 551? What were the specific acts indicating
his support? What were these implementing guidelines issued by
him and when were they issued? In supporting PD 551 and in
issuing its implementing guidelines, what law or right, if there is
any, is violated by Virata? It is worthy to note that, until now, PD
551 has not been declared unconstitutional. In fact, this Court
upheld its validity in the case of Philippine Consumer Foundation,
Inc. vs. Board of Energy and Meralco.15 chanroblesv irtuallaw lib rary

2. In the second paragraph of the said bill of particulars, it is alleged

that (D)efendant Cesar E.A. Virata, then Prime Minester [sic],
caused the issuance of a confidential memorandum dated October
12, 1982 to then President Ferdinand E. Marcos informing the latter
of the recommendation of the cabinet of the so called Three Year
Program for the Extension of Meralco Services of Areas within the
60 Kilometer Radius of Manila in order to justify Meralcos
anomalous acquisition of electric cooperatives and which later
required the Monetary Board and Philguarantee then headed by
defendant Virata to recommend the restructuring of Meralcos
foreign and local obligation which led to the extending of loan
accommodation by the Development Bank of the Philippines and
Philippine National Bank in favor of Meralco.

The foregoing allegation purportedly amplifies the charge stated in

paragraph 14 (g) of the expanded Second Amended Complaint, that
is-Viratas active collaboration in securing the approval by Ferdinand
Marcos and his cabinet of the Three Year Program for the Extension
of Meralcos Services within the Manila Area. However, just like the
first paragraph of the said bill of particulars, this Court finds that the
second paragraph failed to set forth particularly or specifically the
charge against Virata. It is an incomplete or floating disclosure of
material facts replete with generalizations and indefinite statements
which seemingly ends to nowhere. There are certain matters alleged
that need to be clarified and filled up with details so that Virata can
intelligently and fairly contest them and raise them as cogent
issues, to wit: a) In causing the issuance of the said memorandum,
what law, duty or right, if there is any, is violated by Virata?; b)
What was the recommendation of the cabinet regarding the Three
Year Program? The Republic should have at least furnish the
substantial or important features of the recommendation; c) What
were these electric cooperatives? Were these cooperatives the same
as those enumerated in paragraph 14(e) of the expanded Second
Amended Complaint?16Why was the acquisition of these
cooperatives anomalous?; and d) What were Viratas specific acts as
the head of Philguarantee which led to the restructuring of Meralcos
obligation? What was his participation in recommending the
restructuring of Meralcos obligation? What were these foreign and
local obligations? How much of the obligation was recommended for
restructuring? What were the loan accommodations given in favor of
Meralco? When were they given and how much were involved in the
transaction?

3. Regarding the third paragraph of the said bill of particulars, We

find the same as a mere recast or restatement of the charge set
forth in paragraph 14 (m) of the expanded Second Amended
Complaint, which is Viratas alleged support, assistance and
collaboration in the formation of Erectors Holding, Incorporated. The
said paragraph of the bill of particulars states that (D)efendant
Cesar Virata, as Chairman of Philguarantee and the Senior
Managers of FMMC/PNI Holdings Inc. led by Jose S. Sandejas, J.
Jose N. Mantecon and Kurt S. Bachmann, Jr. supported and assisted
the formation of Erectors Holdings, Inc. for the purpose of making it
assume the obligation of Erectors Inc. with Philguarantee in the
amount of P527,387,440.71 without sufficient securities/collateral
and despite this outstanding obligation, defendant Virata, as
Chairman of Philguarantee, approved the Erectors Inc. Applications
for loan guarantees that reached more than P2 Billion as of June 30,
1987.

Clearly from the foregoing allegation, the Republic failed miserably

to amplify the charge against Virata because, instead of supplying
the pertinent facts and specific matters that form the basis of the
charge, it only made repetitive allegations in the bill of particulars
that Virata supported and assisted the formation of the corporation
concerned, which is the very same charge or allegation in paragraph
14 (m) of the expanded Second Amended Complaint which requires
specifications and unfailing certainty. As such, the important
question as to what particular acts of Virata that constitute support
and assistance in the formation of Erectors Holding, Incorporated is
still left unanswered, a product of uncertainty.

We now take a closer look at the Limited Bill of Particulars dated

October 22, 1992.

The said bill of particulars was filed by the Republic to amplify the
charge of Viratas being a dummy, nominee or agent stated in
paragraphs 17 and 18 of the expanded Second Amended Complaint.
In the subsequent bill of particulars dated November 3, 1993, the
said charge was qualified by the Republic in the sense that Virata
allegedly acted only as an agent. Let us consider each paragraph of
the said bill of particulars:

1. The first paragraph of the Limited Bill of Particulars states that

(D)efendant Virata, while being one of the members of the Central
Banks Monetary Board, approved Resolution No. 2320 dated
December 14, 1973, allowing the Benpres Corporation, Meralco
Securities Corp. (MSC) and Manila Electric Company (MERALCO) to
refinance/restructure their outstanding loan obligations, a
sweetheart or behest accommodation which enabled Meralco
Foundation, Inc. to acquire ownership and control of Manila Electric
Company. It is stated further that Meralco Foundation, Inc. was
then controlled by the Marcos-Romualdez Group with Benjamin
(Kokoy) Romualdez being the beneficial owner and, thereby,
expanding the said groups accumulation of ill gotten wealth.

It is apparent from the foregoing allegations that the Republic did

not furnish Virata the following material matters which are
indispensable for him to be placed in such a situation wherein he
can properly be informed of the charges against him: a) Did Virata,
who was only one of the members of the Board, act alone in
approving the Resolution? Who really approved the Resolution,
Virata or the Monetary Board?; b) What were these outstanding
loan obligations of the three corporations concerned? Who were the
creditors and debtors of these loan obligations? How much were
involved in the restructuring of the loan obligations? What made the
transaction a sweetheart or behest accommodation?; and c) How
was the acquisition of MERALCO by Meralco Foundation, Inc. related
to the Resolution restructuring the loan obligations of the three
corporations?

2. The second paragraph provides that (O)n July 11, 1978

defendant Virata representing the Republic of the Philippines as
Finance Minister, executed an Agreement with the Manila Electric
Co. (MERALCO) whereby the government agreed to buy the parcels
of land, improvements and facilities known as Gardner Station Unit
No. 1, Gardner Station Unit No. 2, Snyder Station Unit No. 1,
Snyder Station Unit No. 2 and Malaya Station Unit No. 1 for One
Billion One Hundred Million Pesos (P1,100,000,000.00), a
transaction which was so disadvantageous to the government and
most favorable to MERALCO which gained a total of P206.2 million;
that (A)s a result of this transaction, MERALCO was relieved of its
heavy burden in servicing its foreign loans which were assumed by
the government; that xxx, the agreement clearly showed the
sweetheart deal and favors being given by the government to
MERALCO which was then owned and/or controlled by Benjamin
Romualdez representing the Marcos-Romualdez group, when it
provided that the sale is subject to the reservation of rights, leases
and easements in favor of Philippine Petroleum Corp., First
Philippine Industrial Corp. (formerly MERALCO Securities Industrial
Corp.) and Pilipinas Shell Petroleum Corp. insofar as the same are
presently in force and applicable.

There are certain matters in the foregoing allegations which lack in

substantial particularity. They are broad and definitely vague which
require specifications in order that Virata can properly define the
issues and formulate his defenses. The following are the specific
matters which the Republic failed to provide, to wit: a) What made
the transaction disadvantageous to the government? The allegation
that it was disadvantageous is a conclusion of law that lacks factual
basis. How did MERALCO gain the P206.2 million? The Republic
should have provided for more specifics how was the transaction
favorable to MERALCO?; b) What were these foreign obligations of
MERALCO which were assumed by the government? Who were the
creditors in these obligations? When were these obligations
contracted? How much were involved in the assumption of foreign
obligations by the government?; and c) By the presence of the
provision of the contract quoted by the Republic, what made the
agreement a sweetheart deal? The allegation that the agreement is
a sweetheart deal is a general statement that needs further
amplification.

3. The third paragraph states that (A)t the meeting of the Board of
Directors of the Philippine Export and Foreign Loan Guarantee Corp.
held on September 16, 1983 defendant Virata acting as Chairman,
together with the other members of the board, approved the
request of Erectors Inc., a Benjamin Romualdez owned and/or
controlled corporation, for a guarantee to cover 100% of its
proposed behest loan of US$ 33.5 Million under the Central Bank
Consolidated Foreign Borrowing Program with the Philippine
National Bank, Development Bank of the Philippines, Interbank,
Philippine Commercial International Bank and Associated Bank as
conduit banks, to refinance Erectors, Inc.s short term loans
guaranteed by Philguarantee, which at present forms part of the
governments huge foreign debt; that (S)uch act of defendant Virata
was a flagrant breach of public trust as well as a violation of his
duty to protect the financial condition and economy of the country
against, among others, abuses and corruption.

In like manner, the foregoing paragraph contains incomplete and

indefinite statement of facts because it fails to provide the following
relevant matters: a) What was this $33.5 million proposed behest
loan? What were its terms? Who was supposed to be the grantor of
this loan?; b) What were these short term loans? Who were the
parties to these transactions? When were these transacted? How
was this $ 33.5 million behest loan related to the short term loans?

Furthermore, as correctly asserted by petitioner Virata, the Limited

Bill of Particulars contains new matters which are not covered by
the charge that Virata acted as agent of his co-defendants in the
expanded Second Amended Complaint. Apparently, as may be
examined from the three paragraphs of the Limited Bill of
Particulars, Virata, in so doing the acts, can not be considered as an
agent of any of his co-defendants, on the contrary, the factual
circumstances stated in the said bill of particulars indicate that
Virata acted on behalf of the government, in his official capacity as
a government officer. This observation is established by the
allegations that Virata acted as a member of the Central Bank
Monetary Board, as chairman of the Board of Directors of the
Philippine Export and Foreign Loan Guarantee Corporation, and,
when he executed the Agreement with Meralco on July 7, 1978
concerning the sale of certain properties, he acted as the Finance
Minister of the government and as a representative of the Republic
in the contract. In performing the said acts, he, therefore, acted as
an agent of the government, not as an agent of his co-defendants,
which is the charge against him in the expanded Second Amended
Complaint. Accordingly, the allegations in the Limited Bill of
Particulars are irrelevant and immaterial to the charge that Virata
acted as an agent of his co-defendants.

As clearly established by the foregoing discussion, the two bills of

particulars filed by the Republic failed to properly amplify the
charges leveled against Virata because, not only are they mere
reiteration or repetition of the allegations set forth in the expanded
Second Amended Complaint, but, to the large extent, they contain
vague, immaterial and generalized assertions which are inadmissible
under our procedural rules.

It must be remembered that in our decision promulgated on April 6,

1993 (G.R. No. 106527), We required the Republic to submit a bill
of particulars concerning the first three charges against Virata
averred in paragraphs 14 b(ii), 14 g, and 14 m of the expanded
Second Amended Complaint, on the other hand, as regards the
charges stated in paragraphs 17 and 18 of the said complaint, the
Republic was ordered to file the required bill of particulars by the
Sandiganbayan through its Resolution dated August 4, 1992. The
Republic purportedly complied with these orders by filing the
questioned bill of particulars dated November 3, 1993 and the
Limited Bill of Particulars of October 22, 1992. However, as shown
by the above discussion, the two bills of particulars were not the
bills of particulars which fully complied with the Rules of Court and
with the orders of the Sandiganbayan and this Court.

As such, in view of the Republics failure to obey this Courts directive

of April 6, 1993 (G.R. No. 106527) and the Sandiganbayans order of
August 4, 1992 to file the proper bill of particulars which would
completely amplify the charges against Virata, this Court deems it
just and proper to order the dismissal of the expanded Second
Amended Complaint, in so far as the charges against Virata are
concerned. This action is justified by Section 3, Rule 17 of the Rules
of Court, which provides that:

Section 3. Failure to prosecute. - If plaintiff fails to appear at the

time of the trial, or to prosecute his action for an unreasonable
length of time, or to comply with these rules or any order of the
court, the action may be dismissed upon motion of the defendant or
upon the courts own motion. This dismissal shall have the effect of
an adjudication upon the merits, unless otherwise provided by
court. (italics ours)

Regarding the second issue of the instant case, Virata contends that
the Presidential Commission on Good Government is not authorized
by law to deputize a counsel to prepare and file pleadings in behalf
of the Republic. Neither can the Office of the Solicitor General
validly deputize an outside counsel to completely take over the case
for the Republic. According to petitioner, only the Office of the
Solicitor General is mandated by law to act counsel for the Republic.
Thus, the bill of particulars filed for the Republic by private counsel
or deputized prosecutor of the PCGG is unauthorized.

This contention is devoid of merit.

We are of the opinion that the Limited Bill of Particulars dated

October 22, 1992 signed by Ramon Felipe IV and the Bill of
Particulars dated November 3, 1993 signed by Reynaldo Ros are
valid pleadings which are binding upon the Republic because the
two lawyer-signatories are legally deputized and authorized by the
Office of the Solicitor General and the Presidential Commission on
Good Government to sign and file the bills of particulars concerned.

Realizing that it can not adequately respond to this Courts order of

April 6 1993 (G.R. No. 106527) requiring the Republic to submit the
bill of particulars concerning the first three charges against Virata,
the Office of the Solicitor deemed it better to seek the help of the
Presidential Commission on Good Government by availing the
services of the latters lawyer who would directly file the required bill
of particulars in behalf of the Republic. This circumstance prompted
the Office of the Solicitor General to manifest before the
Sandiganbayan on August 20, 1993 that it would be the PCGG
which would file the required bill of particulars and move that it be
excused from doing so as the PCGG, being in-charge of
investigating the case, was in a better position than the OSG.
Armed with this authority given by the OSG, the PCGG, through one
of its deputized prosecutors, Reynaldo Ros, filed the bill of
particulars dated November 3, 1993 to amplify the first three
charges against Virata stated in paragraphs 14 b(ii), 14g, and 14 m
of the expanded Second Amended Complaint.

The action of the OSG in seeking the assistance of the PCGG is not
without legal basis. The Administrative Code of 1987, which virtually
reproduces the powers and functions of the OSG enumerated in P.D.
No. 478 (The Law Defining the Powers and Functions of the Office of
the Solicitor General), provides, inter alia, that:

Section 35. Powers and Functions. xxx.

It (the OSG) shall have the following specific powers and

functions:
xxx
(8) Deputize legal officers of government departments,
bureaus, agencies and offices to assist the Solicitor General
and appear or represent the Government in cases involving
their respective offices, brought before the courts and
exercise supervision and control over such legal officers with
respect to such cases.
(9) Call on any department, bureau, office, agency, or
instrumentality of the Government for such service assistance
and cooperation as may be necessary in fulfilling its functions
and responsibilities and for this purpose enlist the services of
any government official or employee in the pursuit of his
task. xxx.17chanroblesvi rtua llawlib ra ry

Contrary to Viratas contention, the Solicitor General did not

abdicate his function and turn over the handling of the instant case
to the PCGG. Nowhere in the manifestation and motion filed by the
OSG on August 20, 1993 is there an iota or indication that the OSG
is withdrawing from the case and that the PCGG is taking over its
prosecution. What the OSG did was merely to call the PCGG for
assistance and authorize it to respond to the motion for a bill of
particulars filed by Virata. The OSG was impelled to act this way
because of the existence of the special circumstance that the PCGG,
which has the complete records of the case and being in charge of
its investigation, was more knowledgeable and better informed of
the facts of the case than the OSG.

The authority, therefore, of Attorney Reynaldo Ros to sign and

submit in behalf of the Republic the bill of particulars dated
November 3, 1993 is beyond dispute because 1) he was duly
deputized by the PCGG in pursuance to its power to prosecute cases
of ill-gotten wealth under Executive Order No. 14 of May 14, 1986,
2) the OSG empowered the PCGG to file the bill of particulars as
evidenced by the OSGs manifestation and motion filed on August
20, 1993, and 3) there was no abdication of OSGs duty by giving
the PCGG the authority to file the bill of particulars.

On the other hand, the deputation of Ramon Felipe IV by the

Solicitor General to sign and file the Limited Bill of Particulars is
based on Section 3 of Presidential Decree No. 478, which provides
that:

Section 3. The Solicitor General may, when necessary and after

consultation with the Government entity concerned, employ, retain,
and compensate on a contractual basis, in the name of the
Government, such attorneys and experts or technical personnel as
he may deem necessary to assist him in the discharge of his duties.
The compensation and expenses may be charged to the agency or
office in whose behalf the services have to be rendered. (italics
ours)

The Solicitor General is mandated by law to act as the counsel of

the Government and its agencies in any litigation and matter
requiring the services of a lawyer. In providing the legal
representation for the Government, he is provided with vast array of
powers, which includes the power to retain and compensate lawyers
on contractual basis, necessary to fulfill his sworn duty with the end
view of upholding the interest of the Government. Thus, the
Solicitor General acted within the legal bounds of its authority when
it deputized Attorney Felipe IV to file in behalf of the Republic the
bill of particulars concerning the charges stated in paragraph 17 and
18 of the expanded Second Amended Complaint.

At any rate, whether or not the lawyer-signatories are duly

deputized would not be decisive in the resolution of this case
considering that the two bills of particulars filed by the Republic are
mere scraps of paper which miserably failed to amplify the charges
against Virata. For the Republics failure to comply with the courts
order to file the required bill of particulars that would completely
and fully inform Virata of the charges against him, the dismissal of
the action against him is proper based on Section 3, Rule 17 of the
Revised Rules of Court and the relevant jurisprudence
thereon.18 Simple justice demands that as stated earlier, petitioner
must know what the complaint is all about. The law requires no
less.

Although this Court is aware of the Governments laudable efforts to

recover ill-gotten wealth allegedly taken by the defendants, this
Court, however, cannot shrink from its duty of upholding the
supremacy of the law under the aegis of justice and fairness. This
Court in dismissing the action against the petitioner has rightfully
adhered in the unyielding tenet - principia, non homines - the rule
of law, not of men.

ACCORDINGLY, the instant petition is hereby GRANTED and the

expanded Second Amended Complaint, in so far as petitioner Virata
is concerned, is hereby ordered DISMISSED.

SO ORDERED.

G.R. No. 129227. May 30, 2000

BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioners, vs. THE HON. COURT OF
APPEALS, and CALVIN & ELSA ARCILLA, respondents.

DECISION

GONZAGA_REYES, J.:

Before us is a Petition for Review on Certiorari of the Decision of the Court of Appeals1 in CA-G.R.
CV No. 45891 entitled CALVIN S. ARCILLA and ELSA B. ARCILLA vs. BANCO FILIPINO SAVINGS
and MORTGAGE BANK, ET. AL. which affirmed the decision of the Regional Trial Court (RTC),
Branch 33, Manila ordering BANCO FILIPINO to pay CALVIN and ELSA ARCILLA the amount of
P126,139.00 with interest thereon at 12% per annum from the filing of the complaint.

The undisputed facts as found by the Court of Appeals are as follows:

"Elsa Arcilla and her husband, Calvin Arcilla, the Appellees in the present recourse, secured, on
three (3) occasions, loans from the Banco Filipino Savings and Mortgage Bank, the Appellant in the
present recourse, in the total amount of P107,946.00 as evidenced by "Promissory Note" executed
by the Appellees in favor of the Appellant. To secure the payment of said loans, the Appellees
executed "Real Estate Mortgages" in favor of the Appellants over their parcels of land located in BF-
Parañaque, covered by Transfer Certificate of Title Nos. 444645, 450406, 450407 and 455410 of the
Registry of Deeds of Parañaque (Annexes "B" to "B-2", Amended Complaint). Under said deeds, the
Appellant may increase the rate of interest, on said loans, within the limits allowed by law, as
Appellant’s Board of Directors may prescribe for its borrowers. At that time, under the Usury Law,
Act 2655, as amended, the maximum rate of interest for loans secured by real estate mortgages was
12% per annum. On January 10, 1975, the Appellees and the Appellant executed a "Deed of
Consolidation and Amendment of Real Estate Mortgage" whereby the aforementioned loans of the
Appellees and the "Real Estate Mortgage" executed by them as security for the payment of said
loans were consolidated (pages 33-35, Record). Likewise, under said deed, the loan of the
Appellees from the Appellant was increased to P188,000.00. The Appellees executed a "Promissory
Note", dated January 15, 1975, whereby they bound and obliged themselves, jointly and severally, to
pay the Appellant the aforesaid amount of P188,000.00 with interest at the rate of 12% per annum,
in nineteen (19) years from date thereof, in stated installments of P2,096.93 a month (page 32,
Records).

On January 2, 1976, the Central Bank of the Philippines issued Central Bank Circular No. 494,
quoted infra, as follows:

‘x x x

‘3. The maximum rate of interest, including commissions, premiums, fees and other charges on
loans with maturity of more than seven hundred thirty (730) days, by banking institutions, including
thrift banks, or by financial intermediaries authorized to engage in quasi-banking functions shall be
nineteen percent (19%) per annum.

‘x x x

‘7. Except as provided in this Circular and Circular No. 493, loans or renewals thereof shall continue
to be governed by the Usury Law, as amended.’ (idem, supra)
In the meantime, the Skyline Builders, Inc., through its President, Appellee Calvin Arcilla, secured
loans from the Bank of the Philippine Islands in the total amount of P450,000.00. To insure payment
of the aforesaid loan, the FGU Insurance Corporation, issued PG Bond No. 1003 for the amount of
P225,000.00 (pages 434-436, Records) in favor of the Bank of the Philippine Islands. Skyline
Buildings, Inc., and the Appellees executed an "Agreement of Counter-Guaranty with Mortgage" in
favor of the FGU Insurance Corporation covering the aforesaid parcels of land to assure payment of
any amount that the insurance company may pay on account of said loans (pages 429-436,
Records). The mortgage was annotated as Entry No. 58009 at the dorsal portion of Appellees’ titles.

After October 30, 1978, the Appellant prepared and issued a "Statement of Account" to the
Appellees on their loan account to the effect that, as of October 30, 1978, the balance of their loan
account, inclusive of interests, computed at 17% per annum, amounted to 284,490.75 (page 555,
Records). It turned out that the Appellant unilaterally increased the rate of interest on the loan
account of the Appellees from 12% per annum, as covenanted in the "Real Estate Mortgage" and
"Deed of Consolidated and Amended Real Estate Mortgage" to 17% per annum on the authority of
the aforequoted Central Bank Circular.

The Appellees failed to pay their monthly amortizations to Appellant. The latter forthwith filed, on
April 3, 1979, a petition, with the Provincial Sheriff, for the extrajudicial foreclosure of Appellees’
"Real Esate Mortgage" in favor of the Appellant for the amount of P342,798.00 inclusive of the 17%
per annum which purportedly was the totality of Appellees’ account with the Appellant on their loans.
The Appellant was the purchaser of the property at public auction for the aforesaid amount of
P324,798.00. On May 25, 1979, the Sheriff executed a "Certificate of Sale" over the aforesaid
properties in favor of the Appellant for the aforesaid amount (pages 37-38, Records).

The Appellant filed a "Petition for a Writ of Possession" with the Regional Trial Court entitled "Banco
Filipino Savings and Mortgage Bank vs. Elsa Arcilla, et al., LRC Case No. P-7757-P". On February
28, 1980, the Court rendered a Decision granting the Petition of the Appellant. The Appellees
appealed to the Court of Appeals but the latter Court, on June 29, 1985, promulgated a Decision
affirming the Decision of the Regional Trial Court (pages 190-198, Records).

In the meantime, the FGU Insurance Corporation, Inc., redeemed the aforesaid properties from the
Appellant by paying to the latter the amount of P389,289.41 inclusive of interest computed at 17%
per annum. The Appellant and FGU Insurance Corp., Inc., executed, on May 27, 1980, a "Deed of
Redemption" (pages 126-129, Records).

On September 2, 1985, the Appellees filed a complaint in the Court a quo for the "Annulment of the
Loan Contracts, Foreclose Sale with Prohibition and Injunction, Etc." entitled "Calvin Arcilla, et al. vs.
Banco Filipino Savings and Mortgage Bank, et al." (pages 1-38, Records).

The Appellees averred, in their complaint, inter alia, that the loan contracts and mortgages between
the Appellees and the Appellant were null and void because: (a) the interests, charges, etc., were
deducted in advance from the face value of the "Promissory Notes" executed by the Appellees; and
(b) the rate of interests charged by the Appellant were usurious. The Appellees prayed that judgment
be rendered in their favor as follows:

"x x x

WHEREFORE, it is respectfully prayed –

a) Pending hearing on the prayer for the issuance of the Writ of Preliminary Injunction, a restraining
order be immediately issued against the defendants or anyone acting in their behalf from enforcing
the writ of possession issued against the plaintiffs;

b) After notice and hearing, a writ of preliminary injunction be issued against the defendants,
particularly defendants FGU Insurance Corporation and the City Sheriff of Pasay City, MM, or any of
his deputies or anyone acting in their behalf from enforcing the writ of possession;

c) After trial –

1) To make the injunction permanent;

2) Declare the loan contracts null and void;

3) Declare the extrajudicial foreclosure null and void;

4) Ordering the defendants to pay the plaintiffs the sums of P100,000.00 as moral damages;
P50,000.00 as attorney fees; and, costs of suit.

PLAINTIFFS further pray for such other reliefs and remedies just and equitable in the premises."
(pages 88-89, Records)

In its Answer to the Complaint, the Appellant averred that the interests charged by it on Appellees’
loan accounts and that the said loan contracts and mortgages were lawful. The Appellant further
averred that the Appellees’ action had already prescribed.

In the interim, the Supreme Court promulgated its Decision in the precedent - setting case of "Banco
Filipino Savings and Mortgage Bank vs. Hon. Miguel Navarro, et al., 152 SCRA 346" where it
declared that Central Bank Circular No. 494 was not the "law" envisaged in the mortgage deeds of
borrowers of the Bank; that the escalation clause incorporated in said deeds giving authority to the
Appellant to increase the rate of interests without the corresponding deescalation clause should not
be given effect because of its one-sidedness in favor of the Appellant; that the aforesaid Central
Bank Circular did not apply to loans secured by real estate mortgages, and that, therefore, the
Appellant cannot rely said Circular as authority for it to unilaterally increase the rate of interests on
loans secured by Real Estate Mortgages.

In the meantime, the FGU Insurance Corp., Inc., filed a "Motion for Substitution" with the Regional
Trial Court, in LRC Case No. Pq-7757-P praying that it be substituted as the Petitioner in said case
(pages 354-356, Records). The Appellees were served with a copy of said motion and filed their
Opposition thereto. However, on November 10, 1987, the Regional Trial Court rendered a Decision
granting the motion of FGU Insurance Company (page 369, Records)

On December 3, 1987, the Appellees filed a Motion, with the Court a quo, for leave to file an
"Amended Complaint" to implead FGU Insurance Corporation as party defendant (pages 83-129,
Records). The Court granted said motion and admitted Appellees’ Amended Complaint.

After the requisite pre-trial, the Court a quo issued a Pre-Trial Order which defined, inter alia,
Appellees’ action against the Appellant, and the latter’s defenses, to wit:

"x x x
On the part of the defendants Banco Filipino Savings to simplify the case, it seeks to declare as null
and void plaintiff’s loan contract with Banco Filipino obtained in May 1974, on the ground that the
interest agreed in the contract was usurious. Plaintiffs also seek to declare as null and void the
foreclosure of their mortgage by Banco Filipino on the ground that the loan with the said mortgagee
foreclosure maybe validly done.

DEFENSES

1. Prescription

2. Laches

3. Estoppel" (page 496, Records)

In the meantime, the Appellees and FGU Insurance Corporation entered into and forged a
"Compromise Agreement." The Court a quo promulgated a Decision, dated April 3, 1991, based on
said "Compromise Agreement." Under the "Compromise Agreement", the Appellees bound and
obliged themselves, jointly and severally, to pay to FGU Insurance Corporation the amount of
P1,964,117.00 in three (3) equal installments and that:

"x x x

6. Upon faithful compliance by plaintiffs Calvin S. Arcilla and Elsa B. Arcilla with their Agreement,
defendant FGU Insurance Corporation shall renounce in their favor all its rights, interests and claims
to the four (4) parcels of land mentioned in paragraph No. 4 of this Compromise Agreement,
together with all the improvements thereon, and plaintiffs Calvin S. Arcilla and Elsa B. Arcilla shall be
subrogated to all such rights, interests and claims. In addition, defendant FGU Insurance
Corporation shall execute in favor of plaintiffs Calvin S. Arcilla and Elsa B. Arcilla a deed of
cancellation of the real estate mortgage constituted in its favor on the above-mentioned four (4)
parcels of land, together with all the improvements thereon. All documentary stamps and expenses
for registration of the said deed of cancellation of mortgage shall be for the account of plaintiffs
Calvin S. Arcilla and Elsa B. Arcilla.

7. Subject to the provisions of paragraph No. 4 of this Compromise Agreement, the execution of this
Compromise Agreement shall be without prejudice to the prosecution of the claims of plaintiffs
Calvin S. Arcilla and Elsa B. Arcilla. (pages 543-544, Records)

Thereafter, the Appellees and the Appellant agreed, upon the prodding of the Court a quo, that the
only issue to be resolved by the Court a quo was, whether or not the Appellees were entitled to the
refund, under the Decision of the Supreme Court in "Banco Filipino Savings and Mortgage Bank vs.
Hon. Miguel Navarro, et al.," supra. On November 8, 1991, the Appellees filed a "Motion for
Summary Judgment" appending thereto, inter alia, the Affidavit of Appellee Calvin S. Arcilla and the
appendages thereof (pages 550-555, Records). Appellant filed its Opposition but did not append any
affidavit to said Opposition. On March 26, 1993, the Court a quo promulgated a Decision, the
decretal portion of which reads as follows:

‘WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and
against defendant Banco Filipino ordering defendant Banco Filipino to pay spouses Calvin S. Arcilla
and Elsa B. Arcilla the sum of P126,139.00 with interest thereon at 12% per annum reckoned from
the filing of the complaint.
SO ORDERED.’ (pages 584-585, Records)"2

Petitioner appealed to the Court of Appeals, which affirmed the decision of the RTC the dispositive
portion of which reads:

"IN THE LIGHT OF ALL THE FOREGOING, the assailed Decision is AFFIRMED. Appellant’s appeal
is DISMISSED. With costs against the Appellant.

SO ORDERED."3

Their Motion for Reconsideration4 was denied hence this petition where the petitioner assigns the
following errors:

"I. THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT THE CAUSE OF
ACTION OF THE PRIVATE RESPONDENTS ACCRUED ON OCTOBER 30, 1978, AND
THEREFORE THE FILING OF THEIR COMPLAINT FOR ANNULMENT OF THEIR LOAN
CONTRACTS WITH THE PETITIONER IN 1985 WAS NOT YET BARRED BY PRESCRIPTION.

II. THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT THE MATERIAL
ALLEGATIONS OF THE PRIVATE RESPONDENTS COMPLAINT WERE SUFFICIENT TO
WARRANT THE RELIEFS GRANTED TO THEM BY THE LOWER COURT, PATICULARLY THE
REFUND OF P126,139.00 REPRESENTING ALLEGED EXCESS INTEREST PAID ON THEIR
LOAN.

III. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE PRIVATE
RESPONDENTS WERE ENTITLED TO THE SAID REFUND OF P126,139.00 CLAIMED BY
THEM."5

The petitioner maintains that the complaint filed by herein private respondents was an action for
Annulment of Loan Contracts, foreclosure sale with prohibition and injunction. It is contended that
these causes of action accrued on the date of the execution of the promissory note and deed of
mortgage on January 15, 1975 and not October 30, 1978 as found by the Court of Appeals. Thus,
private respondents cause of action has already prescribed inasmuch as the case was filed on
September 2, 1985 or more than ten years thereafter. Petitioner further contends that private
respondents cannot rely on the ruling in the case of Banco Filipino Savings & Mortgage Bank vs.
Navarro6considering that they were not parties to said case. Petitioner also maintains that the order
of the lower court, which was affirmed by the Court of Appeals ordering the petitioner to refund the
excess interest paid by private respondents in the amount of P126,318.00 was without any legal
basis since private respondents never raised the issue of interest nor prayed for any relief with
respect thereto. Moreover, the private respondents never paid said amount to the petitioner. While
the amount was included in the bid price of the bank when it bought the mortgaged properties during
the public auction, said bid price did not prejudice the private respondents because when the private
respondents repurchased the properties, the amount they paid was different and independent of the
redemption price of the bank. Besides, the agreement between the private respondents and FGU
Insurance Corporation was one of sale and not redemption. Thus, any amount paid by the private
respondents to FGU was voluntarily entered into by them and was not a consequence of the
foreclosure of the mortgage properties.

Conversely, private respondents allege that their action has not prescribed considering that
prescription begins to run from the day the action may be brought; the date their right of action
accrued. It is their contention that the period of prescription of their action should commence to run
from October 30, 1978 when the petitioner unilaterally increased the rate of interest on private
respondents’ loan to 17% per annum. Thus, when private respondents filed their action against the
petitioner on September 2, 1985 or almost eight years thereafter, their action had not yet prescribed.
Moreover, private respondents aver that they are entitled to the refund inasmuch as the escalation
clause incorporated in the loan contracts do not have a corresponding de-escalation clause and is
therefore illegal.

The appeal is unmeritorious.

There are only two issues, which must be resolved in the present appeal. First, has the action of the
private respondents prescribed; and second, are the respondents entitled to the refund of the
alleged interest overpayments.

Petitioner’s claim that the action of the private respondents has prescribed is bereft of merit. Under
Article 1150 of the Civil Code, the time for prescription of all kinds of actions, when there is no
special provision which ordains otherwise, shall be counted from the day they may be brought. Thus,
the period of prescription of any cause of action is reckoned only from the date the cause of action
accrued.7 And a cause of action arises when that which should have been done is not done, or that
which should not have been done is done.8 The period should not be made to retroact to the date of
the execution of the contract on January 15, 1975 as claimed by the petitioner for at that time, there
would be no way for the respondents to know of the violation of their rights.9 The Court of Appeals
therefore correctly found that respondents’ cause of action accrued on October 30, 1978, the date
they received the statement of account showing the increased rate of interest, for it was only from
that moment that they discovered the petitioner’s unilateral increase thereof. We quote with approval
the pertinent portions of the Court of Appeals decision as follows:

"It is the legal possibility of bringing the action that determines the starting point for the computation
of the period of prescription (Constancia C. Telentino vs. Court of Appeals, et al., 162 SCRA 66). In
fine, the ten-year prescriptive period is to be reckoned from the accrual of Appellees’ right of action,
not necessarily on the very date of the execution of the contracts subject of the action (Naga
Telepone Co. Inc. vs. Court of Appeals, et al., 230 SCRA 351). A party’s right of action accrues only
when the confluence of the following elements is established:

"xxx: a) a right in favor of the plaintiff by whatever means and under whatever law it arises or is
created; b) an obligation on the part of defendant to respect such right; and c) an act or omission on
the part of such defendant violative of the right of the plaintiff (Cole vs. Vda. de Gregorio, 116 SCRA
670 [1982]; Mathay vs. Consolidated Bank & Trust Co., 58 SCRA 559 [1974]; Vda. de Enriquez vs.
Dela Cruz, 54 SCRA 1 [1973]. It is only when the last element occurs or takes place that it can be
said in law that a cause of action has arisen (Cole vs. Vda. De Gregorio, supra)" (Maria U. Español
vs. Chairman, etc., et al.,, 137 SCRA 314, page 318)

More, the aggrieved must have either actual or presumptive knowledge of the violation, by the guilty
party of his rights either by an act or omission. The question that now comes to the fore is when the
Appellees became precisely aware of the unilateral increase, by the Appellant, of the rate of interest
on their loan account to 17% per annum. As can be ascertained from the records, the Appellees
discovered or should have discovered, for the first time, the unilateral increase by the Appellant of
the rate of interest to 17% per annum when they received the "Statement of Account" of the
Appellant as of October 30, 1978. Hence, it was only then that the prescriptive period for the
Appellees to institute their action in the Court a quo commenced. Since the Appellees filed their
complaint in the Court a quo on September 2, 1985, the same was seasonably filed within the ten-
year prescriptive period."10
Anent the second issue as to whether the respondents are entitled to recover the alleged
overpayments of interest, we find that they are despite the absence of any prayer therefor. This
Court has ruled that it is the material allegations of fact in the complaint, not the legal conclusion
made therein or the prayer that determines the relief to which the plaintiff is entitled.11 It is the
allegations of the pleading which determine the nature of the action and the Court shall grant relief
warranted by the allegations and the proof even if no such relief is prayed for.12 Thus, even if the
complaint seeks the declaration of nullity of the contract, the Court of Appeals correctly ruled that the
factual allegations contained therein ultimately seek the return of the excess interests paid.

The amended complaint13 of herein private respondents specifically allege that the contracts of loan
entered into by them and the petitioner were contrary to and signed in violation of the Usury
Law14 and consequentially pray that said contracts be declared null and void. The amended complaint
reads:

"6. The aforementioned loans granted by defendant Banco Filipino to the plaintiffs as stated on the
face of the promissory note and real estate mortgage (Annexes "B" to "D", inclusive) were not
actually received by the plaintiffs because interests, charges, etc. were deducted in advance from
the face value of the loans not in accordance with the contracts;

7. Even the loan contracts (Annexes "B" to "D", inclusive) required by defendant Banco Filipino to be
signed by the plaintiffs were contrary to and in violation of the then Usury Law, as amended;

8. Assuming arguendo that the loan contracts between plaintiffs and defendant Banco Filipino are
valid, the extra-judicial foreclosure of the properties of the plaintiffs on May 24, 1979 was null and
void for having been conducted in clear violation of the law (Act 3135), namely: a) lack of roper
notice to the plaintiffs; b) lack of proper publication and posting as required by law; c) the alleged
sale was conducted at the place other than that prescribed by law, among others;

9. On May 27, 1990, defendant Banco Filipino purportedly executed in favor of defendant FGU
Insurance Corporation a Deed of Redemption over the foreclosed properties of the plaintiffs, again,
without notice to the latter, as evidenced by the said Deed of Redemption, copy of which is hereto
attached and marked as Annex "F".

10. The Deed of Redemption (Annex "F") is clearly null and void for having been executed in
violation of Rule 39, Rules of Court, and other related provisions of the Rules of Court."15

The loan contracts with real estate mortgage entered into by and between the petitioner and
respondent stated that the petitioner may increase the interest on said loans, within the limits
allowed by law, as petitioner’s Board of Directors may prescribe for its borrowers. At the time the
contracts were entered into, said escalation clause was valid.16 It was only pursuant to P.D. No. 1684
which became effective March 17, 1980 wherein to be valid, escalation clauses should provide: 1.)
that there can be an increase in interest if increased by law or by the Monetary Board; and 2.) in
order for such stipulation to be valid, it must include a provision for the reduction of the stipulated
interest in the event that the maximum rate of interest is reduced by law or by the Monetary Board.17

Given the validity of the escalation clause, could the petitioner increase the stipulated interest
pursuant to the Central Bank Circular 494 from 12% to 17%.

We rule that it may not.

The escalation clause in the loan contracts reads as follows:

"xxx g) The rate of interest charged on the obligation secured by this mortgage, as well as the
interest on the amount which may have been advanced by the Mortgagee in accordance with
paragraph (b) and (d) hereof, shall be subject, during the terms of this contract, to such an increase,
within the limits allowed by law, as the Board of Directors of the Mortgagee may prescribe for its
debtors; xxx" (emphasis supplied)18

In Banco Filipino Savings & Mortgage Bank vs. Navarro,19 which involved a similar escalation
clause20 , we ruled that Central Bank Circular 494, although it has the force and effect of law, is not a
law and is not the law contemplated by the parties which authorizes the petitioner to unilaterally raise
the interest rate of the loan.21 Consequently, the reliance by the petitioner on Central Bank Circular
494 to unilaterally raise the interest rates on the loan in question was without any legal basis.

Petitioner’s argument that the Banco Filipino case cannot be applied to the present case since the
respondents were not intervenors therein is flawed. Only the judgment in said case cannot bind the
respondents as they were not parties thereto, however, the doctrine enunciated therein is a judicial
decision and forms part of the legal system of the land.22 It forms a precedent, which must be
adhered to under the doctrine of stare decisis.23 Thus, even if the respondents were not parties to the
above-mentioned case, the doctrine enunciated therein may be applied to the present case.

WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 45891 is AFFIRMED and
the instant petition is hereby DENIED.

No pronouncement as to costs.

SO ORDERED.

[G.R. NO. 176014 : September 17, 2009]

ALICE VITANGCOL and NORBERTO

VITANGCOL, Petitioners, v. NEW VISTA PROPERTIES, INC.,
MARIA ALIPIT, REGISTER OF DEEDS OF CALAMBA, LAGUNA,
and the HONORABLE COURT OF APPEALS Respondents.

DECISION

VELASCO, JR., J.:

The Case

In this Petition for Review under Rule 45 of the Rules of Court,

petitioners Alice Vitangcol and Norberto Vitangcol (collectively,
Vitangcol) assail the August 14, 2006 Decision1 and December 19,
2006 Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No.
84205 which reversed the December 21, 2004 Order3 of the
Regional Trial Court (RTC), Branch 35, in Calamba City, Laguna, in
Civil Case No. 3195-2001-C for Quieting of Title entitled New Vista
Properties, Inc. v. Alice E. Vitangcol, Norberto A. Vitangcol, Maria L.
Alipit and Register of Deeds of Calamba, Laguna.

The Facts

Subject of the instant controversy is Lot No. 1702 covered by

Transfer Certificate of Title (TCT) No. (25311) 2528 of the Calamba,
Laguna Registry in the name of Maria A. Alipit and Clemente A.
Alipit, married to Milagros.

On June 18, 1989, Maria and Clemente A. Alipit, with the marital
consent of the latter's wife, executed a Special Power of
Attorney4 (SPA) constituting Milagros A. De Guzman as their
attorney-in-fact to sell their property described in the SPA as
"located at Bo. Latian, Calamba, Laguna covered by TCT No.
(25311) 2538 with Lot No. 1735 consisting of 242,540 square
meters more or less." Pursuant to her authority under the SPA, De
Guzman executed on August 9, 1989 a Deed of Absolute
Sale5 conveying to New Vista Properties, Inc. (New Vista) a parcel of
land with an area of 242,540 square meters situated in Calamba,
Laguna. In the deed, however, the lot thus sold was described as:

a parcel of land (Lot No. 1702 of the Calamba Estate, GLRO Rec.
No. 8418) situated in the Calamba, Province of Laguna, x x x
containing an area of [250,007 square meters], more or less. x x x
That a portion of the above-described parcel of land was traversed
by the South Expressway such that its original area of [250,007]
SQUARE METERS was reduced to [242,540] SQUARE METERS,
which is the subject of the sale.6

Following the sale, New Vista immediately entered the subject lot,
fenced it with cement posts and barbed wires, and posted a security
guard to deter trespassers.

We interpose at this point the observation that the property

delivered to and occupied by New Vista was denominated in the SPA
as Lot No. 1735 covered by TCT No. (25311) 2538, while in the
deed of absolute sale in favor of New Vista the object of the
purchase is described as Lot No. 1702 covered by TCT No.
(25311) 2528.

The controversy arose more than a decade later when respondent

New Vista learned that the parcel of land it paid for and occupied,
i.e., Lot No. 1702, was being claimed by petitioners Vitangcol on the
strength of a Deed of Absolute Sale for Lot No. 1702 under TCT No.
(25311) 2528 entered into on August 14, 2001 by and between
Vitangcol and Maria Alipit. Consequent to the Vitangcol-Maria Alipit
sale, TCT No. (25311) 2528 was canceled and TCT No. T-482731
issued in its stead in favor of Vitangcol on August 15, 2001.

Alarmed by the foregoing turn of events, New Vista lost no time in

protecting its rights by, first, filing a notice of adverse claim over
TCT No. T-482731, followed by commencing a suit for quieting of
title before the RTC. Its complaint7 was docketed as Civil Case No.
3195-2001-C before the RTC, Branch 92 in Calamba City. Therein,
New Vista alleged paying, after its purchase of the subject lot in
1989, the requisite transfer and related taxes therefor, and
thereafter the real estate taxes due on the land. New Vista also
averred that its efforts to have the Torrens title transferred to its
name proved unsuccessful owing to the on-going process of
reclassification of the subject lot from agricultural to
commercial/industrial. New Vista prayed, among others, for the
cancellation of Vitangcol's TCT No. T-482731 and that it be declared
the absolute owner of the subject lot.

On December 11, 2001, Vitangcol moved to dismiss8 the complaint

which New Vista duly opposed. An exchange of pleadings then
ensued.

On June 27, 2003, or before Maria Alipit and Vitangcol, as

defendants a quo, could answer, New Vista filed an amended
complaint,9 appending thereto a copy of the 1989 deed of absolute
sale De Guzman, as agent authorized agent of the Alipits, executed
in its favor. Thereafter, Vitangcol filed a motion to dismiss, followed
by a similar motion dated August 29, 2003 interposed by Maria
Alipit which New Vista countered with an opposition.
Unlike in its original complaint, New Vista's amended complaint did
not have, as attachment, the June 18, 1989 SPA. It, however,
averred that Clemente and Maria Alipit had ratified and validated
the sale of Lot No. 1702 covered by TCT No. (25311) 2528 by their
having delivered possession of said lot to New Vista after receiving
and retaining the purchase price therefor.

Ruling of the RTC

The Initial RTC Order

By Order of November 25, 2003, the trial court denied Vitangcol's

and Maria Alipit's separate motions to dismiss the amended
complaint. As there held by the RTC, the amended
complaint10 sufficiently stated a cause of action as shown therein
that after the purchase and compliance with its legal obligations
relative thereto, New Vista was immediately placed in possession of
the subject lot, but which Maria Alipit, by herself, later sold to
Vitangcol to New Vista's prejudice.

The December 21, 2004 RTC Order

From the above order, Vitangcol sought reconsideration,11 attaching

to the motion a copy of the June 18, 1989 SPA which, in the hearing
on June 7, 2004, was accepted as evidence pursuant to Sec. 8, Rule
10 of the Rules of Court.12 By Order dated July 14, 2004, the RTC
granted reconsideration and dismissed the amended complaint,
disposing as follows:

In view of the foregoing, the court hereby set aside its Order dated
November 25, 2003 and by virtue of this order, hereby finds that
the Amended Complaint states no cause of action and that the claim
of the plaintiff in the present action is unenforceable under the
provisions of the statue [sic] of frauds, hence, the Amended
Complaint is hereby ordered DISMISSED, pursuant to Rule 16,
Section 1, paragraph g and i.

SO ORDERED.13
In reversing itself, the RTC made much of the fact that New Vista
did not attach the SPA to the amended complaint. To the RTC, this
omission is fatal to New Vista's cause of action for quieting of title,
citing in this regard the pertinent rule when an action is based on a
document.14

The RTC also stated the observation that New Vista's act of not
directly mentioning the SPA and the non-attachment of a copy
thereof in the amended complaint constituted an attempt "to hide
the fact that Milagros Alipit-de Guzman is only authorized to sell a
parcel of land denominated as Lot No. 1735 of the Calamba
Estate, and not Lot No. 1702 of the Calamba Estate, which is the
subject matter of the Deed of Absolute Sale (Annex B of the
Amended Complaint)."15 According to the RTC, what the agent (De
Guzman) sold to New Vista was Lot No. 1702 which she was not
authorized to sell.

Aggrieved, New Vista interposed an appeal before the CA, its

recourse docketed as CA-G.R. CV No. 84205.

Ruling of the CA

On August 14, 2006, the appellate court rendered the assailed

Decision reversing the December 21, 2004 RTC Order, reinstating
New Vista's amended complaint for quieting of title, and directing
Vitangcol and Maria Alipit to file their respective answers thereto.
The decretal portion of the CA's decision reads:

WHEREFORE, premises considered, the 21 December 2004 Order of

the court a quo is hereby REVERSED and SET ASIDE, and the
Amended Complaint is hereby REINSTATED. The defendants-
appellees are hereby directed to file their respective
answers/responsive pleadings within the time prescribed under the
Rules of Court.

SO ORDERED.16

The CA faulted the RTC for dismissing the amended complaint,

observing that it was absurd for the RTC to require a copy of the
SPA which was not even mentioned in the amended complaint.
Pushing this observation further, the CA held that the amended
complaint, filed as it were before responsive pleadings could be filed
by the defendants below, superseded the original complaint. As thus
superseded, the original complaint and all documents appended
thereto, such as the SPA, may no longer be taken cognizance of in
determining whether the amended complaint sufficiently states a
cause of action. It, thus, concluded that the RTC erred in looking
beyond the four corners of the amended complaint in resolving the
motion to dismiss on the ground of its failing to state a cause of
action.

And citing jurisprudence,17 the CA ruled that even if the SPA were
considered, still the discrepancy thereof relative to the deed of
absolute sale in terms of lot and title numbers'is evidentiary in
nature and is simply a matter of defense, and not a ground to
dismiss the amended complaint.

Finally, the CA held that the real question in the case boiled down
as to whose title is genuine or spurious, which is obviously a triable
issue of fact which can only be threshed out in a trial on the merits.

Through the equally assailed December 19, 2006 Resolution, the CA

denied Vitangcol's motion for reconsideration.

Hence, the instant petition.

The Issue

Petitioners Vitangcol raise as ground for review the sole assignment

of error in that:

THE DECISION AND THE RESOLUTION OF THE TWELFTH DIVISION

OF THE COURT OF APPEALS UNDER CHALLENGE ARE CONTRARY TO
LAW18

The Court's Ruling

The petition is bereft of merit.

The sole issue tendered for consideration is whether the Amended
Complaint, with the June 18, 1989 SPA'submitted by petitioners
Vitangcol duly considered, sufficiently states a cause of action. It is
Vitangcol's posture that it does not sufficiently state a cause of
action. New Vista is of course of a different view.

Amended Complaint Sufficiently States a Cause of Action

The Rules of Court defines "cause of action" as the act or omission

by which a party violates a right of another. It contains three
elements: (1) a right existing in favor of the plaintiff; (2) a
correlative duty on the part of the defendant to respect that right;
and (3) a breach of the defendant's duty.19 It is, thus, only upon the
occurrence of the last element that a cause of action arises, giving
the plaintiff a right to file an action in court for recovery of damages
or other relief.20

Lack of cause of action is, however, not a ground for a dismissal of

the complaint through a motion to dismiss under Rule 16 of the
Rules of Court, for the determination of a lack of cause of action can
only be made during and/or after trial. What is dismissible via that
mode is failure of the complaint to state a cause of action. Sec. 1(g)
of Rule 16 of the Rules of Court provides that a motion may be
made on the ground "that the pleading asserting the claim states no
cause of action."

The rule is that in a motion to dismiss, a defendant hypothetically

admits the truth of the material allegations of the ultimate facts
contained in the plaintiff's complaint.21 When a motion to dismiss is
grounded on the failure to state a cause of action, a ruling thereon
should, as rule, be based only on the facts alleged in the
complaint.22 However, this principle of hypothetical admission
admits of exceptions. Among others, there is no hypothetical
admission of conclusions or interpretations of law which are false;
legally impossible facts; facts inadmissible in evidence; facts which
appear by record or document included in the pleadings to be
unfounded;23 allegations which the court will take judicial notice are
not true;24 and where the motion to dismiss was heard with
submission of evidence which discloses facts sufficient to defeat the
claim.25
New Vista's threshold contention that De Guzman's SPA to sell
should not be considered for not having been incorporated as part
of its amended complaint is incorrect since Vitangcol duly submitted
that piece of document in court in the course of the June 7, 2004
hearing on the motion to dismiss. Thus, the trial court acted within
its discretion in considering said SPA relative to the motion to
dismiss the amended complaint.

The trial court, however, erred in ruling that, taking said SPA into
account, the amended complaint stated no cause of action. Indeed,
upon a consideration of the amended complaint, its annexes, with
the June 18, 1989 SPA thus submitted, the Court is inclined, in the
main, to agree with the appellate court that the amended complaint
sufficiently states a cause of action.

Hypothetical Admission Supports Statement of Cause of

Action

Thus, the next query is: Assuming hypothetically the veracity of the
material allegations in the amended complaint, but taking into
consideration the SPA, would New Vista still have a cause of action
against Vitangcol and Maria Alipit sufficient to support its claim for
relief consisting primarily of quieting of title?
cralawre d

The poser should hypothetically be answered in the affirmative.

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.26 The test of sufficiency of facts alleged in the complaint
constituting a cause of action lies on whether or not the court,
admitting the facts alleged, could render a valid verdict in
accordance with the prayer of the complaint.27 And to sustain a
motion to dismiss for lack of cause of action, it must be shown that
the claim for relief in the complaint does not exist, rather than that
a claim has been defectively stated, or is ambiguous, indefinite, or
uncertain.28

Ratification Would Cure Defect in the SPA

There can be quibbling about the lot covered by the deed of
absolute sale De Guzman executed in New Vista's favor being
different from that referred to in her enabling power of attorney to
sell in terms of lot number and lot title number. The flaw stemmed
from the faulty preparation of the SPA. Notwithstanding the
variance in lot descriptions, as indicated above, the amended
complaint contained, as it were, a clear statement of New Vista's
cause of action. New Vista, in fact, alleged that the intended sale of
Lot No. 1702 effected by De Guzman had been ratified by her
principals, lot owners Clemente and Maria Alipit. Consider the
ensuing clear stipulations in the August 9, 1989 Deed of Absolute
Sale:

That on March 27, 1989, the SELLERS [the Alipits] entered into a
Contract to Sell with the BUYER [New Vista], after they had
previously received on February 11, 1989 an earnest money of TEN
THOUSAND PESOS (P10,000.00), wherein they (Sellers) agreed to
sell to the BUYER the above-described parcel of land (in the reduced
area of 242,540 square meters) for P60.00 per square meter or for
a total price consideration of FOURTEEN MILLION FIVE HUNDRED
FIFTY TWO THOUSAND FOUR HUNDRED PESOS (P14,552,400.00)
under the other terms and conditions stipulated therein;

That on April 4, 1989, the BUYER had advanced the amount of

SEVEN MILLION FIVE HUNDRED EIGHTEEN THOUSAND SIX
HUNDRED PESOS (7,518,600.00) and paid the Philippine Veterans
Bank [PVB] in the same amount by way of redemption of the above-
described property from its mortgage, all in accordance with the
stipulation in the Contract to Sell dated March 27, 1989, making the
advances made by the BUYER to the SELLERS namely: P10,000.00
Earnest Money; P500,000.00 Advances; and P7,518,600.00
Redemption Money; in the total amount of EIGHT MILLION TWENTY
EIGHT THOUSAND SIX HUNDRED PESOS (P8,028,600.00) which per
agreement has formed part of the payment of the purchase price of
P14,550,000.00 thereby leaving a balance of SIX MILLION FIVE
HUNDRED TWENTY THREE THOUSAND EIGHT HUNDRED PESOS
(P6,523,800.00);
That in line with the Resolution dated June 1, 1989 of the Honorable
Supreme Court in GR. No. L - ______ the Honorable [RTC], National
Capital Judicial Region, Branch 39, Manila, issued an Order on June
30, 1989 in Civil Case No. 85-32311 entitled, "IN RE: IN THE
MATTER OF THE PETITION FOR LIQUIDATION OF THE PHILIPPINE
VETERANS BANK, CENTRAL BANK OF THE PHILIPPINES, Petitioner",
the dispositive portion of which reads as follows:

"WHEREFORE, the petitioner Central Bank of the Philippines, the

Acting Liquidator of the Philippine Veterans Bank is hereby ordered
to release to the movants-claimants, Spouses Clemente and
Milagros Alipit and Maria Alipit the latter's Certificate of Title, TCT
No. (T-25311) 2528 within three (3) days from receipt hereof.

SO ORDERED."

thus, paving the way for the execution of the foregoing Final Deed
of Sale.

NOW, THEREFORE, in view of the foregoing facts and

circumstances, and for and in consideration of the sum of
[P14,552,400.00] of which had been previously paid by the BUYER
to the SELLERS in the manner stated above, and the remaining sum
of x x x (P6,523,800.00), likewise Philippine Currency, to the
SELLERS now in hand paid and receipt whereof is hereby
acknowledged and expressed to their entire satisfaction from the
BUYER THEREBY completing payment of the entire price
consideration of this sale, the SELLERS do hereby sell, transfer and
convey, in the manner absolute and irrevocable, unto the BUYER, its
successors, administrators and assigns, the above-described parcel
of land in its reduced area of 242,540 square meters, more or less,
free from all liens and encumbrances.29

As may clearly be noted, the transfer of the lot covered by TCT No.
(25311) 2528 or, in fine Lot No. 1702 of the Calamba Estate, in
favor of New Vista, came not as the result of simple, single
transaction involving a piece of land with a clean title where the
vendor, for a sum certain received, delivers ownership of the
property upon contract signing. As things stand, the execution of
the deed of absolute sale completed a negotiated contractual
package, the culmination of a series of side but closely interrelated
transactions involving several payments and remittances of what
turned out to be the total purchase price for the lot envisaged to be
purchased and sold, to wit: PhP 10,000 earnest money payment on
February 11, 1989; an advance of half a million (no date provided);
settlement of a mortgage loan with Philippine Veterans Bank (PVB)
of over PhP 7.5 million on April 4, 1989; and the final payment of
the balance of the total purchase price amounting to over PhP 6.5
million on August 9, 1989 the date of the execution of the Deed of
Absolute Sale. For proper perspective, it may be mentioned that the
Alipits and New Vista executed the Contract to Sell on March 27,
1989 after the payment of the earnest money and before the
settlement of the mortgage loan with the PVB; and the SPA
executed by Clemente and Maria Alipit on June 18, 1989 or more
than a month before the execution of the Deed of Absolute Sale.

Taking the foregoing events set forth in the 1989 deed of absolute
sale, as hypothetically admitted, it is fairly evident that the property
the Alipits intended to sell and in fact sold was the lot covered by
TCT No. (25311) 2528, which, doubtless, is Lot No. 1702. As aptly
argued by New Vista, the purchase of the parcel of land in question
was mainly dictated by its actual location and its metes and bounds
and not by mere lot number assigned to it in the certificate of title.
This is not to say that the TCT covering the property is of little
importance. But what can be gleaned is that New Vista paid and
acquired Lot No. 1702 which it redeemed, for the Alipits, by paying
their mortgage obligations with the PVB. It could not have bought
and the Alipits could not have sold another property.

No Showing of Existence of Lot Subject of the SPA

As to how the SPA mentioned a lot, i.e., Lot No. 1735 covered by
TCT No. (25311) 2538, different from what is stated, i.e., Lot No.
1702, in the 1989 deed of absolute sale in question, is not
sufficiently explained by the parties. But what can be gathered from
the records is that what were denominated as Lot No. 1735 and Lot
No. 1702 have the same area and location: 242,540 square meters
in Calamba. Moreover, if indeed the SPA authorized De Guzman to
sell Lot No. 1735 covered by TCT No. (25311) 2538 and not the
subject Lot No. 1702, the question begging for an answer is how
come Maria Alipit never presented a copy of TCT No. (25311) 2538
covering Lot No. 1735 with an area of 242,540 square meters to
prove her being a co-owner thereof? We note that Maria Alipit's
motion to dismiss merely adopted the grounds raised in the parallel
motion filed by Vitangcol.

Moreover, the sequence of coinciding events, starting from the

payment by New Vista of the earnest money, to the execution of the
final deed of sale and the delivery of the subject lot to New Vista
would readily show the following: that Clemente and Maria Alipit
executed the SPA for de Guzman to sell and to formalize, in a deed
of absolute sale, the sale of the subject lot following the fulfillment
of the terms and conditions envisaged in the Contract to Sell earlier
entered into, and not some lot they co-owned, if there be any.
Maria Alipit's utter failure to show in her motion to dismiss that she
co-owns with her brother Clemente a similarly-sized 242,540-
square-meter lot, denominated as Lot No. 1735 of the Calamba
Estate and covered by TCT No. (25311) 2538, strongly suggests
that no such separate property exists and that there is contextually
only one property Lot No. 1702. This reality would veritably make
the lot and TCT designation and description entries in the SPA as a
case of typographical errors.

Ratification: Delivery and Not Questioning Deed of Absolute

Sale

Nonetheless, even if the SPA, vis - à-vis the deed of absolute in

question, described a different lot and indicated a dissimilar TCT
number, still, the hypothetically admitted allegation of New Vista
that lot owners Clemente and Maria Alipit ratified the sale would
cure the defect on New Vista's claim for relief under its amended
complaint. Stated a bit differently, the ratificatory acts of the Alipits
would work to strengthen New Vista's cause of action impaired by
what may be taken as typographical errors in the SPA. As deduced
from the stipulations in the deed of absolute, lot owners Clemente
and Maria Alipit doubtless benefited from the transaction. And most
importantly, they turned possession of Lot No. 1702 over to New
Vista in 1989. Since then, New Vista enjoyed undisturbed right of
ownership over the property until the Vitangcol entered the picture.

The delivery of the subject Lot No. 1702 to New Vista clearly
evinces the intent to sell said lot and is ample proof of receipt of full
payment therefor as indicated in the deed of absolute sale. For a
span of more than 10 years after the execution of the contract of
sale, neither Clemente nor Maria Alipit came forward to assail the
conveyance they authorized De Guzman to effect, if they considered
the same as suffering from some vitiating defect. What is more, if
their intention were indeed to authorize De Guzman to sell a
property other than Lot No. 1702, is it not but logical to surrender
that "other" property to New Vista? And if New Vista employed
illegal means to gain possession of subject property, a relatively
valuable piece of real estate, why did Clemente and Maria Alipit, and
their successors in interest, not institute any proceedings to oust or
eject New Vista therefrom? ςηαñrοblε š νιr†υαl lαω lιb rα rÿ

Clemente and Maria Alipit's long inaction adverted to argues against

the notion that what they sold to New Vista was a property other
than Lot No. 1702 of the Calamba Estate.

Two Versions of TCT Covering Subject Lot Show Fraud

Lest it be overlooked, the purported sale of Lot 1702 to Vitangcol

was made by Maria Alipit alone, ostensibly utilizing another
certificate of title bearing number "TCT No. (25311) 2528" with
Maria Alipit appearing on its face as the sole owner. New Vista holds
the original duplicate owner's copy of TCT No. (25311) 2528 in the
names of Clemente and Maria Alipit. Evidently, two versions of same
TCT bearing the same number and covering the subject property
exist. This aberration doubtless is a triable factual issue. To be sure,
one title is authentic and the other spurious.

It is worth to mention at this juncture that the deed of absolute sale

in favor of New Vista recited the following event: that the RTC,
Branch 39 in Manila issued on June 30, 1989 in Civil Case No. 85-
32311 (in re: liquidation PVB) an Order to release TCT No. (T-
25311) 2528 in the names of Clemente Alipit, married to Milagros
Alipit, and Maria Alipit. If this recital is true and there is no reason
why it is not, then TCT No. (T-25311) 2528 in the name of Maria
Alipit alone must, perforce, be a fake instrument. Accordingly, the
subsequent sale of Lot No. 1702 to Vitangcol on August 14, 2001 by
Maria Alipit with a bogus TCT would be ineffective and certainly
fraudulent. Not lost on the Court, as badge of fraud, is, as New
Vista points out, the issuance of a new TCT on August 15, 2001 or a
day after the subject lot was purportedly sold to Vitangcol.

As found by the RTC in its initial November 25, 2003 order, virtually
all the material allegations in the amended complaint are triable
issues of facts, a reality indicating that it sufficiently states a cause
or causes of action. If the allegations in the complaint furnish
sufficient basis on which it can be maintained, it should not be
dismissed regardless of the defense that may be presented by the
defendants.30

On July 15, 2009, the parties filed a Joint Motion to Dismiss

informing the Court that they have amicably settled their
differences and have filed a Joint Motion for Judgment Based on
Compromise Agreement before the RTC, Branch 35 in Calamba City,
Laguna, in Civil Case No. 3195-2001-C. A judgment on said
compromise would have preempted the resolution of the instant
petition.

WHEREFORE, this petition is hereby DENIED for lack of merit. The

records of the case are immediately remanded to the RTC, Branch
35 in Calamba City, Laguna for appropriate action on the
Compromise Agreement submitted by the parties.

Let the entry of judgment be made. No costs.

SO ORDERED.

G.R. No. 133775 January 20, 2000

FIDEL DABUCO, FELICIANO EBINA, MELICIO BOLO, AURELIO CABAJAR, EUSTIQUIO

CABATUAN, RAFAEL OCAREZA, SAMUEL RECO, ALEJANDRO IBONALO TEMPLATURA,
NEMESIO OBESO, ALEJANDRA CABILES, JULIAN RESPONDE, CATALINO BORDAS,
FELECISIMA BALILI, FELIX PAGATPAT, NOLI BALILI, BONIFACIO BORDAS, VICENTE
GONZAGA, EUGENIO HABONITA, ARSENIO BALDADO, DOMINADOR BORDAS, JUANA
CABILES, DINDO PAGATPAT, LUZVIMINDA LACERNA, ANTONIA TEE LADRAZO AND
VICENTE CABILES, petitioners,
vs.
COURT OF APPEALS AND GABI MULTI PURPOSE COOPERATIVE, REPRESENTED BY
MARIA QUISUMBING ALVAREZ AND COL. SOLOMON DALID, RET., respondents.

KAPUNAN, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45, with a prayer for issuance of a
Restraining Order or Writ of Preliminary Injunction. The Petition assails the Decision1 dated October
6, 1997 and the Order, dated April 30, 1998, both of the Court of Appeals. The issue raised in the
petition before the Court of Appeals was whether the dismissal of Civil Case No. CEB-16217 by the
Regional Trial Court of Cebu City, Branch 15, was proper.

The case in the trial court, Civil Case No. CEB-16217, was an action for quieting of title, accion
publiciana and damages involving agricultural lands located in Gabi, Sudlon, Cebu City. Private
respondent GABI Multi Purpose Cooperative (GABI, for brevity) was the plaintiff in the case below,
while petitioners were the defendants.

As an incident to the instant petition, petitioners filed an Urgent Motion, dated June 10, 1998, for the
issuance of a Restraining Order or Writ of Preliminary Injunction, wherein they alleged that GABI had
commenced to enter the disputed lands. On July 17, 1998, an Opposition by GABI to petitioners'
Urgent Motion was received by the Court. Petitioners filed a Reply to the Opposition on July 28,
1998, and a Rejoinder, dated August 28, 1998 was filed by GABI.

GABI filed a 2-page Comment,2 wherein GABI dismissed petitioners' contentions as a mere rehash of
its arguments in the appellate court. The Solicitor General also filed a Comment3 in behalf of the
respondent Court of Appeals. On February 18, 1999, the Court received petitioners' Reply to the
Comment of the Solicitor General.

The antecedent facts are summarized in the assailed Decision of the Court of Appeals. We quote
the pertinent portions below:

The Lazarrabal [sic] family were the registered owners of the properties, subject matter of
this case.

In 1991, on different occasions, the subject properties were sold to Ruben Baculi, Editha
Belocura, Lira Puno, Rafael Lapuz, Ladrioro Montealto, Joel Masecampo, Delsa N. Manay,
Ilderim Castañares, Maria Theresa Puno, [and] Jill Mendoza. On June 27, 1994, plaintiff
[herein private respondent GABI Multi-Purpose Cooperative], a registered non-stock, non-
profit cooperative filed a civil complaint against defendants [herein petitioners] who were
found residing and/or tilling the subject properties. Plaintiff alleged therein that it is the owner
in fee simple of the subject properties; that defendants without any authority, resided, tilled,
sow [sic] in the subject properties; that defendants refused to vacate inspite [sic] notice.

Plaintiff prays for the issuance of preliminary mandatory injunction to require defendants to
remove the barricade constructed by them and for the issuance of a writ of injunction to
restrain defendants from preventing plaintiff in developing the subject properties.
 On July 20, 1997, the trial court issued a Temporary Restraining Order, enjoining defendants
to desist from further stopping plaintiffs development of the properties. The trial court further
required defendants to show cause why no writ of preliminary or mandatory injunction be
issued against them.

On July 27, 1997, after hearing, the trial court lifted and dissolved the temporary restraining
order it earlier issued upon failure of the plaintiff to prove its title over the subject properties.

On July 29, 1994, defendants filed their answer alleging that plaintiff has no personality to file
this case since plaintiff does not appear to be the buyer of the properties neither were the
properties titled in its name; that the subject properties are part of the forest reserve which
cannot be privately acquired.

On August 3, 1994, defendants filed a Motion to Dismiss the complaint on the ground of lack
of cause of action, plaintiff has no personality to sue; and lack of jurisdiction.

Plaintiff moved for the striking out of defendants' motion to dismiss, alleging that at this stage
defendants could no longer file the said motion.

On August 18, 1994, the assailed order dismissing the complaint on the ground that plaintiff
has no real interest in the case, was rendered.

Plaintiff filed a motion for reconsideration of the said order, but the trial court denied the
same. The dispositive portion of the order dated January 9, 1995, of the trial
court denying plaintiffs motion for reconsideration reads:

WHEREFORE, finding the Motion for Reconsideration to be without merit, the same
is hereby denied. Notify counsel accordingly.

IT IS SO ORDERED.4

GABI appealed to the Court of Appeals. Thereafter, the respondent court issued its assailed
decision, the dispositive portion of which reads:

WHEREFORE, foregoing considered, the appealed order is hereby REVERSED and SET-
ASIDE. A new one is hereby issued ordering the trial court to reinstate the complaint and to
proceed with deliberate speed with the trial of the case.5

Petitioners' Motion for Reconsideration was denied by the appellate court in its assailed Order, dated
April 30, 1998. They then filed the instant petition praying that the dismissal of Civil Case No. CEB-
16217 by the trial court be affirmed, and the decision by the appellate court reversing such dismissal
be set aside.

The success of this petition rests on the validity of the dismissal by the trial court. Petitioners assert
that there was sufficient reason to dismiss the action below on the ground that GABI had no cause of
action against petitioners. They also aver in the alternative that the Complaint by GABI was properly
dismissed on the ground that it failed to state a cause of action.

As a preliminary matter, we wish to stress the distinction between the two grounds for dismissal of
an action: failure to state a cause of action, on the one hand, and lack of cause of action, on the
other hand. The former refers to the insufficiency of allegation in the pleading, the latter to the
insufficiency of factual basis for the action. Failure to state a cause may be raised in a Motion to
Dismiss under Rule 16,6 while lack of cause may be raised any time.7Dismissal for failure to state a
cause can be made at the earliest stages of an action. Dismissal for lack of cause is usually made
after questions of fact have been resolved on the basis of stipulations, admissions or evidence
presented.8

We find no merit in petitioners' first contention that dismissal was proper on the ground of lack of
cause of action. We note that the issue of sufficiency of GABI's cause of action does not appear to
have been passed upon by the appellate court in its assailed decision. However, inasmuch as this
issue was raised in the trial court as an affirmative defense by petitioners and is now assigned in
error, we resolve the same. 1âw phi1.nêt

The pertinent portions of the trial court Order dismissing the action are reproduced below:

The court was confronted with plaintiff's Motion to Strike Out defendants' pleading entitled:
Motion to Dismiss, after the court allowed the same to be filed on the ground alleged in the
affirmative defenses, that the plaintiff has no real interest in the property in question.
Inasmuch as the action in this case was instituted by the Gabi Multi-Purpose Cooperative
which is not the titled owner, nor the holder of the title to the property in question, therefore, it
has no legal capacity to sue in this case for lack of interest, not being the real party in
interest of the property involved in this litigation. Plaintiff's motion to strike out defendants'
motion to dismiss is therefore denied for lack of merit, on the ground that the court has
already resolved in the July 27, 1994 Order that if until today the plaintiff cannot produce and
to show to this court the title in the name of Gabi Multi-Purpose Cooperative, the court will
proceed to dismiss this case.

xxx xxx xxx

WHEREFORE, in view of all the foregoing arguments and considerations, this court hereby
resolves to dismiss this case as it is hereby dismissed.9

It appears that the trial court dismissed the case on the ground that GABI was not the owner of the
lands or one entitled to the possession thereof, and thus had no cause of action. In dismissal for lack
of cause of action, the court in effect declared that plaintiff is not entitled to a favorable judgment
inasmuch as one or more elements of his cause of action do not exist in fact.

Because questions of fact are involved, courts hesitate to declare a plaintiff as lacking in cause of
action. Such declaration is postponed until the insufficiency of cause is apparent from a
preponderance of evidence. Usually, this is done only after the parties have been given the
opportunity to present all relevant evidence on such questions of fact.

We do not here rule on whether GABI has a cause of action against petitioners. What we are saying
is that the trial court's ruling, to the effect that GABI had no title to the lands and thus had no cause
of action, was premature. Indeed, hearings were conducted. And the view of the Court of Appeals
was that such hearings were sufficient. In its assailed decision, the appellate court stated the
following:

Records show that plaintiff-appellant was afforded the preliminary hearing required by law
before the dismissal of the complaint based on the ground raised in the affirmative defenses.

xxx xxx xxx

 Procedurally, therefore, the complaint was properly dismissed.10

The Court disagrees with the appellate court's ruling. The hearing of July 27, 1994 was on the
propriety of lifting the restraining order. At such preliminary hearing, the trial court required GABI to
produce Certificates of Title to the lands in its name. GABI admitted that it did not have such
Certificates, only Deeds of Sale from the registered owners. The order of the trial court dated July
27, 1994, reads in part:

To begin with, the discussions started with the court asking whether the parties are present,
and asked the defendants whether they have evidence to show why the temporary
restraining order should not be continued, and not ripen into a preliminary injunction and they
answered that the plaintiff, Gabi Multi Purpose Cooperative has no locus standi with Col.
Solomon Dalid, to appear and litigate in this case, not being the actual registered owner of
the property in question and therefore not the real party in interest.

In view thereof, the court asked the plaintiffs counsel to show to the court titles to prove that
they are really the owners of the properties in question. And they could [not] show any,
inasmuch as from the records before this court, only Deeds of Sale from the original owners
of the properties in favor of individual persons appear.

WHEREFORE, as this hearing was called for the purpose of determining whether the
temporary restraining order should ripen into a permanent injunction or in the alternative be
lifted this afternoon, for failure of the plaintiffs to show titles to the properties in their names,
and they have miserably failed the court hereby resolves to lift and dissolve the temporary
restraining order it has issued. However, the defendants are hereby allowed, upon their own
request, to file a motion to dismiss questioning the legal personality of Gabi Multi Purpose
Cooperative within 15 days from today.11

Instead, GABI offered to present evidence to prove its title in the ordinary course of trial. The
pertinent portions of the Transcript of Stenographic Notes quoted by petitioners in their Manifestation
and Motion, dated September 29, 1998, are reproduced below:

COURT:

What we are saying, because it has been raised by counsel for the defendants[,] is: what
personality has Gabi to sue in this case[.] They are saying that you have no locus standing
[sic] in court. You need the proper party in interest. You are not the owners according to the
titles. And you are suing, claiming that you are the owners and you have been in possession
and that you have been molested by the defendants because you are the owner. But where
does it show these? Of course, you alleged that. But where is the proof? We want the proof
that you are really the owner. (TSN, 27 July 1994, at 9)

We are asking a question of how does Gabi become the owner of this property such that
Gabi is now trying to claim this property against the defendants. Such as [to] exclude the
defendants from cultivating or tilting [sic] this property. There is no question about it. We are
not questioning your existence as a corporation[,] as a corporate entity. We are asking the
question, where lies the tight of the ownership of Gabi? How can you prove that you own the
property, adverse or against these defendants? And you did not show it to this court. I am
afraid you have no cause of action. (TSN, id., at 9-10).

ATTY. P. FLORES:
 . . . in due time, we are going to present the document.

COURT:

But you have to present that now. Otherwise, I lift the injunction. I lift the temporary
restraining order. And I have said and do [sic] it.

ATTY. P. FLORES:

Your Honor, please, the incident this afternoon is for the defendants to show cause why the
injunction cannot be issued.

COURT:

When the court made a mistake in giving you this petition, the court cannot order another
procedure. If the court commit[s] an error, it is the inherent power of this court to see to it that
no injustice is committed. I am not bound by my own error. Only the dead and fools don't
change their minds. (TSN, id., at 10)

ATTY. FLORES:

First of all, your Honor, it is not [sic] an error to say that the Gabi Cooperative is not the
owner because as a matter of fact, it is the owner. It is just bad enough that [they] were not
able to bring with them the documents.12

On August 18, 1994, another hearing was conducted wherein GABI was again required to show
Certificates of Title to the property in its name. On the basis of GABI's failure to show such
Certificates at this second preliminary hearing, the trial court concluded that GABI had no title and
thereafter dismissed the case.13 Such action by the trial court was premature inasmuch as the issues
of fact pertaining to GABI's title had not yet been adequately ventilated at that preliminary stage.

Anent petitioners' thesis that dismissal of the complaint by the trial court was proper of failure to state
a cause of action, we, likewise, find no valid basis to sustain the same.

Dismissal of a Complaint for failure to state a cause of action is provided for by the Rules of Court.14

In dismissal for failure to state a cause, the inquiry is into the sufficiency, not the veracity, of the
material allegations.15 The test is whether the material allegations, assuming these to be true, state
ultimate facts which constitute plaintiff's cause of action, such that plaintiff is entitled to a favorable
judgment as a matter of law.16 The general rule is that inquiry is confined to the four corners of the
complaint, and no other.17

This general rule was applied by the Court of Appeals. Said court stated:

It is a well-settled rule that in determining the sufficiency of the cause of action, ONLY the
facts alleged in the complaint and no others, should be considered. In determining the
existence of a cause of action, only the statements in the complaint may properly be
considered. If the complaint furnish sufficient basis by which the complaint may be
maintained, the same should not be dismissed regardless of the defenses that may be
assessed [sic] by defendants-appellees.18
The appellate court, relying on the general rule, made the following conclusion:

A reading of the above-quoted complaint would readily show that plaintiff-appellant has
sufficient cause of action as against defendants-appellees.

In the complaint, it is alleged that plaintiff-appellant is the owner of the subject properties,
thus, entitled to be respected in its possession and ownership. This is the first element.

Defendants-appellees are mere squatters of the subject properties who should vacate the
premises upon demand by plaintiff-appellant. This is the second element.

Defendants-appellees unjustly refused to vacate the subject premises, thus, depriving

plaintiff-appellant possession of the same. This is the third element.

In this case therefore, plaintiff-appellant has sufficient cause of action.19

There are well-recognized exceptions to the rule that the allegations are hypothetically admitted as
true and inquiry is confined to the face of the complaint. There is no hypothetical admission of the
veracity of allegations if their falsity is subject to judicial notice,20 or if such allegations are legally
impossible, or if these refer to facts which are inadmissible in evidence, or if by the record or
document included in the pleading these allegations appear unfounded.21 Also, inquiry is not confined
to the complaint if there is evidence which has been presented to the court by stipulation of the
parties,22 or in the course of hearings related to the case.23

Petitioners invoke these exceptions to justify the dismissal by the RTC. They particularly rely on the
ruling of this Court in Tan vs. Director of Forestry.24 As in this case, Tan involved the issue of whether
the dismissal for failure to state a cause of action was proper. A hearing was conducted on Tan's
prayer for preliminary injunction, wherein evidence was submitted by the parties and extensive
discussion held. The trial court then resolved the Motion to Dismiss and dismissed Tan's petition for
failure to state a cause of action. The trial court held that, on the basis of the evidence presented in
the hearings, the timber license relied upon by Tan was null and void. Such license being void, Tan's
allegation that his right had been violated was false. On appeal, this Court ruled that the trial court
was correct in considering the evidence already presented and in not confining itself to the
allegations in Tan's petition.

The theory behind Tan is that the trial court must not rigidly apply the device of hypothetical
admission of allegations when, on the basis of evidence already presented, such allegations are
found to be false. Thus, findings of fact are not postponed until after trial, but are made at the
preliminary stage because there is sufficient evidence available.

We find, however, that Tan is not applicable in this case. Unlike in Tan where the parties were given
ample opportunity in the preliminary hearing to present evidence on their contentions, GABI did not
have sufficient chance to prove its allegation of ownership. Thus, the conclusion that GABI's
allegation of ownership is false and that its complaint stated no cause of action, appears to be
without basis.

Petitioners also invoke Drilon vs. Court of Appeals.25 Yet, a close reading of Drilon reveals that
petitioners' contention is weakened rather than strengthened by said case. Drilon also involved the
issue of whether the dismissal for failure to state a cause of action was proper. However, the Court
applied the general rule that inquiry is confined to the face of the complaint and no other.26
In sum, as appears from the available records, the Court of Appeals was correct in ruling that the
dismissal by the trial court of GABI's complaint was incorrect. The case should, therefore, proceed to
trial where the parties may adduce evidence to support their claims and defenses.

IN VIEW OF THE FOREGOING, the Court resolved to DENY the Petition.

SO ORDERED. 1âw phi 1.nêt

G.R. No. 201248, March 11, 2015

LETICIA NAGUIT AQUINO, MELVIN NAGUIT, ROMMEL NAGUIT, ELMA NAGUIT TAYAG, YSSEL L.
NAGUIT, ROSALINA NAGUIT AUMENTADO, RIZEL NAGUIT CUNANAN, CARIDAD NAGUIT PARAJAS,
MILLIE NAGUIT FLORENDO, MARNEL NAGUIT, EDUARDO NAGUIT, JOSE NAGUIT, ZOILO NAGUIT,
AND AMELIA NAGUIT DIZON, REPRESENTED BY YSSEL L. NAGUIT, Petitioners, v. CESAR B.
QUIAZON, AMANDA QUIAZON, JOSE B. QUIAZON AND REYNALDO B. QUIAZON, REPRESENTED BY
JAIME B. QUIAZON, Respondent.

DECISION

MENDOZA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court assailing the March
13, 2012 Decision1 of the Court of Appeals (CA), in CA-G.R. CV No. 92887, which affirmed the Orders2 of the
Regional Trial Court (RTC), Angeles City, Branch 59, in SP Civil Case No. 05-076, dismissing the complaint
for quieting of title filed by the petitioners.
c hanRoblesv irt ual Lawlib rary

The Facts

On December 16, 2005, a complaint3 for Annulment and Quieting of Title was filed before the RTC-Branch
59 by the petitioners, namely, Leticia Naguit Aquino, Melvin Naguit, Rommel Naguit, Elma Naguit Tayag,
Yssel L. Naguit, Rosalina Naguit Aumentado, Rizel Naguit Cunanan, Caridad Naguit Parajas, Millie Naguit
Florendo, Marnel Naguit, Eduardo Naguit, Jose Naguit, Zoilo Naguit, and Amelia Naguit Dizon, represented
by Yssel L. Naguit (petitioners). They alleged that they were the heirs of the late Epifanio Makam and
Severina Bautista, who acquired a house and lot situated in Magalang, Pampanga, consisting of 557 square
meters, by virtue of a Deed of Sale, dated April 20, 1894; that since then, they and their predecessors-in-
interest had been in open, continuous, adverse, and notorious possession for more than a hundred years,
constructing houses and paying real estate taxes on the property; that sometime in June 2005, they
received various demand letters from the respondents, namely, Cesar B. Quiazon, Amanda Quiazon, Jose B.
Quiazon, and Reynaldo B. Quiazon, represented by Jaime B. Quiazon (respondents), claiming ownership
over the subject property and demanding that they vacate the same; that upon inquiry with the Register of
Deeds of San Fernando, Pampanga, they confirmed that the property had been titled in the name of
respondents under Transfer Certificate of Title (TCT) No. 213777-R; that the said title was invalid,
ineffective, voidable or unenforceable; and that they were the true owners of the property.

Hence, they prayed that the title be cancelled and a new title be issued in their favor.

In their Answer,4 respondents asserted that they were the absolute owners of the subject land as per TCT
No. 213777-R; that they had inherited the same from their predecessor-in-interest, Fausta Baluyut, one of
the registered owners under Original Certificate of Title (OCT) No. RO-1138 (11376), as per the Project of
Partition and Deed of Agreement, dated January 2, 1974; and that petitioners had been occupying the
property by mere tolerance. They denied the allegations in the complaint and proffered affirmative defenses
with counterclaims.

They argued that: First, the petitioners "have no valid, legal and sufficient cause of action"5 against them,
because their deed of sale was spurious and could not prevail over Land Registration Decree No. 122511
issued on June 28, 1919 in Land Registration Case No. 5, LRC Records No. 128, by the Court of First
Instance of Pampanga, in favor of their predecessor-in-interest. The predecessors-in-interest of petitioners
were among the oppositors in the land registration proceeding but, nevertheless, after the trial, the subject
lot was awarded, decreed and titled in favor of respondents' predecessor-in-interest, as per OCT No. RO-
1138 (11376) of the Registry of Deeds of Pampanga. Second, the action was barred by prescription and that
petitioners were guilty of laches in asserting their interest over the subject lot, considering that Land
Registration Decree No. 122511 was issued on June 28, 1919 and OCT No. RO-1138 (11376) was issued on
May 12, 1922. Hence, it was much too late for petitioners to institute the action after more than 80 years.
They also raised the settled rule that a title registered under the Torrens system could not be defeated by
adverse, open and notorious possession, or by prescription. Third, the action was also barred by res
judicata and violated the prohibition against forum shopping, considering that petitioners had earlier filed a
similar case for quieting of title against respondents, docketed as Civil Case No. 5487, which the RTC-Br. 56
dismissed.

Petitioners filed their Comment to Defendant's Affirmative Defenses.6 Anent the alleged lack of cause of
action due to the spurious deed of sale, petitioners argued that this contention was a matter of evidence
which might only be resolved in a full-blown trial. They insisted that the deed of sale was genuine and
authentic and was issued and certified by the Deputy Clerk of Court of the RTC. They added that the settled
rule was that to determine the sufficiency of the cause of action, only the facts alleged in the complaint
should be considered, and that the allegations in their complaint sufficiently stated a cause of action.

As regards the allegation of prescription, the petitioners countered that an action to quiet title did not
prescribe if the plaintiffs were in possession of the property in question. They argued that they were neither
guilty of laches nor were they in possession of the property by mere tolerance, their possession being in the
concept of owner for more than a hundred years.

Lastly, regarding the argument on res judicata, petitioners explained that they were not the same plaintiffs
in Civil Case No. 5487 and that the case was dismissed without prejudice.

The RTC set a preliminary hearing on the affirmative defenses.

Respondents presented Atty. Charlemagne Tiqui Calilung, RTC Clerk of Court of San Fernando, Pampanga,
who presented the record of Cadastral Case No. 5, dated June 28, 1919, as well as Decree No. 122511.
They also presented Luis Samuel Ragodon, the Registration Examiner of the Registry of Deeds of San
Fernando, Pampanga, who presented the original copy of OCT No. 11376, reconstituted as RO-1138, and
testified that the title was derived from Decree No. 122511. He further testified that the original title had
been cancelled pursuant to a project of partition, which was registered on December 17, 1984, and in lieu
thereof, TCT Nos. 213775, 213776, 213777, 213778, 213779, 213780, and 213781 were issued. He
presented the original copy of TCT No. 213777-R issued in the names of respondents.

Henry Y. Bituin, the court interpreter who translated the June 28, 1919 decision of the Court of First
Instance of Pampanga in Land Registration Case No. 5 from Spanish to English, also testified.

Petitioners manifested that they were opting to submit the incident for resolution without presenting
evidence, relying on their position that only the facts alleged in the complaint should be considered.

In their formal offer of evidence,7 respondents offered the following documents: (1) the June 28, 1919
Decision and its English translation; (2) Transmittal Letter, dated May 6, 1922; (3) Decree No. 122511; (4)
OCT No. RO-1138; (5) TCT No. 213777-R; (6) the petition, dated July 29, 1988, and its annexes in Civil
Case No. 5487; (7) the September 7, 1990 Order dismissing Civil Case No. 5487, without prejudice; and (8)
the July 29, 1916 Decision in Expediente No. 132, G.L.R.O. Record No. 11958 and its English translation.

In their comment/opposition8 to the formal offer of evidence, petitioners argued (1) that the claims of
Epifanio Makam and Severina Bautista, their predecessors-in-interest, were not adjudicated in the June 28,
1919 decision and, thus, res judicata was inapplicable; (2) that Civil Case No. 5487 was dismissed without
prejudice and that they were not the plaintiffs therein; (3) that the allegedly spurious nature of the deed of
sale and the supposed indefeasibility of respondents' title were matters of evidence to be resolved in a full-
blown trial and the trial court was only confined to the allegations in the complaint; (4) that their action was
not barred by prescription because an action to quiet title did not prescribe if the plaintiffs were in
possession of the subject property and that they had been in possession in the concept of owner for more
than 100 years; and (5) that respondents were guilty of laches having taken more than 80 years to attempt
to enforce their claimed title to the property.chanRoble svirtual Lawlib ra ry

Ruling of the RTC

On July 14, 2008, the RTC-Br. 59 issued the Order dismissing petitioners' complaint. It found that based on
the decision, dated June 28, 1919, in Cadastral Case No. 5, the Baluyut siblings, respondents' predecessors-
in-interest, were declared the absolute owners of the subject property, over the claim of Jose Makam, the
predecessor-in-interest of petitioners, who was one of the oppositors in the said case. From this decision,
OCT No. RO-1138 (11376) was derived, which later became the subject of a project of partition and deed of
agreement among the Baluyut siblings, dated January 2, 1972, which, in turn, was annotated on the OCT as
Entry No. 8132. TCT No. 213777-R, covering the subject lot, was later derived from the partition. The RTC-
Br. 59 also noted that it was stated in the said decision that in 1907, a warehouse was constructed on the
subject lot by virtue of an agreement between the Chairman of Magalang and Enrique Baluyut, with no
objection from the Makams. It was further noted that the deed of sale being asserted by petitioners was not
mentioned in the 1919 decision despite the claim of their predecessors-in-interest.

The RTC-Br. 59, thus, ruled that the deed of sale had become invalid by virtue of the June 28, 1919
decision. It held that although the deed of sale dated, April 20, 1894, was never challenged, it was
nevertheless unenforceable by virtue of the June 28, 1919 decision. It found that petitioners had lost
whatever right they had on the property from the moment the said decision was rendered and an OCT was
issued. Finding that petitioners were not holders of any legal title over the property and were bereft of any
equitable claim thereon, the RTC-Branch 59 stated that the first requisite of an action to quiet title was
miserably wanting. It also found the second requisite to be wanting because respondents had proved that
the TCT registered in their names was valid.

Anent petitioners' argument that only the complaint may be considered in determining the sufficiency of the
cause of action, the RTC-Br. 59 ruled that under Section 2 in relation to Section 6, Rule 16 of the Rules of
Court, a preliminary hearing on the affirmative defense in the answer might be had at the discretion of the
court, during which the parties could present their arguments and their evidence.

On December 22, 2008, the RTC-Br. 59 denied petitioners' motion for reconsideration. It stated that the
court may consider evidence presented in hearings related to the case, which was an exception to the
general rule that only the complaint should be taken into consideration. It stated that petitioners were
without legal or equitable title to the subject property, thus, lacking the legal personality to file an action for
quieting of title and, therefore, "the complaint was properly dismissed for failing to state a cause of action."9

Ruling of the CA

In the assailed Decision, dated March 13, 2012, the CA dismissed petitioners' appeal. It explained that under
Section 6, Rule 16 of the Rules of Court, a court is allowed to conduct a preliminary hearing, motu proprio,
on the defendant's affirmative defenses, including the ground of "lack of cause of action or failure to state a
cause of action."10 It gave the reason that because the rule spoke in general terms, its manifest intention
was to apply it to all grounds for a motion to dismiss under the rules which were pleaded as affirmative
defenses in the responsive pleading. Thus, it held that the trial court might consider other evidence aside
from the averments in the complaint in determining the sufficiency of the cause of action. The CA
explained: c hanroblesv irt uallawl ibra ry

But as shown in the foregoing rule, the holding of a preliminary hearing on any of the grounds for a motion
to dismiss which is pleaded as an affirmative defense is within the full discretion of the trial court. The rule
speaks of affirmative defenses that are grounds for a motion to dismiss. Indubitably, lack of cause of action
or failure to state a cause of action, being one of the grounds for a motion to dismiss, is included thereby.

Since the rule allows the trial court to conduct a preliminary hearing on this kind of an affirmative defense, it
follows then that evidence could be submitted and received during the proceedings which the court may
consider in forming its decision. It would be plain absurdity if the evidence already presented therein would
not be allowed to be considered in resolving whether the case should be dismissed or not. To rule otherwise
would render nugatory the provision of Section 6, Rule 16 and would make the holding of a preliminary
hearing a plain exercise in futility. No well-meaning judge would hold a preliminary hearing and receive
evidence only to disregard later the evidence gathered in the course thereof. If the intention of the rule is
for the trial court to confine itself to the allegations in the complaint in determining the sufficiency of the
cause of action, as the plaintiffs-appellants would want to impress upon this Court, then it should have been
so expressly stated by barring the court from conducting a preliminary hearing based on the said ground.
The fact, however, that the said rule speaks in general terms, it is its manifest intention to apply it in all
grounds for a motion to dismiss under the rules which are pleaded as an affirmative defense in the
responsive pleading. Thus, we find that that trial court did not err in considering the evidence already
presented and in not confining itself to the allegations in the plaintiffs-appeallants'complaint.11 cralaw lawlib rary

The CA gave credence to the evidence presented by respondents and noted that, except for petitioners' bare
allegation that respondents' title was invalid, there was nothing more to support the same. It further noted
that the deed of sale was written in a local dialect without the translation and with no ascertainable
reference to the area of the property being conveyed. The CA, therefore, found that petitioners did not have
the title required to avail of the remedy of quieting of title, while respondents had sufficiently proven the
validity of their Torrens title.

Hence, the subject petition. cha nRob lesvirtual Lawlib ra ry

ISSUE
Whether the CA erred in affirming the dismissal of petitioners' complaint on the ground of lack of
cause of action or failure to state a cause of action.
Petitioners argue that the CA gravely erred in considering external factors beyond the allegations in the
petition. They aver that it is a settled rule that to determine the sufficiency of a cause of action, only facts
alleged in the complaint shall be considered, and it is error for the court to take cognizance of external facts
or hold a preliminary hearing to determine their existence.

Respondents, on the other hand, echo the ruling of the CA that it was within the disrection of the trial court
to conduct a preliminary hearing on the affirmative defense of lack of cause of action or failure to state a
cause of action, where both parties were given the chance to submit arguments and evidence for or against
the dismissal of the complaint. Furthermore, they argue that the Court has previously upheld cases where
the court took into account external factors in the dismissal of the complaint on the ground of lack of cause
of action. They assert that since petitioners were given reasonable opportunity to present evidence to prove
their cause of action, they are now estopped from invoking the rule that only allegations in the complaint
should be considered.12

Petitioners reiterate that they have been in possession of the property in the concept of owner for more than
119 years, where they built their houses, reared their families, and paid realty taxes thereon. They point out
that their possession was never disputed by respondents, and that respondents had only attempted to
enforce their supposed rights over the property in 2005, or 86 years after the purported decree awarding
the property to them. Petitioners argue that respondents had abandoned their right to the subject property
which, thus, rendered invalid whatever title they might have had. They argue that it has been held that a
registered owner's right to recover possession and title to property may be converted into a stale demand
by virtue of laches. They also claim that the allegations contained in their complaint sufficiently state a
cause of action, and that it was an error for the trial court to declare it unenforceable considering that the
deed of sale should be considered hypothetically admitted when determining whether the complaint
sufficiently states a cause of action.13

Ruling of the Court

Preliminary matters

The Court notes that respondents raised the affirmative defense in their Answer that petitioners "have no
valid, legal and sufficient cause of action," raising factual matters,14 which is effectively the ground of "lack
of cause of action." Respondents' arguments made no assertion that the complaint failed to state a cause of
action. The ground of "lack of cause of action" has been frequently confused with the ground of "failure to
state a cause of action," and this is the situation prevailing in the present case. The terms were, in fact,
used interchangeably by both the respondents and the lower courts.

The distinction between the grounds of "failure to state a cause of action" and "lack of cause of action" was
aptly discussed in Dabuco vs. Court of Appeals, to wit: chanroble svirt uallawlib ra ry

As a preliminary matter, we wish to stress the distinction between the two grounds for dismissal of an
action: failure to state a cause of action, on the one hand, and lack of cause of action, on the other hand.
The former refers to the insufficiency of allegation in the pleading, the latter to the insufficiency of factual
basis for the action. Failure to state a cause may be raised in a Motion to Dismiss under Rule 16, while lack
of cause may be raised any time. Dismissal for failure to state a cause can be made at the earliest stages of
an action. Dismissal for lack of cause is usually made after questions of fact have been resolved on the basis
of stipulations, admissions or evidence presented.15 c ralawlawli bra ry

Although the two grounds were used interchangeably, it can be gleaned from the decisions of both the trial
court and the CA that respondents' defense of "lack of cause of action" was actually treated as a "failure to
state a cause of action," which is a ground for a motion to dismiss under Rule 16. This is apparent from their
reliance on Section 6 of Rule 16, which pertains to grounds of a motion to dismiss raised as affirmative
defenses; as well as the doctrines cited in resolving the case. The CA even referred to both as one and the
same ground for a motion to dismiss when it stated that: "Indubitably, lack of cause of action or failure to
state a cause of action, being one of the grounds for a motion to dismiss, is included thereby."16

Also confused, respondents, on their part, asserted that "it is within the discretion of the Court a quo to
conduct a preliminary hearing on the affirmative defense of lack of cause of action or failure to state a cause
of action,"17 the very basis of their argument being hinged on the application of Section 6. They also insisted
on the applicability of the exceptions to the general rule that only averments in the complaint must be
considered, which pertains to the ground of "failure to state a cause of action."

The trial court held a preliminary hearing resolving the ground of "lack of cause of action" pursuant to
Section 6 of Rule 16, which allows the court to hold a preliminary hearing on grounds for dismissal provided
in the same rule that have been raised as an affirmative defense in the answer.18 The ground of "lack of
cause of action," as already explained, however, is not one of the grounds for a motion to dismiss under
Rule 16, and hence, not proper for resolution during a preliminary hearing held pursuant to Section 6. On
this point alone, the trial court clearly erred in receiving evidence on the ground of "lack of cause of action"
during the preliminary hearing. The factual matters raised by respondents in their affirmative defense
arguing the non-existence of a cause of action, should have been duly resolved during a trial on the merits
of the case.

In any case, even if the Court were to treat respondents' argument as a "failure to state a cause of action,"
their defense would still fail.

Court limited to averments in the complaint

Rule 16 of the Rules of Court enumerates the grounds for a motion to dismiss. The pertinent ground is found
under Section 1(g), which reads as follows: chanro blesvi rtua llawli bra ry

xxxx

(g) That the pleading asserting the claim states no cause of action; xxxx (Emphasis supplied)
The test for determining the existence of a cause of action was amply discussed in Insular Investment and
Trust Corporation v. Capital One Equities Corporation,19 citing Perpetual Savings Bank v. Fajardo,20to wit: chanro blesvi rt uallawl ibra ry

The familiar test for determining whether a complaint did or did not state a cause of action
against the defendants is whether or not, admitting hypothetically the truth of the allegations of
fact made in the complaint, a judge may validly grant the relief demanded in the
complaint. In Rava Development Corporation v. Court of Appeals, the Court elaborated on this established
standard in the following manner: chan roble svirtuallaw lib rary

"The rule is that a defendant moving to dismiss a complaint on the ground of lack of cause of action is
regarded as having hypothetically admitted all the averments thereof. The test of the sufficiency of the facts
found in a petition as constituting a cause of action is whether or not, admitting the facts alleged, the court
can render a valid judgment upon the same in accordance with the prayer thereof (Consolidated Bank and
Trust Corp. v. Court of Appeals, 197 SCRA 663 [1991]).

In determining the existence of a cause of action, only the statements in the complaint may
properly be considered. It is error for the court to take cognizance of external facts or hold preliminary
hearings to determine their existence. If the allegation in a complaint furnish sufficient basis by which the
complaint may be maintained, the same should not be dismissed regardless of the defenses that may be
assessed by the defendants (supra).21 cralawlawl ibra ry

Thus, in determining the existence of a cause of action, only the allegations in the complaint may properly
be considered. For the court to do otherwise would be a procedural error and a denial of the plaintiffs right
to due process.22

In the case at bench, petitioners' cause of action relates to an action to quiet title under Article 476 of the
Civil Code, which provides: c han roblesv irtuallawl ibra ry
Article 476. Whenever there is a cloud on title to real property or any interest therein, by reason of any
instrument, record, claim, encumbrance or proceeding which is apparently valid or effective but is in truth
and in fact invalid, ineffective, voidable, or unenforceable, and may be prejudicial to said title, an action may
be brought to remove such cloud or to quiet title.

An action may also be brought to prevent a cloud from being cast upon title to real property or any interest
therein.
A "cloud on title" is an outstanding instrument, record, claim, encumbrance or proceeding which is actually
invalid or inoperative, but which may nevertheless impair or affect injuriously the title to property. The
matter complained of must have a prima facie appearance of validity or legal efficacy. The cloud on title is a
semblance of title which appears in some legal form but which is in fact unfounded. The invalidity or
inoperativeness of the instrument is not apparent on the face of such instrument, and it has to be proved by
extrinsic evidence.23

In order that an action for quieting of title may prosper, two requisites must concur: (1) the plaintiff or
complainant has a legal or equitable title or interest in the real property subject of the action; and (2) the
deed, claim, encumbrance, or proceeding claimed to be casting cloud on his title must be shown to be in fact
invalid or inoperative despite its prima facie appearance of validity or legal efficacy.24

Turning then to petitioners' complaint, the relevant allegations as to the cause of action for quieting of title
read as follows:chan roblesv irtuallaw lib rary

3. Plaintiffs are the heirs of the late Epifanio Makam and Severina Bautista who acquired a house and lot on
20 April 1894 situated in Magalang, Pampanga, consisting of Five Hundred Seventy Seven (577) square
meters more or less, by virtue of a Deed of Sale, hereby quoted for ready reference:

xxx

4. From 1894 and up to the present, plaintiffs and through their predecessors-in-interest have been in open,
continuous, adverse and notorious possession for more than a hundred years of the piece of property
mentioned above, constructed their houses thereon and dutifully and faithfully paid the real estate taxes on
the said property;

5. That sometime in June 2005, plaintiffs received various demand letters from defendants demanding
plaintiffs to vacate the premises, claiming ownership of the subject property;

6. That when plaintiffs inquired from the Office of the Register of Deeds of San Fernando, Pampanga, they
were able to confirm that their property had been titled in the name of herein defendants under TCT No.
213777-R;

7. That the said title is in fact invalid, ineffective, voidable or unenforceable, the existence of which is pre-
judicial to the ownership and possession of plaintiffs who are the true owners and actual possessors of the
above described real property;

8. That equity demands that the said title be surrendered by defendants and cancelled as it is a cloud upon
the legal or equitable title to or interest of plaintiffs over the subject property.25 c ralawlawli bra ry

It is readily apparent from the complaint that petitioners alleged that (1) they had an interest over the
subject property by virtue of a Deed of Sale, dated April 20, 1894; and that (2) the title of respondents
under TCT No. 213777-R was invalid, ineffective, voidable or unenforceable. Hypothetically admitting these
allegations as true, as is required in determining whether a complaint fails to state a cause of action,
petitioners may be granted their claim. Clearly, the complaint sufficiently stated a cause of action. In
resolving whether or not the complaint stated a cause of action, the trial court should have limited itself to
examining the sufficiency of the allegations in the complaint. It was proscribed from inquiring into the truth
of the allegations in the complaint or the authenticity of any of the documents referred or attached to the
complaint, as these were deemed hypothetically admitted by the respondents.26

Evangelista v. Santiago elucidates: chan roble svirtual lawlib rary

The affirmative defense that the Complaint stated no cause of action, similar to a motion to dismiss based
on the same ground, requires a hypothetical admission of the facts alleged in the Complaint. In the case
of Garcon v. Redemptorist Fathers, this Court laid down the rules as far as this ground for dismissal of an
action or affirmative defense is concerned: cha nrob lesvi rtua llawli bra ry
It is already well-settled that 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 of fact made in the
complaint to constitute a cause of action, and not on whether these allegations of fact are true, for said
motion must hypothetically admit the truth of the facts alleged in the complaint; that 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 said complaint. Stated
otherwise, the insufficiency of the cause of action must appear in the face of the complaint in order to
sustain a dismissal on this ground, for in the determination of whether or not a complaint states a cause of
action, only the facts alleged therein and no other matter may be considered, and the court may not inquire
into the truth of the allegations, and find them to be false before a hearing is had on the merits of the case;
and it is improper to inject in the allegations of the complaint facts not alleged or proved, and use these as
basis for said motion.27 (Emphasis and underscoring supplied)
Exceptions and Section 6 of Rule 16 not applicable

The Court does not discount, however, that there are exceptions to the general rule that allegations are
hypothetically admitted as true and inquiry is confined to the face of the complaint. First, there is no
hypothetical admission of (a) the veracity of allegations if their falsity is subject to judicial notice; (b)
allegations that are legally impossible; (c) facts inadmissible in evidence; and (d) facts which appear, by
record or document included in the pleadings, to be unfounded.28Second, inquiry is not confined to the
complaint if culled (a) from annexes and other pleadings submitted by the parties;29 (b) from documentary
evidence admitted by stipulation which disclose facts sufficient to defeat the claim; or (c) from evidence
admitted in the course of hearings related to the case.30

Pointing to the exception that inquiry was not confined to the complaint if evidence had been presented in
the course of hearings related to the case, the CA ruled that it was within the trial court's discretion to
receive and consider other evidence aside from the allegations in the complaint in resolving a party's
affirmative defense. It held that this discretion was recognized under Section 6 of Rule 16 of the Rules of
Court, which allowed the court to conduct a preliminary hearing, motu proprio, on the defendant's
affirmative defense if no corresponding motion to dismiss was filed. This section reads in part: chan roblesv irt uallawl ibra ry

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.
In their answer, respondents raised the affirmative defenses of "lack of cause of action, prescription, and res
judicata,"31 stated in the following manner: chanro blesvi rt uallawl ibra ry

xxxx

6. Plaintiffs have no valid, legal and sufficient cause of action against the defendants. The alleged
"deed of sale" (Annex "B" -Amended Complaint) is spurious and the same cannot prevail over the Land
Registration Decree No. 122511 issued on June 28, 1919 in Land Registration Case No. 5, LRC Record No.
128, by the Court of First Instance of Pampanga, in favor of defendants' predecessor-in-interest. In fact,
plaintiffs' predecessors-in-interest were among the oppositors in that land registration proceeding but after
trial the lot in question was awarded, decreed and titled in favor and in the names of defendants'
predecessors-in-interest, as per Original Certificate of Title No. RO-1138 (11376) of the Registry of Deeds of
Pampanga;

7. The instant action, which is actually an action of reconveyance, is already barred by prescription.
Moreover, plaintiffs are guilty of laches in asserting their alleged title or interest over the subject lot. Said
Land Registration Decree No. 122511 was issued on June 28, 1919 and OCT No. RO 1138 (11376) was
issued on May 12, 1922. Clearly, it is much too late for the plaintiffs, after more than eighty (80) long years
to institute this action against the defendants;

xxxx

9. The present action is also barred by res judicata and violates the prohibition against forum shopping.
There was already a prior similar case for quieting of title filed by plaintiffs' predecessor-in-interest against
defendant Jaime Quiazon and his co-owners, before Branch 56 of this Honorable Court, docketed as Civil
Case No. 5487, which was dismissed;32 xxxx (Emphases supplied)
A review of the first ground under paragraph 6 of the answer reveals that respondents alleged that
"[p]laintiffs have no valid, legal and sufficient cause of action against the defendants." It is at this
point that it must again be emphasized that it is not "lack or absence of cause of action" that is a ground for
dismissal of the complaint under Rule 16, but rather, that "the complaint states no cause of
action."33 The issue submitted to the court was, therefore, the determination of the sufficiency of the
allegations in the complaint to constitute a cause of action and not whether those allegations of fact were
true, as there was a hypothetical admission of facts alleged in the complaint.34 An affirmative defense,
raising the ground that there is no cause of action as against the defendants poses a question of fact that
should be resolved after the conduct of the trial on the merits.35 A reading of respondents' arguments in
support of this ground readily reveals that the arguments relate not to the failure to state a cause of action,
but to the existence of the cause of action, which goes into the very crux of the controversy and is a matter
of evidence for resolution after a full-blown hearing.

The trial court may indeed elect to hold a preliminary hearing on affirmative defenses as raised in the
answer under Section 6 of Rules 16 of the Rules of Court. It has been held, however, that such a hearing is
not necessary when the affirmative defense is failure to state a cause of action,36 and that it is, in fact, error
for the court to hold a preliminary hearing to determine the existence of external facts outside the
complaint.37 The reception and the consideration of evidence on the ground that the complaint fails to state
a cause of action, has been held to be improper and impermissible.38 Thus, in a preliminary hearing on a
motion to dismiss or on the affirmative defenses raised in an answer, the parties are allowed to present
evidence except when the motion is based on the ground of insufficiency of the statement of the cause of
action which must be determined on the basis only of the facts alleged in the complaint and no
other.39 Section 6, therefore, does not apply to the ground that the complaint fails to state a cause of action.
The trial court, thus, erred in receiving and considering evidence in connection with this ground.

The lower courts also relied on the exception that external evidence may be considered when received "in
the course of hearings related to the case," which is rooted in the case of Tan v. Director of Forestry
(Tan).40 In said case, a hearing was conducted on the prayer for preliminary injunction where evidence was
submitted by the parties. In the meantime, a motion to dismiss was filed by the defendant, citing as one of
the grounds that the petition did not state a cause of action. The trial court resolved the prayer for the
issuance of a writ of preliminary injunction simultaneously with the motion to dismiss. It dismissed the
petition for failure to state a cause of action on the basis of the evidence presented during the hearing for
preliminary injuction. On appeal, this Court ruled that the trial court was correct in considering the evidence
already presented and in not confining itself to the allegations in the petition.

Tan, however, is not on all fours with the present case. First, the trial court therein considered evidence
presented during a preliminary hearing on an injunction and not during a hearing on a motion to dismiss. As
discussed, a preliminary hearing on a motion to dismiss is proscribed when the ground is failure to state a
cause of action. The exception of "hearings related to the case," therefore, pertains to hearings other
than the hearing on a motion to dismiss on the ground of failure to state a cause of action. To reiterate, the
ground that the complaint fails to state a cause of action should be tested only on the allegations of facts
contained in the complaint, and no other. If the allegations show a cause of action, or furnish sufficient basis
by which the complaint can be maintained, the complaint should not be dismissed regardless of the defenses
averred by the defendants.41 The trial court may not inquire into the truth of the allegations, and find them
to be false before a hearing is conducted on the merits of the case.42 If the court finds the allegations to be
sufficient but doubts their veracity, the veracity of the assertions could be asserted during the trial on the
merits.43

Second, Tan noted that the plaintiff had readily availed of his opportunity to introduce evidence during the
hearing and, as a result, was estopped from arguing that the court is limited to the allegations in the
complaint.44 This is in contrast to the present case, where petitioners steadfastly argued from the beginning
that the trial court was limited to the allegations in the complaint. Petitioners maintained their stance during
the preliminary hearing on the affirmative defenses, opting not to file rebuttal evidence and opposing
respondents' formal offer of evidence on the same ground. Having been consistent in their position from the
start, petitioners cannot be estopped from arguing that the trial court was precluded from considering
external evidence in resolving the motion to dismiss.

Third, it was noted in Tan that the documentary evidence given credence by the trial court had effectively
been admitted by stipulation during the hearing,45 and another had been an annex to the complaint,46both
of which are exceptions to the general rule that external facts cannot be considered. Neither of the said
exceptions is availing in the present case. The Court notes that only the OCT of respondents was attached as
an annex to their answer. The June 28, 1919 Decision in the Cadastral case, which was given considerable
weight by the trial court, was not attached and was only presented during the preliminary hearing.

Fourth, Tan ruled that the rigid application of the rules could not be countenanced considering the overriding
public interest involved, namely, the welfare of the inhabitants of the province whose lives and properties
would be directly and immediately imperilled by forest denudation.47 There appears to be no overriding
public interest in the present case to justify a similar relaxation of the rules.

It is of note that although the trial court might not have erred in holding a preliminary hearing on the
affirmative defenses of prescription and res judicata, it is readily apparent from the decisions of the lower
courts that no disquisition whatsoever was made on these grounds. It cannot be denied that evidence in
support of the ground of "lack of cause of action" was received and given great weight by the trial court. In
fact, all the evidence given credence by the trial court were only in support of the ground of "lack of cause of
action." This all the more highlights that the trial court erred in receiving evidence to determine whether the
complaint failed to state a cause of action.

Although neither the RTC or the CA ruled on the affirmative defenses of prescription and res judicata, it
appears that this case could not have been dismissed on these grounds. First, an action to quiet title is
imprescriptible if the plaintiffs are in possession of the property,48 which is the situation prevailing in the
present case. Second, there appears to be no res judicata nor a violation of the prohibition against forum
shopping considering that Civil Case No. 5487 had been dismissed, without prejudice, years before
petitioners initiated their complaint for quieting of title.

In sum, the trial court erred in dismissing the complaint on the ground of failure to state a cause of action.
Evidence should have been received not during a preliminary hearing under Section 6 of Rule 16, but should
have been presented during the course of the trial. The case should, thus, be remanded to the RTC-Br. 59
for trial on the merits. cra lawred

WHEREFORE, the petition is GRANTED. The March 13, 2012 Decision of the Court of Appeals, in CA-G.R.
CV No. 92887 is REVERSED and SET ASIDE. The case is ordered REMANDED to the

Regional Trial Court for trial on the merits of the case.

SO ORDERED. chanroblesvi rtua llawli bra ry

G.R. No. 159831 October 14, 2005

PILIPINAS SHELL PETROLEUM CORPORATION, Petitioner,

vs.
JOHN BORDMAN LTD. OF ILOILO, INC., Respondent.

DECISION

eeply imbedded in our jurisprudence is the doctrine that the factual findings of the Court of Appeals
(CA) affirming those of the trial court are, subject to some exceptions, binding upon this Court.
Otherwise stated, only questions of law, not of facts, may be raised before this Court in petitions for
review under Rule 45 of the Rules of Court. Nonetheless, in the interest of substantial justice, the
Court delved into both the factual and the legal issues raised in the present case and found no
reason to overturn the CA’s main Decision. Furthermore, under the peculiar factual circumstances of
the instant appeal, this Court holds that the period for reckoning the prescription of the present
cause of action began only when respondent discovered with certainty the short deliveries made by
petitioner.

The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the August 20,
2002 Decision2 and August 29, 2003 Resolution3 of the Court of Appeals (CA) in CA-GR CV No.
46974. The challenged Decision disposed as follows:

"WHEREFORE, premises considered, the assailed decision dated August 30, 1991 of the RTC,
Branch 26, Manila in Civil Case No. 13419 is hereby AFFIRMED with the MODIFICATION that the
award of exemplary damages and attorney’s fees be both reduced to ₱100,000.00.

"The order dated December 9, 1991 is likewise AFFIRMED."4

The assailed Resolution denied reconsideration.

The Facts

Petitioner Pilipinas Shell Petroleum Corporation ("Pilipinas Shell") is a corporation engaged in the
business of refining and processing petroleum products.5 The invoicing of the products was made by
Pilipinas Shell, but delivery was effected through Arabay, Inc., its sole distributor at the time material
to the present case.6 From 1955 to 1975, Respondent John Bordman Ltd. of Iloilo, Inc. ("John
Bordman") purchased bunker oil in drums from Arabay.7 When Arabay ceased its operations in
1975, Pilipinas Shell took over and directly marketed its products to John Bordman.8

On August 20, 1980, John Bordman filed against Pilipinas Shell a civil case for specific performance.
The former demanded the latter’s short deliveries of fuel oil since 1955; as well as the payment of
exemplary damages, attorney’s fees and costs of suit.9 John Bordman alleged that Pilipinas Shell
and Arabay had billed it at 210 liters per drum, while other oil companies operating in Bacolod had
billed their customers at 200 liters per drum. On July 24, 1974, when representatives from John
Bordman and Arabay conducted a volumetric test to determine the quantity of fuel oil actually
delivered, the drum used could only fill up to 190 liters, instead of 210 liters, or a short delivery rate
of 9.5%.10 After this volumetric test, Arabay reduced its billing rate to 200 (instead of 210) liters per
drum, except for 4 deliveries between August 1 and September 9, 1974, when the billing was at 190
liters per drum.11

On January 23, 1975, another volumetric test allegedly showed that the drum could contain only
187.5 liters.12 On February 1, 1975, John Bordman requested from Pilipinas Shell that 640,000 liters
of fuel oil, representing the latter’s alleged deficient deliveries, be credited to the former’s
account.13 The volume demanded was adjusted to 780,000 liters, upon a realization that the billing
rate of 210 liters per drum had been effective since 1966.

On October 24, 1977 and November 9, 1977, representatives from John Bordman, the auditor of the
Iloilo City Commission on Audit, pump boat carriers, and truck drivers conducted actual
measurements of fuel loaded on tanker trucks as transferred to dented drums at mouth full. They
found that the drums could contain 180 liters only.14In its Complaint, John Bordman prayed for the
appointment of commissioners to ascertain the volume of short deliveries.15

On October 21, 1980, Pilipinas Shell and Arabay filed their Answer with Counterclaim.16 They
specifically denied that fuel oil deliveries had been less than those billed.17 Moreover, the drums
used in the volumetric tests were allegedly not representative of the ones used in the actual
deliveries.18

By way of affirmative defense, Pilipinas Shell and Arabay countered that John Bordman had no
cause of action against them.19 If any existed, it had been waived or extinguished; or otherwise
barred by prescription, laches, and estoppel.20
During the pretrial, the parties agreed to limit the issues to the following: (1) whether the action had
prescribed, and (2) whether there had been short deliveries in the quantities of fuel oil.21 John
Bordman’s Motion for Trial by Commissioner was granted by the RTC,22 and the court-appointed
commissioner submitted her Report on April 20, 1988.23

On April 3, 1989, Pilipinas Shell and Arabay filed a Motion for Resolution of their affirmative defense
of prescription.24 Because prescription had not been established with certainty, the RTC ordered
them on November 6, 1989, to present evidence in support of their defense.25

On August 30, 1991, the RTC issued a Decision in favor of respondent.26 Pilipinas Shell and Arabay
were required to deliver to John Bordman 916,487.62 liters of bunker fuel oil, to pay actual damages
of ₱1,000,000; exemplary damages of ₱500,000; attorney’s fees of ₱500,000; and the costs of
suit.27 The basis of the trial court’s decision was predicated on the following pronouncement:

"Since [respondent] had fully paid their contract price at 210 liters per drum, then the [petitioner]
should deliver to the [respondent] the undelivered volume of fuel oil from 1955 to 1974, which is 20
liters per drum; and 10 liters per drum from 1974 to 1977. Per the invoice receipts submitted, the
total volume of fuel oil which [petitioner] have failed to deliver to [respondent] is 916,487.62 liters."28

Pilipinas Shell appealed to the CA, alleging that John Bordman had failed to prove the short
deliveries; and that the suit had been barred by estoppel, laches, and prescription.29

Ruling of the Court of Appeals

Upholding the trial court, the CA overruled petitioner’s objections to the evidence of respondent in
relation to the testimonies of the latter’s witnesses and the results of the volumetric tests.30 The CA
noted that deliveries from 1955 to 1977 had been admitted by petitioner; and the fact of deficiency,
established by respondent.31

The appellate court also debunked petitioner’s claims of estoppel and laches. It held that the
stipulation in the product invoices stating that respondent had received the products in good order
was not controlling.32 On the issue of prescription, the CA ruled that the action had been filed within
the period required by law.33

Hence, this Petition.34

The Issues

Petitioner states the issues in this wise:

"I.

Respondent’s allegation that the Petition must be summarily dismissed for containing a false,
defective and unauthorized verification and certification against forum shopping is patently
unmeritorious, as the requisites for a valid verification and certification against forum shopping have
been complied with.

"II.
The Decisions of the court a quo and of the Honorable Court of Appeals were clearly issued with
grave abuse of discretion, based as they are on an unmistakable misappreciation of facts clearly
appearing in the records of the case.

A.

The Honorable Court of Appeals erred giving full faith and credence to the testimony of respondent’s
sole witness, who was neither an ‘expert witness’ nor one with personal knowledge of the material
facts.

B.

The Honorable Court of Appeals erred in ruling that the testimony of respondent’s sole witness was
not controverted and that the results of his volumetric tests were not disproved by petitioner as the
records of the court a quoindubitably show that petitioner disputed the testimony of said witness in
every material respect.

C.

The court a quo and the Honorable Court of Appeals erred when it failed to hold that the results of
the volumetric tests conducted by respondent’s sole witness are not worthy of full faith and
credence, considering that drums subjected to said tests in 1974 and 1975 were not the same with,
or otherwise similar to those used by petitioner in the deliveries made to respondent since 1955.

D.

The Honorable Court of Appeals erred in holding that petitioner’s unilateral reduction of billing rates
constitutes an implied admission of the fact of short deliveries. The reduction was made for no other
purpose than as a business accommodation of a valued client.

"III.

The court a quo, as well as the Honorable Court of Appeals, gravely erred in not ruling that
respondent’s claims of alleged short deliveries for the period 1955 to 1976 were already barred by
prescription.

"IV.

The Honorable Court of Appeals and the court a quo erred in not ruling that respondent’s claims are
barred by estoppel and laches considering that respondent failed to assert its claim for about twenty-
five (25) years.

"V.

The Honorable Court of Appeals erred in awarding to respondent compensatory damages,

exemplary damages, attorney’s fees and cost of suit, when petitioner has not otherwise acted in a
wanton, fraudulent, reckless, oppressive or malevolent manner."35

The Court’s Ruling

In the main, the Petition has no merit, except in regard to the CA’s grant of exemplary damages.
 First Issue:

Validity of Verification and Certification

Preliminarily, the Court shall tackle respondent’s allegation that petitioner’s verification and
certification against forum shopping had not complied with, and were in fact made in contravention
of, Section 4 of Rule 45 of the Rules of Court.36 Respondent alleges that Romeo B. Garcia, vice-
president of Pilipinas Shell, had no authority to execute them.37

The records, however, show that petitioner’s president conferred upon its vice-president the power
to institute actions. As certified by the assistant board secretary, the delegation was authorized by
petitioner’s board of directors.38 The power to institute actions necessarily included the power to
execute the verification and certification against forum shopping, as required in a petition for review
before this Court.

In any event, the policy of liberal interpretation of procedural rules compels us to give due course to
the Petition.39There appears to be no intention to circumvent the need for proper verification and
certification, which are intended to assure the truthfulness and correctness of the allegations in the
Petition and to discourage forum shopping.40

Second Issue:

Appreciation of Facts

As a general rule, questions of fact may not be raised in a petition for review.41 The factual findings
of the trial court, especially when affirmed by the appellate court, are binding and conclusive on the
Supreme Court.42 Nevertheless, this rule has certain exceptions,43 which petitioner asserts are
present in this case.44 The Court reviewed the evidence presented and revisited the applicable
pertinent rules. Being intertwined, the issues raised by petitioner relating to the evidence will be
discussed together.

Objection to Respondent’s Witness

Petitioner claims that the trial court erred in giving credence to the testimony of respondent’s
witness, Engineer Jose A. Macarubbo. The testimony had allegedly consisted of his personal
opinion. Under the Rules of Evidence, the opinion of a witness is not admissible, unless it is given by
an expert.45 Macarubbo was allegedly not an expert witness; neither did he have personal
knowledge of material facts.46

We clarify. Macarubbo testified that sometime in May 1974, respondent had contacted him to review
the reception of fuel at its lime plant. He discovered that Arabay had been billing respondent at 210
liters per drum, while other oil companies billed their customers at 200 liters per drum.47 On July 24,
1974, he and Jerome Juarez, branch manager of Pilipinas Shell, conducted a volumetric test to
determine the amount of fuel that was actually being delivered to respondent.48 On January 25,
1975, the test was again conducted in the presence of Macarubbo, Juarez and Manuel Ravina
(Arabay’s sales supervisor).49

From the foregoing facts, it is evident that Macarubbo did not testify as an expert witness. The CA
correctly noted that he had testified based on his personal knowledge and involvement in
discovering the short deliveries.50 His testimony as an ordinary witness was aptly allowed by the
appellate court under the following rule on admissibility:
"Sec. 36. Testimony generally confined to personal knowledge; hearsay excluded. – A witness can
testify only to those facts which he knows of his personal knowledge; that is, which are derived from
his own perception, except as otherwise provided in these rules."51

Challenge to Volumetric Tests

Petitioner disputes the CA’s finding that it had failed to disprove the results of the volumetric tests
conducted by respondent. The former claims that it was able to controvert the latter’s evidence.52

During the July 24, 1974 volumetric test, representatives of both petitioner and respondent allegedly
agreed to conduct two tests using drums independently chosen by each.53 Respondent allegedly
chose the worst-dented drum that could fill only up to 190 liters. The second drum, which was
chosen by petitioner, was not tested in the presence of Macarubbo because of heavy rain.54 It
supposedly filled up to 210 liters, however.55

The issue, therefore, relates not to the submission of evidence, but to its weight and credibility. While
petitioner may have submitted evidence, it failed to disprove the short deliveries. The lower courts
obviously gave credence to the volumetric tests witnessed by both parties as opposed to those done
solely by petitioner.

Petitioner also challenges the reliability of the volumetric tests on the grounds of failure to simulate
the position of the drums during filling56 and the fact that those tested were not representative of the
ones used from 1955 to 1974.57 These contentions fail to overturn the short deliveries established by
respondent.

The evidence of petitioner challenging the volumetric tests was wanting. It did not present any as
regards the correct position of the drums during loading. Notably, its representative had witnessed
the two tests showing the short deliveries.58 He therefore had the opportunity to correct the position
of the drums, if indeed they had been incorrectly positioned. Further, there was no proof that those
used in previous years were all good drums with no defects. Neither was there evidence that its
deliveries from 1955 had been properly measured.

From the foregoing observations, it is apparent that the evidence presented by both parties
preponderates in favor of respondent. The Court agrees with the following observations of the CA:

"[Petitioner] posits that its fuel deliveries were properly measured and/or calibrated. To the mind of
this Court, regardless of what method or manner the deliveries were made, whether pre-packed
drums, by the dip stick method or through ex-jetty, the fact remains that [petitioner] failed to
overcome the burden of proving that indeed the drums used during the deliveries contain 210 liters.
The [petitioner], to support its claim, adduced no evidence. Moreover, it failed to disprove the results
of the volumetric tests."59

Having sustained the finding of short deliveries, the Court finds it no longer necessary to address the
contention of petitioner that its subsequent reduction of billings constituted merely a business
accommodation.60

Third Issue:

Prescription

Action Based on Contract

Petitioner avers that respondent’s action -- a claim for damages as a result of over-billing -- has
already prescribed. Respondent’s claim supposedly constitutes a quasi-delict, which prescribes in
four years.61

We do not agree. It is elementary that a quasi-delict, as a source of an obligation, occurs only when
there is no preexisting contractual relation between the parties.62 The action of respondent
for specific performance was founded on short deliveries, which had arisen from its Contract of Sale
with petitioner, and from which resulted the former’s obligation in the present case. Any action to
enforce a breach of that Contract prescribes in ten years.63

Prescriptive Period Counted from

the Accrual of the Cause of Action

Petitioner avers that the action of respondent, even if based on a Contract, has nevertheless already
prescribed, because more than ten years had lapsed since 1955 to August 20, 1970 -- the period of
short deliveries that the latter seeks to recover.64 Respondent’s request for fuel adjustments on
October 24, 1974, February 1, 1975, April 3, 1975, and September 22, 1975, were not formal
demands that would interrupt the prescriptive period, says petitioner.

The Court shall first address the contention that formal demands were not alleged in the Complaint.
This argument was not raised in the courts a quo; thus, it cannot be brought before this
tribunal.65 Well settled is the rule that issues not argued in the lower courts cannot be raised for the
first time on appeal.66 At any rate, it appears from the records that respondent’s letters to petitioner
dated October 24, 1974 and February 1, 1975 were formal and written extrajudicial demands that
interrupted the prescriptive period.67 Nevertheless, the interruption has no bearing on the prescriptive
period, as will be shown presently.

Cause of Action Defined

Actions based upon a written contract should be brought within ten years from the time the right of
action accrues.68This accrual refers to the cause of action, which is defined as the act or the
omission by which a party violates the right of another.69

Jurisprudence is replete with the elements of a cause of action: (1) a right in favor of the plaintiff by
whatever means and under whatever law it arises or is created; (2) an obligation on the part of the
named defendant to respect or not to violate the right; and (3) an act or omission on the part of the
defendant violative of the right of the plaintiff or constituting a breach of an obligation to the latter.70 It
is only when the last element occurs that a cause of action arises.71

Applying the foregoing elements, it can readily be determined that a cause of action in a contract
arises upon its breach or violation.72 Therefore, the period of prescription commences, not from the
date of the execution of the contract, but from the occurrence of the breach.

The cause of action resulting from a breach of contract is dependent on the facts of each particular
case. The following cases involving prescription illustrate this statement.

Nabus v. Court of Appeals73 dealt with an action to rescind a Contract of Sale. The cause of action
arose at the time when the last installment was not paid. Since the case was filed ten years after that
date, the action was deemed to have prescribed.74
In Elido v. Court of Appeals,75 the overdraft Agreement stipulated that the obligation was payable on
demand. Thus, the breach started only when that judicial demand was made. This rule was applied
recently to China Banking Corporation v. Court of Appeals,76 which held that the prescriptive period
commenced on the date of the demand, not on the maturity of the certificate of indebtedness. In that
case, the certificate had stipulated that payment should be made upon presentation.

Banco Filipino Savings & Mortgage Bank v. Court of Appeals77 involved a Contract of Loan with real
estate mortgages, whereby the creditor could unilaterally increase the interest rate. When the debtor
failed to pay the loan, the creditor foreclosed on the mortgage. The Court ruled that the cause of
action for the annulment of the foreclosure sale should be counted from the date the
debtor discovered the increased interest rate.78

In Cole v. Gregorio,79 the agreement to buy and sell was conditioned upon the conduct of a
preliminary survey of the land to verify whether it contained the area stated in the Tax Declaration.
Both the agreement and the survey were made in 1963. The Court ruled that the right of action for
specific performance arose only in 1966, when the plaintiff discovered the completion of the survey.80

Serrano v. Court of Appeals81dealt with money claims arising from a Contract of Employment, which
would prescribe in three years from the time the cause of action accrued.82 The Court noted that the
cause of action had arisen when the employer made a definite denial of the employee’s claim. It was
deemed that the issues had not yet been joined prior to the definite denial of the claim, because the
employee could have still been reinstated.83

Naga Telephone Co. v. Court of Appeals84 involved the reformation of a Contract. Among others, the
grounds for the action filed by the plaintiff included allegations that the contract was too one-sided in
favor of the defendant, and that certain events had made the arrangement inequitable.85 The Court
ruled that the cause of action for a reformation would arise only when the contract appeared
disadvantageous.86

Cause of Action in

the Present Case

The Court of Appeals noted that, in the case before us, respondent had been negotiating with
petitioner since 1974. Accordingly, the CA ruled that the cause of action had arisen only in 1979,
after a manifestation of petitioner’s denial of the claims.87

The nature of the product in the present factual milieu is a major factor in determining when the
cause of action has accrued. The delivery of fuel oil requires the buyer’s dependence upon the
seller
for the correctness of the volume. When fuel is delivered in drums, a buyer readily assumes that the
agreed volume can be, and actually is, contained in those drums.

Buyer dependence is common in many ordinary sale transactions, as when gasoline is loaded in the
gas tanks of motor vehicles, and when beverage is purchased in bottles and ice cream in bulk
containers. In these cases, the buyers rely, to a considerable degree, on the sellers’ representation
that the agreed volumes are being delivered. They are no longer expected to make a meticulous
measurement of each and every delivery.

To the mind of this Court, the cause of action in the present case arose on July 24, 1974, when
respondent discovered the short deliveries with certainty. Prior to the discovery, the latter had no
indication that it was not getting what it was paying for. There was yet no issue to speak of; thus, it
could not have brought an action against petitioner. It was only after the discovery of the short
deliveries that respondent got into a position to bring an action for specific performance. Evidently
then, that action was brought within the prescriptive period when it was filed on August 20, 1980.

Fourth Issue:

Estoppel

Petitioner alleges, in addition to prescription, that respondent is estopped from claiming short
deliveries.88 It is argued that, since the initial deliveries had been made way back in 1955, the latter
belatedly asserted its right only in 1980, or after twenty-five years. Moreover, respondent should
allegedly be bound by the Certification in the delivery Receipts and Invoices that state as follows:

"RECEIVED ABOVE PRODUCT(S) IN GOOD CONDITION. I HAVE INSPECTED THE

COMPARTMENTS OF THE BULK LORRY, WHEN FULL AND EMPTY, AND FOUND THEM IN
ORDER."89

Estoppel by Laches

Estoppel by laches is the failure or neglect for an unreasonable length of time to do that which, by
the exercise of due diligence, could or should have been done earlier.90 Otherwise stated,
negligence or omission to assert a right within a reasonable time warrants a presumption that the
party has abandoned or declined the right.91 This principle is based on grounds of public policy,
which discourages stale claims for the peace of society.92

Respondent cannot be held guilty of delay in asserting its right during the time it did not yet know of
the short deliveries. The facts in the present case show that after the discovery of the short
deliveries, it immediately sought to recover the undelivered fuel from petitioner.93 Laches refers, inter
alia, to the length of time in asserting a claim. The Court, therefore, agrees with the lower courts that
respondent’s claim was not lost by laches.

Alleged Certification Not a Bar

It is not disputed that the alleged Certification stating that respondent received the fuel oil in good
condition is in the nature of a contract of adhesion.94 The statement was in fine print at the lower right
of petitioner’s invoices.95 It was made in the form and language prepared by petitioner. The latter’s
customers, including respondent, were required to sign the statement upon every delivery. The
primary purpose of an invoice, however, is merely to evidence delivery and receipt of the goods
stated in it.

While the Court has sustained the validity of similar stipulations in other contracts, it has also
recognized that reliance on them cannot be favored when the facts and circumstances warrant the
contrary.96 Noting the nature of the product in the present factual milieu, as discussed earlier in the
claim of prescription, the dependence of the buyer upon the seller makes the stipulation inapplicable.

Indeed, it would be too cumbersome and impractical for respondent to measure the fuel oil in each
and every drum delivered. Nonetheless, upon delivery by petitioner, the former was obliged to sign
the Certification in the invoice. In signing it, respondent could not have waived the right to a
legitimate claim for hidden defects. Thus, it is not estopped from recovering short deliveries.
Doubts in the interpretation of stipulations in contracts of adhesion should be resolved against the
party that prepared them. This principle especially holds true with regard to waivers, which are not
presumed, but which must be clearly and convincingly shown.97

Fourth Issue:

Exemplary Damages and Attorney’s Fees

In the last error assigned, petitioner challenges the Order for specific performance and the awards of
exemplary damages and attorney’s fees in favor of respondent.98 The directive for the delivery of
916,487.62 liters of bunker oil will no longer be taken up because, as discussed earlier, this fact is
borne out by the evidence.

The CA sustained the award of exemplary damages because of petitioner’s wanton refusal to deliver
the shortages of fuel oil after the demand was made.99 Similarly, attorney’s fees were imposed,
because respondent had been compelled to litigate to protect its interests.100 Both awards, however,
were each reduced from ₱500,000 to ₱100,000.101

Exemplary Damages Not Proper

Exemplary damages are imposed as a corrective measure102 when the guilty party has acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner.103 These damages are awarded in
accordance with the sound discretion of the court.104

Petitioner argues that its refusal to deliver the shortages of fuel was premised on good
faith.105 Indeed, records reveal that it had reviewed respondent’s requests for the delivery of
shortages before declining them.106 It likewise readily granted respondent’s requests to conduct
volumetric tests. It simply had the mistaken belief that it was not liable for any shortages.
Unfortunately, the evidence showed the contrary.

Absent any showing of bad faith on the part of petitioner, exemplary damages cannot be imposed
upon it.

Attorney’s Fees Allowed

Petitioner claims that the award of attorney’s fees was tied up with the award for exemplary
damages.107 Since those damages were not recoverable, then the attorney’s fees allegedly had no
legal basis.

While attorney’s fees are recoverable when exemplary damages are awarded, the former may also
be granted when the court deems it just and equitable.108 The grant of attorney’s fees depends on
the circumstances of each case and lies within the discretion of the court. They may be awarded
when a party is compelled to litigate or to incur expenses to protect its interest by reason of an
unjustified act by the other.109

The Court agrees that the award of ₱100,000 as attorney’s fees is very reasonable;110 in fact, it is
almost symbolic, as it will not totally recompense respondent for the actual fees spent to prosecute
its cause. The case has dragged on unnecessarily despite petitioner’s failure to present
countervailing evidence during the trial. Moreover, respondent was compelled to litigate,
notwithstanding its attempt at an amicable settlement from the time it discovered the shortages in
1974 until the actual filing of the case in 1980.111
WHEREFORE, the Petition is hereby DENIED. The assailed Decision and Resolution
are AFFIRMED with the slight MODIFICATION that the award of exemplary damages is deleted.
Costs against petitioner.

SO ORDERED.

G.R. No. 107112 February 24, 1994

NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO M. MAGGAY, petitioners,

vs.
THE COURT OF APPEALS AND CAMARINES SUR II ELECTRIC COOPERATIVE, INC.
(CASURECO II), respondents.

Ernesto P. Pangalangan for petitioners.

Luis General, Jr. for private respondent.

NOCON, J.:

The case of Reyes v. Caltex (Philippines), Inc.1 enunciated the doctrine that where a person by his
contract charges himself with an obligation possible to be performed, he must perform it, unless its
performance is rendered impossible by the act of God, by the law, or by the other party, it being the
rule that in case the party desires to be excused from performance in the event of contingencies
arising thereto, it is his duty to provide the basis therefor in his contract.

With the enactment of the New Civil Code, a new provision was included therein, namely, Article
1267 which provides:

When the service has become so difficult as to be manifestly beyond the

contemplation of the parties, the obligor may also be released therefrom, in whole or
in part.

In the report of the Code Commission, the rationale behind this innovation was explained, thus:

The general rule is that impossibility of performance releases the obligor. However, it
is submitted that when the service has become so difficult as to be manifestly beyond
the contemplation of the parties, the court should be authorized to release the obligor
in whole or in part. The intention of the parties should govern and if it appears that
the service turns out to be so difficult as to have been beyond their contemplation, it
would be doing violence to that intention to hold their contemplation, it would be
doing violence to that intention to hold the obligor still responsible.2

In other words, fair and square consideration underscores the legal precept therein.
Naga Telephone Co., Inc. remonstrates mainly against the application by the Court of Appeals of
Article 1267 in favor of Camarines Sur II Electric Cooperative, Inc. in the case before us. Stated
differently, the former insists that the complaint should have been dismissed for failure to state a
cause of action.

The antecedent facts, as narrated by respondent Court of Appeals are, as follows:

Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company rendering local as well as
long distance telephone service in Naga City while private respondent Camarines Sur II Electric
Cooperative, Inc. (CASURECO II) is a private corporation established for the purpose of operating
an electric power service in the same city.

On November 1, 1977, the parties entered into a contract (Exh. "A") for the use by petitioners in the
operation of its telephone service the electric light posts of private respondent in Naga City. In
consideration therefor, petitioners agreed to install, free of charge, ten (10) telephone connections
for the use by private respondent in the following places:

(a) 3 units — The Main Office of (private respondent);

(b) 2 Units — The Warehouse of (private respondent);

(c) 1 Unit — The Sub-Station of (private respondent) at Concepcion Pequeña;

(d) 1 Unit — The Residence of (private respondent's) President;

(e) 1 Unit — The Residence of (private respondent's) Acting General Manager; &

(f) 2 Units — To be determined by the General Manager.3

Said contract also provided:

(a) That the term or period of this contract shall be as long as the party of the first
part has need for the electric light posts of the party of the second part it being
understood that this contract shall terminate when for any reason whatsoever, the
party of the second part is forced to stop, abandoned [sic] its operation as a public
service and it becomes necessary to remove the electric lightpost; (sic)4

It was prepared by or with the assistance of the other petitioner, Atty. Luciano M. Maggay, then a
member of the Board of Directors of private respondent and at the same time the legal counsel of
petitioner.

After the contract had been enforced for over ten (10) years, private respondent filed on January 2,
1989 with the Regional Trial Court of Naga City (Br. 28) C.C. No. 89-1642 against petitioners for
reformation of the contract with damages, on the ground that it is too one-sided in favor of
petitioners; that it is not in conformity with the guidelines of the National Electrification Administration
(NEA) which direct that the reasonable compensation for the use of the posts is P10.00 per post, per
month; that after eleven (11) years of petitioners' use of the posts, the telephone cables strung by
them thereon have become much heavier with the increase in the volume of their subscribers,
worsened by the fact that their linemen bore holes through the posts at which points those posts
were broken during typhoons; that a post now costs as much as P2,630.00; so that justice and
equity demand that the contract be reformed to abolish the inequities thereon.
As second cause of action, private respondent alleged that starting with the year 1981, petitioners
have used 319 posts in the towns of Pili, Canaman, Magarao and Milaor, Camarines Sur, all outside
Naga City, without any contract with it; that at the rate of P10.00 per post, petitioners should pay
private respondent for the use thereof the total amount of P267,960.00 from 1981 up to the filing of
its complaint; and that petitioners had refused to pay private respondent said amount despite
demands.

And as third cause of action, private respondent complained about the poor servicing by petitioners
of the ten (10) telephone units which had caused it great inconvenience and damages to the tune of
not less than P100,000.00

In petitioners' answer to the first cause of action, they averred that it should be dismissed because
(1) it does not sufficiently state a cause of action for reformation of contract; (2) it is barred by
prescription, the same having been filed more than ten (10) years after the execution of the contract;
and (3) it is barred by estoppel, since private respondent seeks to enforce the contract in the same
action. Petitioners further alleged that their utilization of private respondent's posts could not have
caused their deterioration because they have already been in use for eleven (11) years; and that the
value of their expenses for the ten (10) telephone lines long enjoyed by private respondent free of
charge are far in excess of the amounts claimed by the latter for the use of the posts, so that if there
was any inequity, it was suffered by them.

Regarding the second cause of action, petitioners claimed that private respondent had asked for
telephone lines in areas outside Naga City for which its posts were used by them; and that if
petitioners had refused to comply with private respondent's demands for payment for the use of the
posts outside Naga City, it was probably because what is due to them from private respondent is
more than its claim against them.

And with respect to the third cause of action, petitioners claimed, inter alia, that their telephone
service had been categorized by the National Telecommunication Corporation (NTC) as "very high"
and of "superior quality."

During the trial, private respondent presented the following witnesses:

(1) Dioscoro Ragragio, one of the two officials who signed the contract in its behalf, declared that it
was petitioner Maggay who prepared the contract; that the understanding between private
respondent and petitioners was that the latter would only use the posts in Naga City because at that
time, petitioners' capability was very limited and they had no expectation of expansion because of
legal squabbles within the company; that private respondent agreed to allow petitioners to use its
posts in Naga City because there were many subscribers therein who could not be served by them
because of lack of facilities; and that while the telephone lines strung to the posts were very light in
1977, said posts have become heavily loaded in 1989.

(2) Engr. Antonio Borja, Chief of private respondent's Line Operation and Maintenance Department,
declared that the posts being used by petitioners totalled 1,403 as of April 17, 1989, 192 of which
were in the towns of Pili, Canaman, and Magarao, all outside Naga City (Exhs. "B" and "B-1"); that
petitioners' cables strung to the posts in 1989 are much bigger than those in November, 1977; that in
1987, almost 100 posts were destroyed by typhoon Sisang: around 20 posts were located between
Naga City and the town of Pili while the posts in barangay Concepcion, Naga City were broken at
the middle which had been bored by petitioner's linemen to enable them to string bigger telephone
lines; that while the cost per post in 1977 was only from P700.00 to P1,000.00, their costs in 1989
went up from P1,500.00 to P2,000.00, depending on the size; that some lines that were strung to the
posts did not follow the minimum vertical clearance required by the National Building Code, so that
there were cases in 1988 where, because of the low clearance of the cables, passing trucks would
accidentally touch said cables causing the posts to fall and resulting in brown-outs until the electric
lines were repaired.

(3) Dario Bernardez, Project Supervisor and Acting General Manager of private respondent and
Manager of Region V of NEA, declared that according to NEA guidelines in 1985 (Exh. "C"), for the
use by private telephone systems of electric cooperatives' posts, they should pay a minimum
monthly rental of P4.00 per post, and considering the escalation of prices since 1985, electric
cooperatives have been charging from P10.00 to P15.00 per post, which is what petitioners should
pay for the use of the posts.

(4) Engineer Antonio Macandog, Department Head of the Office of Services of private respondent,
testified on the poor service rendered by petitioner's telephone lines, like the telephone in their
Complaints Section which was usually out of order such that they could not respond to the calls of
their customers. In case of disruption of their telephone lines, it would take two to three hours for
petitioners to reactivate them notwithstanding their calls on the emergency line.

(5) Finally, Atty. Luis General, Jr., private respondent's counsel, testified that the Board of Directors
asked him to study the contract sometime during the latter part of 1982 or in 1983, as it had
appeared very disadvantageous to private respondent. Notwithstanding his recommendation for the
filing of a court action to reform the contract, the former general managers of private respondent
wanted to adopt a soft approach with petitioners about the matter until the term of General Manager
Henry Pascual who, after failing to settle the matter amicably with petitioners, finally agreed for him
to file the present action for reformation of contract.

On the other hand, petitioner Maggay testified to the following effect:

(1) It is true that he was a member of the Board of Directors of private respondent and at the same
time the lawyer of petitioner when the contract was executed, but Atty. Gaudioso Tena, who was
also a member of the Board of Directors of private respondent, was the one who saw to it that the
contract was fair to both parties.

(2) With regard to the first cause of action:

(a) Private respondent has the right under the contract to use ten (10) telephone units of petitioners
for as long as it wishes without paying anything therefor except for long distance calls through PLDT
out of which the latter get only 10% of the charges.

(b) In most cases, only drop wires and not telephone cables have been strung to the posts, which
posts have remained erect up to the present;

(c) Petitioner's linemen have strung only small messenger wires to many of the posts and they need
only small holes to pass through; and

(d) Documents existing in the NTC show that the stringing of petitioners' cables in Naga City are
according to standard and comparable to those of PLDT. The accidents mentioned by private
respondent involved trucks that were either overloaded or had loads that protruded upwards,
causing them to hit the cables.

(3) Concerning the second cause of action, the intention of the parties when they entered into the
contract was that the coverage thereof would include the whole area serviced by petitioners because
at that time, they already had subscribers outside Naga City. Private respondent, in fact, had asked
for telephone connections outside Naga City for its officers and employees residing there in addition
to the ten (10) telephone units mentioned in the contract. Petitioners have not been charging private
respondent for the installation, transfers and re-connections of said telephones so that naturally, they
use the posts for those telephone lines.

(4) With respect to the third cause of action, the NTC has found petitioners' cable installations to be
in accordance with engineering standards and practice and comparable to the best in the country.

On the basis of the foregoing countervailing evidence of the parties, the trial court found, as regards
private respondent's first cause of action, that while the contract appeared to be fair to both parties
when it was entered into by them during the first year of private respondent's operation and when its
Board of Directors did not yet have any experience in that business, it had become disadvantageous
and unfair to private respondent because of subsequent events and conditions, particularly the
increase in the volume of the subscribers of petitioners for more than ten (10) years without the
corresponding increase in the number of telephone connections to private respondent free of
charge. The trial court concluded that while in an action for reformation of contract, it cannot make
another contract for the parties, it can, however, for reasons of justice and equity, order that the
contract be reformed to abolish the inequities therein. Thus, said court ruled that the contract should
be reformed by ordering petitioners to pay private respondent compensation for the use of their
posts in Naga City, while private respondent should also be ordered to pay the monthly bills for the
use of the telephones also in Naga City. And taking into consideration the guidelines of the NEA on
the rental of posts by telephone companies and the increase in the costs of such posts, the trial
court opined that a monthly rental of P10.00 for each post of private respondent used by petitioners
is reasonable, which rental it should pay from the filing of the complaint in this case on January 2,
1989. And in like manner, private respondent should pay petitioners from the same date its monthly
bills for the use and transfers of its telephones in Naga City at the same rate that the public are
paying.

On private respondent's second cause of action, the trial court found that the contract does not
mention anything about the use by petitioners of private respondent's posts outside Naga City.
Therefore, the trial court held that for reason of equity, the contract should be reformed by including
therein the provision that for the use of private respondent's posts outside Naga City, petitioners
should pay a monthly rental of P10.00 per post, the payment to start on the date this case was filed,
or on January 2, 1989, and private respondent should also pay petitioners the monthly dues on its
telephone connections located outside Naga City beginning January, 1989.

And with respect to private respondent's third cause of action, the trial court found the claim not
sufficiently proved.

Thus, the following decretal portion of the trial court's decision dated July 20, 1990:

WHEREFORE, in view of all the foregoing, decision is hereby rendered ordering the
reformation of the agreement (Exh. A); ordering the defendants to pay plaintiff's
electric poles in Naga City and in the towns of Milaor, Canaman, Magarao and Pili,
Camarines Sur and in other places where defendant NATELCO uses plaintiff's
electric poles, the sum of TEN (P10.00) PESOS per plaintiff's pole, per month
beginning January, 1989 and ordering also the plaintiff to pay defendant NATELCO
the monthly dues of all its telephones including those installed at the residence of its
officers, namely; Engr. Joventino Cruz, Engr. Antonio Borja, Engr. Antonio
Macandog, Mr. Jesus Opiana and Atty. Luis General, Jr. beginning January, 1989.
Plaintiff's claim for attorney's fees and expenses of litigation and defendants'
 counterclaim are both hereby ordered dismissed. Without pronouncement as to
costs.

Disagreeing with the foregoing judgment, petitioners appealed to respondent Court of Appeals. In
the decision dated May 28, 1992, respondent court affirmed the decision of the trial court,5 but based
on different grounds to wit: (1) that Article 1267 of the New Civil Code is applicable and (2) that the
contract was subject to a potestative condition which rendered said condition void. The motion for
reconsideration was denied in the resolution dated September 10, 1992.6 Hence, the present
petition.

Petitioners assign the following pertinent errors committed by respondent court:

1) in making a contract for the parties by invoking Article 1267 of the New Civil Code;

2) in ruling that prescription of the action for reformation of the contract in this case
commenced from the time it became disadvantageous to private respondent; and

3) in ruling that the contract was subject to a potestative condition in favor of

petitioners.

Petitioners assert earnestly that Article 1267 of the New Civil Code is not applicable primarily
because the contract does not involve the rendition of service or a personal prestation and it is not
for future service with future unusual change. Instead, the ruling in the case of Occeña, et al. v.
Jabson, etc., et al.,7 which interpreted the article, should be followed in resolving this case. Besides,
said article was never raised by the parties in their pleadings and was never the subject of trial and
evidence.

In applying Article 1267, respondent court rationalized:

We agree with appellant that in order that an action for reformation of contract would
lie and may prosper, there must be sufficient allegations as well as proof that the
contract in question failed to express the true intention of the parties due to error or
mistake, accident, or fraud. Indeed, in embodying the equitable remedy of
reformation of instruments in the New Civil Code, the Code Commission gave its
reasons as follows:

Equity dictates the reformation of an instrument in order that the true

intention of the contracting parties may be expressed. The courts by
the reformation do not attempt to make a new contract for the parties,
but to make the instrument express their real agreement. The
rationale of the doctrine is that it would be unjust and inequitable to
allow the enforcement of a written instrument which does not reflect
or disclose the real meeting of the minds of the parties. The rigor of
the legalistic rule that a written instrument should be the final and
inflexible criterion and measure of the rights and obligations of the
contracting parties is thus tempered to forestall the effects of mistake,
fraud, inequitable conduct, or accident. (pp. 55-56, Report of Code
Commission)

Thus, Articles 1359, 1361, 1362, 1363 and 1364 of the New Civil Code provide in
essence that where through mistake or accident on the part of either or both of the
parties or mistake or fraud on the part of the clerk or typist who prepared the
instrument, the true intention of the parties is not expressed therein, then the
instrument may be reformed at the instance of either party if there was mutual
mistake on their part, or by the injured party if only he was mistaken.

Here, plaintiff-appellee did not allege in its complaint, nor does its evidence prove,
that there was a mistake on its part or mutual mistake on the part of both parties
when they entered into the agreement Exh. "A", and that because of this mistake,
said agreement failed to express their true intention. Rather, plaintiff's evidence
shows that said agreement was prepared by Atty. Luciano Maggay, then a member
of plaintiff's Board of Directors and its legal counsel at that time, who was also the
legal counsel for defendant-appellant, so that as legal counsel for both companies
and presumably with the interests of both companies in mind when he prepared the
aforesaid agreement, Atty. Maggay must have considered the same fair and
equitable to both sides, and this was affirmed by the lower court when it found said
contract to have been fair to both parties at the time of its execution. In fact, there
were no complaints on the part of both sides at the time of and after the execution of
said contract, and according to 73-year old Justino de Jesus, Vice President and
General manager of appellant at the time who signed the agreement Exh. "A" in its
behalf and who was one of the witnesses for the plaintiff (sic), both parties complied
with said contract "from the very beginning" (p. 5, tsn, April 17, 1989).

That the aforesaid contract has become inequitous or unfavorable or

disadvantageous to the plaintiff with the expansion of the business of appellant and
the increase in the volume of its subscribers in Naga City and environs through the
years, necessitating the stringing of more and bigger telephone cable wires by
appellant to plaintiff's electric posts without a corresponding increase in the ten (10)
telephone connections given by appellant to plaintiff free of charge in the agreement
Exh. "A" as consideration for its use of the latter's electric posts in Naga City, appear,
however, undisputed from the totality of the evidence on record and the lower court
so found. And it was for this reason that in the later (sic) part of 1982 or 1983 (or five
or six years after the subject agreement was entered into by the parties), plaintiff's
Board of Directors already asked Atty. Luis General who had become their legal
counsel in 1982, to study said agreement which they believed had become
disadvantageous to their company and to make the proper recommendation, which
study Atty. General did, and thereafter, he already recommended to the Board the
filing of a court action to reform said contract, but no action was taken on Atty.
General's recommendation because the former general managers of plaintiff wanted
to adopt a soft approach in discussing the matter with appellant, until, during the term
of General Manager Henry Pascual, the latter, after failing to settle the problem with
Atty. Luciano Maggay who had become the president and general manager of
appellant, already agreed for Atty. General's filing of the present action. The fact that
said contract has become inequitous or disadvantageous to plaintiff as the years
went by did not, however, give plaintiff a cause of action for reformation of said
contract, for the reasons already pointed out earlier. But this does not mean that
plaintiff is completely without a remedy, for we believe that the allegations of its
complaint herein and the evidence it has presented sufficiently make out a cause of
action under Art. 1267 of the New Civil Code for its release from the agreement in
question.

xxx xxx xxx

The understanding of the parties when they entered into the Agreement Exh. "A" on
November 1, 1977 and the prevailing circumstances and conditions at the time, were
described by Dioscoro Ragragio, the President of plaintiff in 1977 and one of its two
officials who signed said agreement in its behalf, as follows:

Our understanding at that time is that we will allow NATELCO to

utilize the posts of CASURECO II only in the City of Naga because at
that time the capability of NATELCO was very limited, as a matter of
fact we do [sic] not expect to be able to expand because of the legal
squabbles going on in the NATELCO. So, even at that time there
were so many subscribers in Naga City that cannot be served by the
NATELCO, so as a mater of public service we allowed them to sue
(sic) our posts within the Naga City. (p. 8, tsn April 3, 1989)

Ragragio also declared that while the telephone wires strung to the electric posts of
plaintiff were very light and that very few telephone lines were attached to the posts
of CASURECO II in 1977, said posts have become "heavily loaded" in 1989 (tsn, id.).

In truth, as also correctly found by the lower court, despite the increase in the volume
of appellant's subscribers and the corresponding increase in the telephone cables
and wires strung by it to plaintiff's electric posts in Naga City for the more 10 years
that the agreement Exh. "A" of the parties has been in effect, there has been no
corresponding increase in the ten (10) telephone units connected by appellant free of
charge to plaintiff's offices and other places chosen by plaintiff's general manager
which was the only consideration provided for in said agreement for appellant's use
of plaintiffs electric posts. Not only that, appellant even started using plaintiff's electric
posts outside Naga City although this was not provided for in the agreement Exh. "A"
as it extended and expanded its telephone services to towns outside said city.
Hence, while very few of plaintiff's electric posts were being used by appellant in
1977 and they were all in the City of Naga, the number of plaintiff's electric posts that
appellant was using in 1989 had jumped to 1,403,192 of which are outside Naga City
(Exh. "B"). Add to this the destruction of some of plaintiff's poles during typhoons like
the strong typhoon Sisang in 1987 because of the heavy telephone cables attached
thereto, and the escalation of the costs of electric poles from 1977 to 1989, and the
conclusion is indeed ineluctable that the agreement Exh. "A" has already become too
one-sided in favor of appellant to the great disadvantage of plaintiff, in short, the
continued enforcement of said contract has manifestly gone far beyond the
contemplation of plaintiff, so much so that it should now be released therefrom under
Art. 1267 of the New Civil Code to avoid appellant's unjust enrichment at its
(plaintiff's) expense. As stated by Tolentino in his commentaries on the Civil Code
citing foreign civilist Ruggiero, "equity demands a certain economic equilibrium
between the prestation and the counter-prestation, and does not permit the unlimited
impoverishment of one party for the benefit of the other by the excessive rigidity of
the principle of the obligatory force of contracts (IV Tolentino, Civil Code of the
Philippines, 1986 ed.,
pp. 247-248).

We therefore, find nothing wrong with the ruling of the trial court, although based on
a different and wrong premise (i.e., reformation of contract), that from the date of the
filing of this case, appellant must pay for the use of plaintiff's electric posts in Naga
City at the reasonable monthly rental of P10.00 per post, while plaintiff should pay
appellant for the telephones in the same City that it was formerly using free of charge
under the terms of the agreement Exh. "A" at the same rate being paid by the
general public. In affirming said ruling, we are not making a new contract for the
parties herein, but we find it necessary to do so in order not to disrupt the basic and
 essential services being rendered by both parties herein to the public and to avoid
unjust enrichment by appellant at the expense of plaintiff, said arrangement to
continue only until such time as said parties can re-negotiate another agreement
over the same
subject-matter covered by the agreement Exh. "A". Once said agreement is reached
and executed by the parties, the aforesaid ruling of the lower court and affirmed by
us shall cease to exist and shall be substituted and superseded by their new
agreement. . . ..8

Article 1267 speaks of "service" which has become so difficult. Taking into consideration the
rationale behind this provision,9 the term "service" should be understood as referring to the
"performance" of the obligation. In the present case, the obligation of private respondent consists in
allowing petitioners to use its posts in Naga City, which is the service contemplated in said article.
Furthermore, a bare reading of this article reveals that it is not a requirement thereunder that the
contract be for future service with future unusual change. According to Senator Arturo M.
Tolentino,10 Article 1267 states in our law the doctrine of unforseen events. This is said to be based
on the discredited theory of rebus sic stantibus in public international law; under this theory, the
parties stipulate in the light of certain prevailing conditions, and once these conditions cease to exist
the contract also ceases to exist. Considering practical needs and the demands of equity and good
faith, the disappearance of the basis of a contract gives rise to a right to relief in favor of the party
prejudiced.

In a nutshell, private respondent in the Occeña case filed a complaint against petitioner before the
trial court praying for modification of the terms and conditions of the contract that they entered into
by fixing the proper shares that should pertain to them out of the gross proceeds from the sales of
subdivided lots. We ordered the dismissal of the complaint therein for failure to state a sufficient
cause of action. We rationalized that the Court of Appeals misapplied Article 1267 because:

. . . respondent's complaint seeks not release from the subdivision contract but that
the court "render judgment modifying the terms and conditions of the contract . . .
by fixing the proper shares that should pertain to the herein parties out of the gross
proceeds from the sales of subdivided lots of subject subdivision". The cited article
(Article 1267) does not grant the courts (the) authority to remake, modify or revise
the contract or to fix the division of shares between the parties as contractually
stipulated with the force of law between the parties, so as to substitute its own terms
for those covenanted by the parties themselves. Respondent's complaint for
modification of contract manifestly has no basis in law and therefore states no cause
of action. Under the particular allegations of respondent's complaint and the
circumstances therein averred, the courts cannot even in equity grant the relief
sought.11

The ruling in the Occeña case is not applicable because we agree with respondent court that the
allegations in private respondent's complaint and the evidence it has presented sufficiently made out
a cause of action under Article 1267. We, therefore, release the parties from their correlative
obligations under the contract. However, our disposition of the present controversy does not end
here. We have to take into account the possible consequences of merely releasing the parties
therefrom: petitioners will remove the telephone wires/cables in the posts of private respondent,
resulting in disruption of their service to the public; while private respondent, in consonance with the
contract12 will return all the telephone units to petitioners, causing prejudice to its business. We shall
not allow such eventuality. Rather, we require, as ordered by the trial court: 1) petitioners to pay
private respondent for the use of its posts in Naga City and in the towns of Milaor, Canaman,
Magarao and Pili, Camarines Sur and in other places where petitioners use private respondent's
posts, the sum of ten (P10.00) pesos per post, per month, beginning January, 1989; and 2) private
respondent to pay petitioner the monthly dues of all its telephones at the same rate being paid by the
public beginning January, 1989. The peculiar circumstances of the present case, as distinguished
further from the Occeña case, necessitates exercise of our equity jurisdiction.13 By way of emphasis,
we reiterate the rationalization of respondent court that:

. . . In affirming said ruling, we are not making a new contract for the parties herein,
but we find it necessary to do so in order not to disrupt the basic and essential
services being rendered by both parties herein to the public and to avoid unjust
enrichment by appellant at the expense of plaintiff . . . .14

Petitioners' assertion that Article 1267 was never raised by the parties in their pleadings and was
never the subject of trial and evidence has been passed upon by respondent court in its well
reasoned resolution, which we hereunder quote as our own:

First, we do not agree with defendant-appellant that in applying Art. 1267 of the New
Civil Code to this case, we have changed its theory and decided the same on an
issue not invoked by plaintiff in the lower court. For basically, the main and pivotal
issue in this case is whether the continued enforcement of the contract Exh. "A"
between the parties has, through the years (since 1977), become too inequitous or
disadvantageous to the plaintiff and too one-sided in favor of defendant-appellant, so
that a solution must be found to relieve plaintiff from the continued operation of said
agreement and to prevent defendant-appellant from further unjustly enriching itself at
plaintiff's expense. It is indeed unfortunate that defendant had turned deaf ears to
plaintiffs requests for renegotiation, constraining the latter to go to court. But although
plaintiff cannot, as we have held, correctly invoke reformation of contract as a proper
remedy (there having been no showing of a mistake or error in said contract on the
part of any of the parties so as to result in its failure to express their true intent), this
does not mean that plaintiff is absolutely without a remedy in order to relieve itself
from a contract that has gone far beyond its contemplation and has become so highly
inequitous and disadvantageous to it through the years because of the expansion of
defendant-appellant's business and the increase in the volume of its subscribers.
And as it is the duty of the Court to administer justice, it must do so in this case in the
best way and manner it can in the light of the proven facts and the law or laws
applicable thereto.

It is settled that when the trial court decides a case in favor of a party on a certain
ground, the appellant court may uphold the decision below upon some other point
which was ignored or erroneously decided by the trial court (Garcia Valdez v.
Tuazon, 40 Phil. 943; Relativo v. Castro, 76 Phil. 563; Carillo v. Salak de Paz, 18
SCRA 467). Furthermore, the appellate court has the discretion to consider an
unassigned error that is closely related to an error properly assigned (Paterno v. Jao
Yan, 1 SCRA 631; Hernandez v. Andal, 78 Phil. 196). It has also been held that the
Supreme Court (and this Court as well) has the authority to review matters, even if
they are not assigned as errors in the appeal, if it is found that their consideration is
necessary in arriving at a just decision of the case (Saura Import & Export Co., Inc. v.
Phil. International Surety Co. and PNB, 8 SCRA 143). For it is the material
allegations of fact in the complaint, not the legal conclusion made therein or the
prayer, that determines the relief to which the plaintiff is entitled, and the plaintiff is
entitled to as much relief as the facts warrant although that relief is not specifically
prayed for in the complaint (Rosales v. Reyes and Ordoveza, 25 Phil. 495; Cabigao
v. Lim, 50 Phil. 844; Baguioro v. Barrios, 77 Phil. 120). To quote an old but very
illuminating decision of our Supreme Court through the pen of American jurist Adam
C. Carson:
 "Under our system of pleading it is the duty of the courts to grant the
relief to which the parties are shown to be entitled by the allegations
in their pleadings and the facts proven at the trial, and the mere fact
that they themselves misconstrue the legal effect of the facts thus
alleged and proven will not prevent the court from placing the just
construction thereon and adjudicating the issues accordingly." (Alzua
v. Johnson, 21 Phil. 308)

And in the fairly recent case of Caltex Phil., Inc. v IAC, 176 SCRA 741, the
Honorable Supreme Court also held:

We rule that the respondent court did not commit any error in taking
cognizance of the aforesaid issues, although not raised before the
trial court. The presence of strong consideration of substantial justice
has led this Court to relax the well-entrenched rule that, except
questions on jurisdiction, no question will be entertained on appeal
unless it has been raised in the court below and it is within the issues
made by the parties in their pleadings (Cordero v. Cabral, L-36789,
July 25, 1983, 123 SCRA 532). . . .

We believe that the above authorities suffice to show that this Court did not err in
applying Art. 1267 of the New Civil Code to this case. Defendant-appellant stresses
that the applicability of said provision is a question of fact, and that it should have
been given the opportunity to present evidence on said question. But defendant-
appellant cannot honestly and truthfully claim that it (did) not (have) the opportunity
to present evidence on the issue of whether the continued operation of the contract
Exh. "A" has now become too one-sided in its favor and too inequitous, unfair, and
disadvantageous to plaintiff. As held in our decision, the abundant and copious
evidence presented by both parties in this case and summarized in said decision
established the following essential and vital facts which led us to apply Art. 1267 of
the New Civil Code to this case:

xxx xxx xxx 15

On the issue of prescription of private respondent's action for reformation of contract, petitioners
allege that respondent court's ruling that the right of action "arose only after said contract had
already become disadvantageous and unfair to it due to subsequent events and conditions, which
must be sometime during the latter part of 1982 or in 1983 . . ." 16 is erroneous. In reformation of
contracts, what is reformed is not the contract itself, but the instrument embodying the contract. It
follows that whether the contract is disadvantageous or not is irrelevant to reformation and therefore,
cannot be an element in the determination of the period for prescription of the action to reform.

Article 1144 of the New Civil Code provides, inter alia, that an action upon a written contract must be
brought within ten (10) years from the time the right of action accrues. Clearly, the ten (10) year
period is to be reckoned from the time the right of action accrues which is not necessarily the date of
execution of the contract. As correctly ruled by respondent court, private respondent's right of action
arose "sometime during the latter part of 1982 or in 1983 when according to Atty. Luis General, Jr. . .
., he was asked by (private respondent's) Board of Directors to study said contract as it already
appeared disadvantageous to (private respondent) (p. 31, tsn, May 8, 1989). (Private respondent's)
cause of action to ask for reformation of said contract should thus be considered to have arisen only
in 1982 or 1983, and from 1982 to January 2, 1989 when the complaint in this case was filed, ten
(10) years had not yet elapsed." 17
Regarding the last issue, petitioners allege that there is nothing purely potestative about the
prestations of either party because petitioner's permission for free use of telephones is not made to
depend purely on their will, neither is private respondent's permission for free use of its posts
dependent purely on its will.

Apart from applying Article 1267, respondent court cited another legal remedy available to private
respondent under the allegations of its complaint and the preponderant evidence presented by it:

. . . we believe that the provision in said agreement —

(a) That the term or period of this contract shall be as long as the
party of the first part [herein appellant] has need for the electric light
posts of the party of the second part [herein plaintiff] it being
understood that this contract shall terminate when for any reason
whatsoever, the party of the second part is forced to stop, abandoned
[sic] its operation as a public service and it becomes necessary to
remove the electric light post [sic]"; (Emphasis supplied)

is invalid for being purely potestative on the part of appellant as it leaves the
continued effectivity of the aforesaid agreement to the latter's sole and exclusive will
as long as plaintiff is in operation. A similar provision in a contract of lease wherein
the parties agreed that the lessee could stay on the leased premises "for as long as
the defendant needed the premises and can meet and pay said increases" was
recently held by the Supreme Court in Lim v. C.A., 191 SCRA 150, citing the much
earlier case of Encarnacion v. Baldomar, 77 Phil. 470, as invalid for being "a purely
potestative condition because it leaves the effectivity and enjoyment of leasehold
rights to the sole and exclusive will of the lessee." Further held the High Court in the
Lim case:

The continuance, effectivity and fulfillment of a contract of lease

cannot be made to depend exclusively upon the free and uncontrolled
choice of the lessee between continuing the payment of the rentals or
not, completely depriving the owner of any say in the matter.
Mutuality does not obtain in such a contract of lease of no equality
exists between the lessor and the lessee since the life of the contract
is dictated solely by the lessee.

The above can also be said of the agreement Exh. "A" between the parties in this
case. There is no mutuality and equality between them under the afore-quoted
provision thereof since the life and continuity of said agreement is made to depend
as long as appellant needs plaintiff's electric posts. And this is precisely why, since
1977 when said agreement was executed and up to 1989 when this case was finally
filed by plaintiff, it could do nothing to be released from or terminate said agreement
notwithstanding that its continued effectivity has become very disadvantageous and
inequitous to it due to the expansion and increase of appellant's telephone services
within Naga City and even outside the same, without a corresponding increase in the
ten (10) telephone units being used by plaintiff free of charge, as well as the bad and
inefficient service of said telephones to the prejudice and inconvenience of plaintiff
and its customers. . . . 18
Petitioners' allegations must be upheld in this regard. A potestative condition is a condition, the
fulfillment of which depends upon the sole will of the debtor, in which case, the conditional obligation
is void. 19 Based on this definition, respondent court's finding that the provision in the contract, to wit:

(a) That the term or period of this contract shall be as long as the party of the first
part (petitioner) has need for the electric light posts of the party of the second part
(private respondent) . . ..

is a potestative condition, is correct. However, it must have overlooked the other conditions in the
same provision, to wit:

. . . it being understood that this contract shall terminate when for any reason
whatsoever, the party of the second part (private respondent) is forced to stop,
abandoned (sic) its operation as a public service and it becomes necessary to
remove the electric light post (sic);

which are casual conditions since they depend on chance, hazard, or the will of a third person. 20 In
sum, the contract is subject to mixed conditions, that is, they depend partly on the will of the debtor
and partly on chance, hazard or the will of a third person, which do not invalidate the aforementioned
provision. 21 Nevertheless, in view of our discussions under the first and second issues raised by
petitioners, there is no reason to set aside the questioned decision and resolution of respondent
court.

WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals dated May 28,
1992 and its resolution dated September 10, 1992 are AFFIRMED.

SO ORDERED.

G.R. No. 91670 February 7, 1991

ALBERT NABUS, petitioner,

vs.
THE HONORABLE COURT OF APPEALS and MARIANO LIM, respondents.

Benjamin C. Reyes for petitioner.

Aventino B. Vlaveria & David Allaga for private respondent.

REGALADO, J.:

This petition for review by certiorari seeks the reversal of the decision1 of respondent Court of
Appeals in CA-G.R. CV No. 15846 which affirmed the order of the trial court dismissing herein
petitioner's complaint for rescission with damages on the ground of res judicata.
The records show that on June 22, 1970, herein petitioner Albert Nabus brought an action for
reconveyance of a parcel of land against herein private respondent Mariano Lim in the then Court of
First Instance of Baguio and Benguet, La Trinidad, Benguet, which was docketed as Civil Case No.
2159 (24), alleging inter alia:

2. That on June 23, 1965, plaintiff sold to defendant one (1) parcel of land, situated in the
Barrio of Ambiong, Municipality of La Trinidad, Province of Benguet, . . . as evidenced by a
deed of absolute sale, . . . ;

3. That the said property is a portion of a bigger parcel of land, with an area of 15 hectares,
05 ares and 17 centares, covered by and embraced in Original Certificate of Title No. P-136
(Free Patent No. V48737) issued in the name of plaintiff, on July 5, 1956, . . . ;

4. That although the purchase price of the . . . property in the amount of P258,000.00 was
amortized . . ., title to the same was transferred to the defendant under TCT No. 2814, . . .,
and was later subdivided by said defendant into four (4) lots . . . ;

5. That as of the date thereof, defendant has still an unpaid balance of P75,000.00;

6. That on June 8, 1970 (or 4 years, 11 months and 15 days from June 23, 1965); plaintiff
through counsel offered to repurchase the above-described parcel of land, pursuant to Sec.
119 of the Public Land Law (C.A. No. 141, as amended), as evidenced by a letter of the
undersigned counsel to defendant, . . .; and which was confirmed by the plaintiff in his letter
to defendant, dated June 12, 1970, . . . .

7. That notwithstanding the written offers . . . and subsequent verbal offers of plaintiff to
repurchase the above-described property according to law, the defendant refused and
denied, and still refuses and denies, the said offer;

8. That plaintiff is ready and willing to repurchase the said property and to pay defendant the
sum of P183,000.00, the difference between the stipulated purchase price of P258,000.00
and the unpaid balance thereof in the amount of P75,000.00 referred to in paragraph 5
hereof.2

xxx xxx xxx

On December 11, 1971, after Nabus had rested his case, Lim moved to dismiss the complaint in
Civil Case No. 2159(24) on the grounds of lack of cause of action, there being no tender of the
repurchase price of the parcel of land in question, and of prescription. This was denied by the trial
court. Thereafter, Lim filed a motion for reconsideration of the order denying his motion to dismiss, to
which on February 3, 1972 Nabus filed an opposition on the ground that tender of the repurchase
price of the parcel of land in question was allegedly not a requirement under the Public Land Act,
unlike the provisions of the Civil Code, the repurchase of the said lot being a substantive right
coupled with public interest.

On February 5, 1980, the trial court, upon motion of Lim, ordered Nabus to deposit the repurchase
pace of the said lot in the amount of P183,000.00. On November 13,1980, Lim filed a motion to
dismiss Civil Case No. 2159(24) for failure of Nabus to deposit in court the required amount. On
December 1, 1980, Nabus, by counsel, filed a motion for extension of time within which to file an
opposition to Lim's motion to dismiss. On March 13, 1981, no opposition having been filed to the
motion to dismiss because of the death of Nabus' counsel, the trial court dismissed with prejudice
Civil Case No. 2159(24) for his failure to deposit the required amount, evincing lack of interest to
repurchase the parcel of land in question.3

On May 14, 1981, Nabus filed, through a new counsel, a motion for reconsideration of the order
dismissing Civil Case No. 2159(24). On January 26, 1982, the trial court denied Nabus' motion for
reconsideration.4

No appeal was taken from said order of dismissal.

On March 15, 1982, Nabus filed Civil Case No. 4293 in the same Court of First Instance of Baguio
and Benguet for the annulment of the order of dismissal in Civil Case No. 2159(24), claiming that the
failure of Atty. Florendo, his former counsel, to file an opposition to Lim's motion to dismiss was due
to his serious illness; that the dismissal of his complaint therein, without Nabus being able to file an
opposition to Lim's motion to dismiss, deprived him of the opportunity to be heard amounting to
denial of due process; and that the denial of his motion for reconsideration constituted grave abuse
of discretion tantamount to lack of jurisdiction on the part of the trial court.

Civil Case No. 4293 was subsequently amended to allege grounds for rescission and damages as
additional causes of action. These second and third causes of action added in the amended
compliant aver that:

SECOND CAUSE OF ACTION

xxx xxx xxx

21. That as appearing in the Deed of Absolute Sale Annex "A" of Civil Case No. 2159, . . .
defendant was to pay the purchase price of P258,000.00 in installment; however, defendant
failed to pay the total amount of P258,000.00 having paid only the sum of P183,000.00 and
leaving an unpaid balance of P75,000.00 which defendant failed and refused to pay in spite
of repeated demands;

22. That due to the foregoing, plaintiff is left with no other alternative but to seek for a
rescission (sic) of the contract of Sale aforesaid . . . ;

23. That plaintiff is ready and willing to return the sum of P183,000.00 he has received from
defendant minus of course such damages as the Court may adjudge against defendant;

24. That the said properties covered by said Deed of Absolute Sale have not been
transferred to third persons acting in good faith;

THIRD CAUSE OF ACTION

25. That due to the gross and evident bad faith of defendant in committing the foregoing acts
and in failing and refusing to comply with his obligations to the plaintiff, the latter has suffered
damages to wit: –– attorneys fee –– 15% of the total value of the lots subject matter of the
aforesaid Deed of Absolute Sale; expenses and losses incident to litigation –– P500,000.00;
moral and other damages –– one hundred thousand pesos (P100,000.00).5

On August 8, 1986, Lim filed a motion to dismiss the complaint in Civil Case No. 4293 on the ground
that it was barred by prior judgment or res judicata and that the action had already prescribed. On
October 7, 1986, Nabus filed an opposition to the motion to dismiss. A reply to the opposition and a
supplement to his motion to dismiss was filed by Lim, to which Nabus filed a rejoinder. On July 22,
1987, the trial court dismissed the complaint in Civil Case No. 4293 on both grounds invoked in the
motion to dismiss.6

On appeal to respondent court, Nabus claimed that the trial court erred in holding that all the causes
of action in the case are barred by res judicata and that the action for rescission and damages has
prescribed. The annulment of the dismissal order issued in Civil Case No. 2159(24) was no longer
pursued or raised on appeal.

As earlier stated, respondent court sustained the said order of dismissal on the ground of res
judicata, the relevant portion of its decision reading as follows:

It is within the power of the trial court to dismiss the appellant's complaint in Civil Case No.
2159(24) for failure to comply with its order to deposit the repurchase price of the parcel of
land in question. And such dismissal, rightly or wrongly, has the effect of an adjudication
upon the merits, it not having been provided otherwise (Section 3, Rule 17. Revised Rules of
Court). Dismissal on a technicality is no different in effect and consequences from a
dismissal on the merits under the cited provision of the Rules (General Offset Press, Inc. vs.
Anatalio, 17 SCRA 688, 691). So too is the order of dismissal, with prejudice, res
judicata upon finality under Section 49, Rule 39, of the Revised Rules of Court, . . . .

Respondent court, however, found no necessity to rule on the matter of prescription.

Hence, the instant petition reiterating substantially the same issues raised on appeal with
respondent court, that is, whether or not (1) the complaint for rescission and damages is barred by
the order of dismissal of petitioner's action for reconveyance under the principle of res judicata; (2)
petitioner's action for rescission has prescribed; and (3) it is equitable to deny petitioner his day in
court, considering that admittedly private respondent has not paid the last three installments of the
contract of sale amounting to P75,000.00.

I. Res judicata is a rule of universal law pervading every well regulated system of jurisprudence, and
is put on two grounds, embodied in various maxims of the common law; the one, public policy and
necessity, which makes it the interest of the state that there should be an end to litigation — interest
reipublicae ut sit finis litium; the other, the hardship on the individual that he should be vexed twice
for the same cause — nemo debet bis vexari pro una et eadem causa.7 The doctrine applies and
treats the final determination of the action as speaking the infallible truth as to the rights of the
parties as to the entire subject of the controversy, and such controversy and every part of it must
stand irrevocably closed by such determination. The sum and substance of the whole doctrine is that
a matter once judicially decided is finally decided.8

The foundation principle upon which the doctrine of res judicata rests is that parties ought not to be
permitted to litigate the same issue more than once; that, when a right or fact has been judicially
tried and determined by a court of competent jurisdiction, or an opportunity for such trial has been
given, the judgment of the court, so long as it remains unreversed, should be conclusive upon the
parties and those in privity with them in law or estate.9

Section 49, Rule 39 of the Rules of Court which embodies the principle of res judicata pertinent to
this case provides:

xxx xxx xxx

 (b) In other cases the judgment or order is, with respect to the matter directly adjudged or as
to any other matter that could have been raised in relation thereto, conclusive between the
parties and their successors in interest by title subsequent to the commencement of the
action or special proceeding, litigating for the same thing and under the same title and in the
same capacity;

(c) In any other litigation between the same parties or their successors in interest, that only is
deemed to have been adjudged in a former judgment which appears upon its face to have
been so adjudged, or which was actually and necessarily included therein or necessary
thereto.

The principle of res judicata actually embraces two different concepts: (1) bar by former judgment
and (2) conclusiveness of judgment. There is "bar by former judgment" when, between the first case
where the judgment was rendered, and the second case where such judgment is invoked, there is
identity of parties, subject matter and cause of action. When the three identities are present, the
judgment on the merits rendered in the first constitutes an absolute bar to the subsequent action. It
is final as to the claim or demand in controversy, including the parties and those in privity with them,
not only as to every matter which was offered and received to sustain or defeat the claim or demand,
but as to any other admissible matter which might have been offered for that purpose. But where
between the first case wherein judgment is rendered and the second case wherein such judgment is
invoked, there is identity of parties, but there is no identity of cause of action, the judgment is
conclusive in the second case, only as to those matters actually and directly controverted and
determined, and not as to matters merely involved therein. This is what is termed conclusiveness of
the judgment.10

A. A case is said to be barred by a former judgment when the following requisites concur: (1) the
presence of a final former judgment; (2) the former judgment was rendered by a court having
jurisdiction over the subject matter and the parties; (3) the former judgment is a judgment on the
merits; and, (4) there is, between the first and the second actions, identity of parties, subject matter,
and causes of action.11 There is no dispute as to the existence of and compliance with the first two
elements of res judicata in the case at bar. In issue are the alleged absence of a judgment on the
merits in the first case and the identity of causes of action in both cases.

1. Elemental is the rule that in order that a judgment may operate as a bar to a subsequent suit on
the same cause of action it must have been based on the merits of the case. And a judgment is on
the merits when it determines the rights and liabilities of the parties based on the disclosed facts,
irrespective of formal, technical, or dilatory objections. It is not necessary, however, that there should
have been a trial. If the judgment is general, and not based on any technical defect or objection, and
the parties had a full legal opportunity to be heard on their respective claims and contentions, it is on
the merits although there was no actual hearing or arguments on the facts of the case.12 Such is one
of the situations contemplated in Section 3, Rule 17 of the Rules of Court, where a complaint is
dismissed for failure of the plaintiff to comply with a lawful order of the court which dismissal, as
correctly argued by private respondent, has the effect of an adjudication upon the merits.

In the present case, petitioner labors upon the erroneous conceptualization that the order of
dismissal issued in Civil Case No. 2159(24) was based merely on a preliminary matter, that is,
failure to deposit the repurchase price which allegedly is not the matter in controversy, hence it is not
an adjudication on the merits. While we do not discount the rule that a judgment dismissing a suit
because of a purely technical defect, irregularity, or informality is not strictly on the merits and is,
therefore, no bar to subsequent actions,13 this is however, not applicable to the present case. Under
the circumstances obtaining herein, we have to consequently reject petitioner's ratiocination.
Firstly, it will be remembered that the order dismissing petitioner's complaint in Civil Case No.
2159(24) is specified to be with prejudice. Our law reports are replete with jurisprudence declaring
that a dismissal with prejudice is an adjudication on the merits which finally disposes of the
controversy and, unless reversed, constitutes a bar to a future action.14

Secondly, the aforesaid order of dismissal is not a dismissal on sheer technicality but actually goes
into the very substance of the relief sought therein by petitioner, that is, for the reconveyance of the
subject property which was denied in said case, and must thus be regarded as an adjudication on
the merits. It is the dismissal premised on such technical grounds as a mis-joinder, non-joinder,
misnomer or defect of parties; or that plaintiff has no sufficient title or authority to bring the suit, or
want of legal capacity to sue on his part; or formal defects in the pleadings; or a dismissal of the
action for failure of the complaint to state a cause of action which is not a bar to a new action on a
good complaint wherein the defects and omissions in the first complaint are corrected and supplied
by the second complaint. Also, a failure to allege a matter essential to the jurisdiction of the court is
no bar to a second complaint wherein such defect is cured or obviated by further and sufficient
allegations.15

The aforesaid instances are deemed to have no bearing on the merits of the case and will thus not
bar a subsequent suit on the same cause of action. The order of dismissal issued in Civil Case No.
2159(24) definitely does not fall within any of the above-mentioned exceptions and is considered in
our procedural rules as an adjudication on the merits.16 It would not be amiss to state that a
"dismissal of an action with prejudice" by court order is to be considered no less than a "judgment."17

It must be noted, however, that while the first order of dismissal is an adjudication on the merits, this
does not necessarily mean that it is a bar to the filing of petitioner's second complaint for rescission,
for, as hereinunder discussed, there is no identity of causes of action whereby the first action would
constitute res judicata to the second.

2. Petitioner next submits that there can be no identity of causes of action between the first and
second cases since the former involves the right of petitioner to redeem the subject property under
Section 119 of the Public Land Act within five years from the date of sale, whereas the latter arose
from the failure of private respondent to pay the balance of the purchase price thereby authorizing
the rescission of the contract of sale pursuant to Article 1191 of the Civil Code. More importantly, it is
argued that the same evidence does not support and establish the causes of action in both cases.

On the other hand, private respondent theorizes that there is identity of causes of action between the
previous and subsequent cases in that: (1) the allegations contained and the facts which form the
bases of the two complaints are essentially and substantially the same; (2) the pivotal issue raised in
both cases involves non-payment of the last three installments of the purchase price; (3) the crux of
the prayer of the two cases are exactly the same, that is, the reconveyance of the subject lot; (4)
both actions originated from the same deed of sale; and, (5) the documentary evidence presented,
as well as the testimony given by the petitioner, in Civil Case No. 2159(24) can also be used to
sustain the prosecution of Civil Case No. 4293.

We find for petitioner on this score.

In determining whether causes of action are identical so as to warrant application of the rule of res
judicata, the test most commonly stated is to ascertain whether the same evidence which is
necessary to sustain the second action would have been sufficient to authorize a recovery in the
first, even if the forms or nature of the two actions be different. If the same facts or evidence would
sustain both, the two actions are considered the same within the rule that the judgment in the former
is a bar to the subsequent action; otherwise it is not. It has been said that this method is the best and
most accurate test as to whether a former judgment is a bar in subsequent proceedings between the
same parties, and it has even been designated as infallible.18

It will be observed that Civil Case No. 2159(24) is based on petitioner's light to repurchase the
subject property under Section 119 of the Public Land Act, while Civil Case No. 4293 involves the
rescission of the contract of sale by reason of the failure of private respondent to pay in full the value
of the property, pursuant to Article 1191 of the Civil Code. The former, in order to prosper, requires
proof that the land was granted under a free patent, that the land was sold within five years from the
grant thereof, and that the action for reconveyance was filed within five years from the execution of
the deed of sale. In the second case, proof of the unpaid installments is the only evidence necessary
to sustain the action for rescission. It is thus apparent that a different set of evidence is necessary to
sustain and establish the variant causes of action in the two cases.

In addition, causes of action which are distinct and independent, although arising out of the same
contract, transaction, or state of facts, may be sued on separately, recovery on one being no bar to
subsequent actions on others.19 Also, the mere fact that the same relief is sought in the subsequent
action will not render the judgment in the prior action operative as res judicata,20

such as where the two actions are brought on different statutes,21 as in the case at bar.

Under the circumstances, therefore, the doctrine of res judicata will not apply. To repeat, for
emphasis, the cause of action asserted by petitioner in the former suit was anchored upon his right
to repurchase the subject lot. The cause of action sought to be enforced in the present action is
predicated upon the failure of private respondent to pay the last three installments of the purchase
price. It is a cause of action which is wholly independent of, and entirely separate and discrete from,
the alleged cause of action asserted by petitioner in the former suit. Since petitioner seeks relief in
the instant case upon a cause of action different from the one asserted by him in the former suit, the
judgment in the former suit is conclusive only as to such points or questions as were actually in issue
or adjudicated therein. And this brings us to the rule on conclusiveness of judgment.

B. Private respondent avers that granting arguendo that there is no identity of cause of action,
considering that the issue on the unpaid installments has been raised, considered, and passed upon
in Civil Case No. 2159(24), such issue can no longer be relitigated anew in Civil Case No. 4293,
invoking thereby the doctrine of conclusiveness of judgment.

The doctrine states that a fact or question which was in issue in a former suit, and was there
judicially passed on and determined by a court of competent jurisdiction, is conclusively settled by
the judgment therein, as far as concerns the parties to that action and persons in privity with them,
and cannot be again litigated in any future action between such parties or their privies, in the same
court or any other court of concurrent jurisdiction on either the same or a different cause of action,
while the judgment remains unreversed or unvacated by proper authority.22 The only identities thus
required for the operation of the judgment as an estoppel, in contrast to the judgment as a bar, are
identity of parties and identity of issues.23

It has been held that in order that a judgment in one action can be conclusive as to a particular
matter in another action between the same parties or their privies, it is essential that the issues be
identical. If a particular point or question is in issue in the second action, and the judgment will
depend on the determination of that particular point or question, a former judgment between the
same parties will be final and conclusive in the second if that same point or question was in issue
and adjudicated in the first suit; but the adjudication of an issue in the first case is not conclusive of
an entirely different and distinct issue arising in the second. In order that this rule may be applied, it
must clearly and positively appear, either from the record itself or by the aid of competent extrinsic
evidence that the precise point or question in issue in the second suit was involved and decided in
the first. And in determining whether a given question was an issue in the prior action, it is proper to
look behind the judgment to ascertain whether the evidence necessary to sustain a judgment in the
second action would have authorized a judgment for the same party in the first action.24

Applying these rules to, the case at bar, it becomes crystal clear that the doctrine of res judicata will
still not apply even under the rule on conclusiveness of judgment. To begin with, the fact that there
was an unpaid balance equivalent to three installments was never put in issue in Civil Case No.
2159(24). The same was considered or assumed only for purposes of determining the amount of the
redemption price It was never directly admitted, controverted nor litigated therein, it being merely
incidental or peripheral to the main issue of whether petitioner could still exercise his right to
repurchase the subject lot by reason of the breach of the prohibition imposed by law. On the other
hand, the issue of non-payment of the installments is the primary and sole controversy presented in
the subsequent case for rescission. It is thus evident that the two cases involve two different issues.
Hence, it would be safe to conclude that neither a "bar by prior judgment" nor "conclusiveness of
judgment" would operate upon or adversely affect the second action for rescission.

C. Private respondent insists that petitioner should have included and alleged rescission of contract
as a second cause of action in Civil Case No. 2159(24) considering that at the time the first
complaint was filed, the breach of the contract of sale was already total, hence the ground for
rescission was available and in existence. This very argument, significantly, is in line with petitioner's
own assertion that, being based on different causes of action, the action for rescission under Article
1191 of the Civil Code is distinct from the action for reconveyance under Section 119 of the Public
Land Act. Accordingly, said action for rescission could have been brought independently of the
action for reconveyance since Section 5, Rule 2 of the Rules of Court merely provides:

Sec. 5. Joinder of causes of action. –– Subject to rules regarding jurisdiction, venue and
joinder of parties, a party may in one pleading state, in the alternative or otherwise, as many
causes of action as he may have against an opposing party (a) if the said causes of action
arise out of the same contract, transaction or relation between the parties, or (b) if the
causes of action are for demands for money, or are of the same nature and character.

xxx xxx xxx

The rule is clearly permissive. It does not constitute an obligatory rule, as there is no positive
provision of law or any rule of jurisprudence which compels a party to join all his causes of action
and bring them at one and the same time.25

Under the present rules, the provision is still that the plaintiff may, and not that he must, unite several
causes of action although they may be included in one of the classes specified. This, therefore,
leaves it to the plaintiffs option whether the causes of action shall be joined in the same action, and
no unfavorable inference may be drawn from his failure or refusal to do so. He may always file
another action based on the remaining cause or causes of action within the prescriptive period
therefor.

II. We, however, find and so hold that in the controversy now before us the action for rescission has
prescribed and should consequently be dismissed on said ground. There can be no dispute that
actions based on written contracts prescribe after ten years from the time the right of the action
accrues.26 It is elementary that the computation of the period of prescription of any cause of action,
which is the same as saying prescription of the action, should start from the date when the cause of
action accrues or from the day the right of the plaintiff is violated. This is as it should be.
A cause of action has three elements, namely: (1) a right in favor of the plaintiff by whatever means
and under whatever law it arises or is created: (2) an obligation on the part of the named defendant
to respect or not to violate such right; and, (3) an act or omission on the part of such defendant
violative of the right of the plaintiff or constituting a breach of the obligation of the defendant to the
plaintiff. It is only when the last element occurs or takes place that it can be said in law that a cause
of action has arisen. Translated in terms of a hypothetical situation regarding a written contract, no
cause of action arises until there is a breach or violation thereof by either party.27

Conversely, upon the occurrence of a breach, a cause of action exists and the concomitant right of
action may then be enforced.

In the present case, petitioner's position is that the last three installments which he claims were not
paid by private respondent, allegedly fell due on July 1, 1968, July 1, 1969, and July 1,1970,
respectively.28 Indulging petitioner in his own submissions, therefore, the breach committed by
private respondent occurred, at the earliest, on July 1, 1968 or, at the latest, on July 1, 1970.

Now, even taking the non-payment of the last installment as the basis, an actionable breach of the
contract was already committed on said date, hence, as of that time there arose and existed a cause
of action for petitioner to file a case for rescission. This remedy could already have been availed of
by petitioner for, as earlier discussed, there has been no legal obstacle thereto. Since the ten-year
period had started to run on July 2, 1970, petitioner should have filed the action before July 2, 1980
when the prescriptive period expired. Considering that the amended complaint in Civil Case No.
4293, invoking petitioner's right to rescind the contract, was filed only on May 3, 1985, the action
therefor has obviously and ineluctably prescribed.

ACCORDINGLY, the instant petition for review on certiorari is hereby DENIED.

SO ORDERED.

G.R. No. 139420 August 15, 2001

ROBERTO R. SERRANO, petitioner,

vs.
COURT OF APPEALS, NATIONAL LABOR RELATIONS COMMISSION, MAERSK-FILIPINAS
CREWING, INC. and A.P. MOLLER, respondents.

PUNO,J.:

Were it not for petitioner's relentless efforts, his claim for portions of his salary as a seaman would
now be sunk into oblivion. The ebb and flow of his claim will now rest as he is finally awarded what
has long been due him.

This is a petition for review on certiorari to nullify the resolutions of the Court of Appeals dated June
18, 1999 and July 15, 1999 dismissing outrightly the petition for certiorari filed by petitioner for
having been filed out of time.

The following facts spurred the present controversy:

From 1974 to 1991, respondent Maersk-Filipinas Crewing, Inc., the local agent of respondent foreign
corporation A.P. Moller, deployed petitioner Serrano as a seaman to Liberian, British and Danish
ships.1 As petitioner was on board a ship most of the time, respondent Maersk offered to send
portions of petitioner's salary to his family in the Philippines. The amounts would be sent by money
order. Petitioner agreed and from 1977 to 1978, he instructed respondent Maersk to send money
orders to his family. Respondent Maersk deducted the amounts of these money orders totaling
HK$4,600.00 and £1,050.00 Sterling Pounds from petitioner's salary.2 Respondent Maersk, it is also
alleged, deducted various amounts from his salary for Danish Social Security System (SSS), welfare
contributions, ship club, and SSS Medicare.

It appears that petitioner's family failed to receive the money orders petitioner sent through
respondent Maersk.3Upon learning this in 1978, petitioner demanded that respondent Maersk pay
him the amounts the latter deducted from his salary. Respondent Maersk assured him that they
would look into the matter, then assigned him again to board one of their vessels.

Whenever he returned to the Philippines, petitioner would go to the office of respondent Maersk to
follow up his money claims but he would be told to return after several weeks as respondent Maersk
needed time to verify its records and to bring up the matter with its principal employer, respondent
A.P. Moller. Meantime, respondent Maersk would hire him again to board another one of their
vessels for about a year.

Finally, in October 1993, petitioner wrote to respondent Maersk demanding immediate payment to
him of the total amount of the money orders deducted from his salary from 1977 to 1978.4 On
November 11, 1993, respondent A.P. Moller replied to petitioner that they keep accounting
documents only for a certain number of years, thus data on his money claims from 1977 to 1978
were no longer available. Likewise, it was claimed that it had no outstanding money orders. A.P.
Moller declined petitioner's demand for payment.5

In April 1994, petitioner filed a complaint for collection of the total amount of the unsent money
orders and illegal salary deductions against the respondent Maersk in the Philippine Overseas
Employment Agency (POEA). The case was transferred to the NLRC where Labor Arbiter Arthur
Amansec ruled,viz:

"Anent the deductions from his salary of "Welfare/Ship Club" contributions, these deductions
are compulsory deductions pursuant to Department Order No. 898 dated December 27,
1990 of the Danish Maritime Authority. Being government imposed deductions, the same
cannot be said to be unlawful. In fact, a non-deduction could have been unlawful and could
have meant official sanctions against the respondents.

Regarding the Danish SSS deductions of forty-four dollars ($44.00) for a period of three (3)
months in 1991, it appearing that the same were for payments of complainants' medical
insurance and expenses, the same cannot be said to be illegal.

Regarding to (sic) complainant's claim for payment of and/or refund of seven (7) money
orders for the period covering 1977 to 1978, while the respondents claim payment of that
claim, it failed to present competent evidence of payment such that this Office is constrained
to approve this claim as warranted.

xxx xxx xxx

 WHEREFORE, judgment is hereby made ordering the respondent and/or TICO Insurance
Co., Inc. to refund to complainant his untransmitted money order payment of HK$4,600 and
1,050 Sterling Pounds.

Respondent TICO Insurance Co., Inc.('s) cross-claim against respondent, for being
meritorious, is hereby APPROVED.

Other claims for lack of merit, are ordered DISMISSED."6

Respondent Maersk appealed to the NLRC the Labor Arbiter's grant of the claim for the amount of
unsent money orders. The NLRC reversed and set side Labor Arbiter Amansec's decision and
dismissed the case on the ground of prescription,viz:

"The Appeal is impressed with merit. Primarily we find that the complainant's claim that the
money orders he sent to his brother Arturo Serrano in the years 1977 to 1978 were not
received by the latter and his claim against respondent to pay him the alleged amounts of
HK$4,600 and 1,050 (Position Paper) or US$2,050.00 (Affidavit-complaint) has indeed
prescribed. Under Article 251 (sic) of the Labor Code as amended and we quote:

'Article 291. Money claims. — All money claims arising from employer-employee
relations accruing during the effectivity of this Code shall be filed within three years
from the time the cause of action accrued, otherwise they shall be forever barred.'

In the instant case, complainant's cause of action accrued in 1977 and 1978 but he filed a
complaint only on April 20, 1994. Clearly, complainant has slept on his rights and allowed
himself to be overtaken by prescription."

On March 4, 1999, petitioner filed a motion for reconsideration of the NLRC decision. It was denied
for lack of merit.

Petitioner sought recourse in the Court of Appeals. The appellate court dismissed his petition for
having been filed out of time. Petitioner's motion for reconsideration of the appellate court's
resolution having been denied, he appealed to this Court with the lone assignment of error,viz:

"RESPONDENT COURT OF APPEALS ERRED IN DISMISSING THE PETITION ON MERE

TECHNICALITIES RATHER THAN ON THE MERITS OF THE CASE."

The Labor Arbiter's dismissal of petitioner's complaint for illegal salary deductions was not appealed
and has thus become final. In his petition before this Court, petitioner takes issue only on the
dismissal of his claim for the unsent money orders.

We shall first deal with the issue on the period for filing a petition for review from a decision of the
NLRC to the Court of Appeals.

Applying the law then applicable, the Court of Appeals correctly dismissed the petition for certiorari
for having been filed out of time,viz:

". . . Pursuant to Section 4 of the Rule, as amended effective September 1, 1998, such a
petition should be filed within sixty days, computed as follows:
 'SECTION 4. Where and when petition to be filed. — The petition may be filed not
later than sixty (60) days from notice of judgment, order or resolution sought to be
assailed in the Supreme Court or, if it relates to the acts or omissions of a lower court
or of a corporation, board, officer or person, in the Regional Trial Court exercising
jurisdiction over the territorial area as defined by the Supreme Court. It may also be
filed in the Court of Appeals whether or not the same is in aid of its appellate
jurisdiction, or in the Sandiganbayan if it is in aid of its jurisdiction. If it involves acts
or omissions of a quasi-judicial agency, and unless otherwise provided by law or
these Rules, the petition shall be filed in and cognizable only by the Court of
Appeals.

'If petitioner had filed a motion for new trial or reconsideration in due time after notice
of said judgment, order or resolution, the period herein fixed shall be interrupted. If
the motion is denied, the aggrieved party may file the petition within the remaining
period, but which shall not be less than five (5) days in any event, reckoned from
notice of such denial. No extension of time to file the petition shall be granted except
for the most compelling reason and in no case to exceed fifteen (15) days.'

In the instant petition, the petitioner himself states that onFebruary 26, 1999, he received a
copy of the impugned decision of the National Labor Relations Commission; and onMarch 4,
1999, he filed his motion for reconsideration. Thus, he had already used up six (6) days of
the reglementary 60-day period so that he had only fifty-four (54) days from notice of the
denial of his motion for reconsideration within which to file his petition. OnApril 6, 1999, he
received a copy of the Resolution of the NLRC denying his motion for reconsideration.
Accordingly, he had only untilMay 30, 1999, within which to file his petition. But he filed it
only onJune 7, 1999. Hence, it is late by eight (8) days."7 (emphasis supplied)

Be that as it may, Rule 65, Section 4, as amended, was further amended effective September 1,
2000 to read as follows:

"SECTION 4. When and where petition filed. — The petition shall be filed not later than sixty
(60) days from notice of the judgment, order or resolution.In case a motion for
reconsideration or new trial was timely filed, whether such motion is required or not, the sixty
(60) day period shall be counted from notice of the denial of said motion.

The petition shall be filed in the Supreme Court or, if it relates to the acts or omissions of a
lower court or of a corporation, board, officer or person, in the Regional Trial Court exercising
jurisdiction over the territorial area as defined by the Supreme Court. It may also be filed in
the Court of Appeals whether or not the same is in aid of its appellate jurisdiction, or in the
Sandiganbayan if it is in aid of its appellate jurisdiction. If it involves the acts or omissions of
a quasi-judicial agency, unless otherwise provided by law or these rules, the petition shall be
filed in and cognizable only by the Court of Appeals.

No extension of time to file the petition shall be granted except for compelling reason and in
no case exceeding fifteen (15) days." (emphasis supplied)

Although the above amendment took effect on September 1, 2000, this Court has applied it
retroactively. InSystems Factors Corporation and Modesto Dean v. NLRC, et al.,8 petitioner filed a
petition for certiorari in the Court of Appeals on January 24, 2000. The appellate court dismissed it
on February 15, 2000 for having been filed ten days beyond the prescriptive period. The counting of
the sixty-day reglementary period was reckoned from the date petitioner received the impugned
decision, interrupted by the filing of a motion for reconsideration, then resumed from the date of
receipt of the resolution denying the motion for reconsideration. The petitioner therein sought
recourse in this Court. While the case was pending in this Court, Section 4, Rule 65 of the Rules was
amended effective September 1, 2000. Applying the amendment to the case, we ruled that the
petition in the Court of Appeals was deemed timely filed,viz:

"We hold that the amendment under A.M. No. 00-2-03-SC wherein the sixty-day period to file
a petition for certiorari is reckoned from receipt of the resolution denying the motion for
reconsideration should be deemed applicable. Remedial statutes or statutes relating to
remedies or modes of procedure, which do not create new or take away vested rights, but
only operate in furtherance of the remedy or confirmation of rights already existing, do not
come within the legal conception of a retroactive law, or the general rule against retroactive
operation of statutes (Castro vs. Sagales, 94 Phil. 208). Statutes regulating (sic) to the
procedure of the courts will be construed as applicable to actions pending and undetermined
at the time of their passage. Procedural laws are retroactive in that sense and to that extent.
The retroactive application of procedural laws is not violative of any right of a person who
may feel that he is adversely affected (Gregorio vs. Court of Appeals, 26 SCRA 229; Tinio
vs. Mina, 26 SCRA 512). The reason is that as a general rule, no vested right may attach to
nor arise from procedural laws. (Billones vs. CIR, 14 SCRA 674)"9

In the case at bar, petitioner Serrano received the resolution of the NLRC denying his motion for
reconsideration onApril 6, 1999. Thenceforth, he had 60 days or untilJune 7, 1999 to file a petition
for certiorari with the Court of Appeals. But as June 7 fell on a Saturday, he had untilJune 9, the next
working day, to file his petition. Rule 22, Section 1 provides in relevant part,viz:

". . . If the last day of the period, as thus computed, falls on a Saturday, a Sunday or a legal
holiday in the place where the court sits, the time shall not run until the next working day."

Petitioner thus timely filed his petition with the Court of Appeals on June 9, 1999.

We now proceed to decide the case on the merits. The issue is whether or not the claim of the
petitioner has prescribed. The applicable law is Article 291 of the Labor Code,viz:

"ARTICLE 291. Money claims. All money claims arising from employer-employee relations
accruing during the effectivity of this Code shall be filed withinthree years from the time the
cause of action accrued, otherwise they shall be forever barred." (emphasis supplied)

The pivotal question is when petitioner's cause of action accrued for this will determine the reckoning
date of the three-year prescriptive period.

Petitioner contends that his cause of action accrued only in 1993 when respondent A.P. Moller wrote
to him that its accounting records showed it had no outstanding money orders and that his case was
considered outdated. Thus, the three (3) year prescriptive period should be counted from 1993 and
not 1978 and since his complaint was filed in 1994, he claims that it has not prescribed.

We agree. Petitioner's cause of action accrued in November 1993 upon respondent Maersk's
definite denial of his money claims following this Court's ruling in the similar case ofBaliwag Transit,
Inc. v. Ople.10 In that case, a bus of the petitioner Baliwag Transit bus company driven by the
respondent driver figured in an accident with a train of the Philippine National Railways (PNR) on
August 10, 1974. This resulted to the death of eighteen (18) passengers and caused serious injury
to fifty-six (56) other passengers. The bus itself also sustained extensive damage. The bus company
instituted a complaint against the PNR. The latter was held liable for its negligence in the decision
rendered on April 6, 1977. The respondent driver was absolved of any contributory negligence.
However, the driver was also prosecuted for multiple homicide and multiple serious physical injuries,
but the case was provisionally dismissed in March 1980 for failure of the prosecution witness to
appear at the scheduled hearing. Soon after the PNR decision was rendered, the driver renewed his
license and sought reinstatement with Baliwag Transit. He was advised to wait until his criminal case
was terminated. Herepeatedly requested for reinstatement thereafter, but to no avail, even after
termination of the criminal case against him. Finally, on May 2, 1980, he demanded reinstatement in
a letter signed by his counsel.On May 10, 1980, petitioner Baliwag Transit replied that he could not
be reinstatedas his driver's license had already been revoked and his driving was "extremely
dangerous to the riding public." This prompted respondent driver to file on July 29, 1980 a formal
complaint with the Ministry of Labor and Employment for illegal dismissal against Baliwag Transit
praying for reinstatement with back wages and emergency cost of living allowance. The complaint
was dismissed by the regional director on the ground of prescription under Art. 291 of the Labor
Code. This was reversed by then Labor and Employment Minister Ople. On appeal to this Court, we
ruled that the action had not prescribed,viz:

". . . (T)he antecedent question that has to be settled is the date when the cause of action
accrued and from which the period shall commence to run. The parties disagree on this date.
The contention of the petitioner is that it should be August 10, 1974, when the collision
occurred. The private respondent insists it is May 10, 1980, when his demand for
reinstatement was rejected by the petitioner.

It is settled jurisprudence thata cause of action has three elements, to wit, (1) a right in favor
of the plaintiff by whatever means and under whatever law it arises or is created; (2) an
obligation on the part of the named defendant to respect or not to violate such right; and (3)
an act or omission on the part of such defendant violative of the right of the plaintiff or
constituting a breach of the obligation of the defendant to the plaintiff .

The problem in the case at bar is with the third element as the first two are deemed
established.

We hold that the private respondent's right of action could not have accrued from the mere
fact of the occurrence of the mishap on August 10, 1974, as he was not considered
automatically dismissed on that date. At best, he was deemed suspended from his work, and
not even by positive act of the petitioner but as a result of the suspension of his driver's
license because of the accident. There was no apparent disagreement then between
(respondent driver) Hughes and his employer. As the private respondent was the petitioner's
principal witness in its complaint for damages against the Philippine National Railways, we
may assume that Baliwag Transit and Hughes were on the best of terms when the case was
being tried. Hence, there existed no justification at that time for the private respondent to
demand reinstatement and no opportunity warrant (sic) either for the petitioner to reject that
demand.

We agree with private respondent thatMay 10, 1980, is the date when his cause of action
accrued, for it was then that the petitioner denied his demand for reinstatement and so
committed that act or omission "constituting a breach of the obligation of the defendant to the
plaintiff." The earlier requests by him having been warded off with indefinite promises, and
the private respondent not yet having decided to assert his right, his cause of action could
not be said to have then already accrued. The issues had not yet been joined, so to speak.
This happened only when the private respondent finally demanded reinstatement on May 2,
1980, and his demand was categorically rejected by the petitioner on May 10,
1980."11 (emphasis supplied)
The facts in the case at bar are similar to the Baliwag case. Petitioner repeatedly demanded
payment from respondent Maersk but similar to the actuations of Baliwag Transit in the above cited
case, respondent Maersk warded off these demands by saying that it would look into the matter until
years passed by. In October 1993, Serrano finally demanded in writing payment of the unsent
money orders. Then and only then was the claim categorically denied by respondent A.P. Moller in
its letter dated November 22, 1993. Following the Baliwag Transit ruling, petitioner's cause of action
accrued only upon respondent A.P. Moller's definite denial of his claim in November 1993. Having
filed his action five (5) months thereafter or in April 1994, we hold that it was filed within the three-
year (3) prescriptive period provided in Article 291 of the Labor Code.

WHEREFORE, the petition is GRANTED and the impugned resolutions of the Court of Appeals
dated June 18, 1999 and July 15, 1999 are REVERSED and SET ASIDE. The decision of the Labor
Arbiter ordering respondent Maersk and/or A.P. Moller to pay petitioner his untransmitted money
order payments in the amount of HK$4,600.00 and £1,050,00 Sterling Pounds or their peso
equivalent at the time of actual payment is reinstated.12 No costs.

SO ORDERED.

G.R. No. 95441 December 16, 1992

CARLOS O. ELIDO, SR., petitioner,

vs.
COURT OF APPEALS and THE OVERSEAS BANK OF MANILA (now Commercial Bank of
Manila), respondents.

BELLOSILLO, J.:

We are catching the tail-end of the string of the cases visiting this Court as a result of the
Resolutions 1 of the Central Bank of the Philippines suspending the banking operations of The
Overseas Bank of Manila. However, unlike the other cases which squarely put at issue the validity of
the bank's temporary closure, this is a simple collection case where the bank failed to collect from a
debtor after its banking activities were provisionally suspended.

The records disclose that from 15 October 1964 to 25 February 1965, Allied Credit Integrated
Services, Inc. (ALLIED, for brevity) obtained credit accommodations from private respondent, The
Overseas Bank of Manila, later known as the Commercial Bank of Manila, and still later, the Boston
Bank
of the Philippines.2 On 11 January 1965, to embody the terms of their undertaking in writing, ALLIED
and private respondent entered into an Overdraft Agreement 3 allowing ALLIED to overdraw from its
account deposited with The Overseas Bank of Manila such amounts not exceeding Ten Thousand
Pesos (P10,000.00) at an annual interest rate of twelve percent (12%) compounded monthly. To
secure ALLIED's prompt payment of any liability arising from the Overdraft Agreement, petitioner
Carlos O. Elido, Sr., and one Vicente M. Gomez executed a Continuing Surety Agreement,4 solidarily
binding themselves up to the principal amount of Ten Thousand Pesos (P10,000.00), plus interest
thereon at the rate stated in the Overdraft Agreement. Like the Overdraft Agreement, the Continuing
Surety Agreement stipulates that ten percent (10%) of the amount due shall be paid by the debtor as
attorney's fees in case a judicial proceeding is instituted to enforce the terms and conditions thereof.

By 23 March 1965, ALLIED had an existing overdraft of Nine Thousand Five Hundred Ninety-Eight
Pesos and Seventy-Two Centavos (P9,598.72) which remained outstanding even after the Central
Bank forbade it from doing business on 13 August 1968 upon finding respondent bank's financial
condition to be extremely precarious. 5 On 23 October 1974, the Court approved the Program of
Rehabilitation of The Overseas Bank of Manila submitted by both private respondent and the Central
Bank, 6 Phase I of which provides, among others, for the collection of all loans already due and
demandable.7

Hence, on 23 July 1976, after sending at least four (4) demand letters and still failing to collect,
private respondent filed a collection case against ALLIED and petitioner Carlos O. Elido, Sr. By then,
private respondent was already suing for P38,835.70 (P9,598.72 as principal overdraft and
P29,236.98 as charges and accrued interest from 30 October 1964 to 30 June 1976). 8

Meanwhile, Vicente M. Gomez died, hence, was no longer impleaded. ALLIED, which had ceased operations, was then dropped as co-
defendant at the instance of private respondent as it could not be properly served with summons and was already delaying the proceedings.

After some delay, which was rationalized by the possibility of an amicable settlement and the non-
appearance of petitioner, the trial court allowed private respondent to present its evidence ex parte. 9

Subsequently, on 18 April 1983, while moving to postpone the proceedings, petitioner "assumed and
admitted the entire obligation as prayed for in the complaint." He then repeated his acknowledgment
of the obligation in his motions for postponement filed 16 June 1983, 22 July 1983, 24 August 1983,
and 14 September 1983. Finally, on 19 October 1983, the case was submitted for decision when
petitioner could not wait for the judge to arrive at the scheduled hearing; instead, petitioner submitted
a written manifestation 10 —

I have admitted the obligation as prayed for in the complaint & assumed the loan & is
(sic) waiving presentation of evidence for the defendants since I filed the
postponement on September 13, 1983, stating that I will submit the case for decision
in the event this case is not settled. Moreover, plaintiff had already presented and
rested his case.

Thus, on 21 April 1983, after almost ten years from the time the case was instituted, the Regional
Trial Court of Manila, Br. 7, 11 rendered its Decision pertinent portions of which reads —

Notwithstanding developments and circumstances aforestated, this case may now be

decided on the basis of the virtual confession of judgment by defendant Atty. Carlos
Elido, Sr., and the partial stipulation of facts filed by the parties.

WHEREFORE, judgment is hereby rendered ordering defendant Carlos O. Elido, Sr.

to pay plaintiff the sum of P38,835.70, with interest at 12% p.a. from July 1, 1976,
compounded monthly, until said amount is fully paid, and 10% of the total amount
due by virtue hereof as attorney's fee, and the costs.

From the foregoing judgment, petitioner appealed to the Court of Appeals. However, on 21
September 1990, respondent appellate court, 12 finding no reversible error, affirmed in toto the
Decision appealed from.
In this petition for review on certiorari of the decision of respondent Court of Appeals, petitioner
imputes the following errors to respondent appellate court: (a) in not declaring that private
respondent's complaint instituted 23 July 1976 was filed more than eleven (11) years from the time
the agreement was executed on 11 January 1965, hence, already barred by the statute of limitations
and/or laches which provides for a prescriptive period of only ten (10) years; (b) in declaring him
liable to private respondent in the sum of P38,835.70 with annual interest of twelve percent (12%)
compounded monthly from 1 July 1976 until fully paid, contrary to their Continuing Surety Agreement
specifically limiting his liability to Ten Thousand Pesos (P10,000.00) only; and, (c) in ordering
petitioner to pay private respondent ten percent (10%) for attorney's fees despite the fact that its
counsel merely presented its evidence ex-parte.

In his Reply, petitioner questions for the first time the non-joinder of the real parties in interest, i.e.,
the Commercial Bank of Manila and/or the Boston Bank of the Philippines as successive transferees
of the rights of private respondent, while the case was before respondent appellate court which, as a
consequence, divested respondent appellate court of jurisdiction over the case.

Private respondent bank, on the other hand, counters that the unequivocal admission and
assumption of the obligation by petitioner totally negates the latter's claim of prescription and/or
laches; hence, petitioner is estopped from questioning the propriety of the decision of the lower
court. Private respondent further argues that the period during which its banking operations were
suspended should not be taken against it as it was then practically prevented from enforcing its
rights under their Overdraft Agreement and Continuing Surety Agreement, and that the demand
letters of 7 June 1966, 1 March 1976, 12 March 1976, and 19 March 1976 sent to ALLIED caused
the full period of prescription to run anew.

On petitioner's contention that his liability is limited only to Ten Thousand Pesos (P10,000.00),
private respondent submits that the twelve percent (12%) interest on the principal overdraft and the
additional ten percent (10%) of the amount due as attorney's fees, both granted by the trial court,
were expressly stipulated in both agreements.

Finally, in response to the Reply of petitioner that respondent court has lost jurisdiction over the case
on the ground of non-joinder of real parties in interest, private respondent maintains that respondent
appellate court never lost jurisdiction as there was no transfer of interest to speak of, and that private
respondent merely changed its name from The Overseas Bank of Manila to Commercial Bank of the
Philippines, and then to Boston Bank of the Philippines. It was never dissolved. Besides, petitioner
was well aware of the change of name of private respondent, as evidenced by the various pleadings
he filed in the appellate court wherein he never assailed the change. Verily, he cannot at this late
stage raise the matter for the first time. Jurisprudence has settled against petitioner the issues raised
by him; consequently, his petition must fail.

Petitioner's defense of prescription is untenable. He seeks refuge in Art. 1144 (1) 13 of the Civil Code,
which however provides that the cause of action must be brought within ten (10) years from the time
the cause of action accrues. Thus, in a number of cases, 14 We held —

Since a "cause of action" requires as essential elements, not only a legal right of the
plaintiff and a correlative obligation of the defendant but also "an act or omission of
the defendant in violation of said legal right," the cause of action does not accrue
until the party obligated refuses, expressly or impliedly, to comply with its duty.

Also, in two (2) other cases, 15 We ruled —

 A cause of action has three elements, namely: (1) a right in favor of the plaintiff by
whatever means and under whatever law it arises or is created; (2) an obligation on
the part of the named defendant to respect or not to violate such right; and (3) an act
or omission on the part of such defendant violative of the right of the plaintiff or
constituting a breach of the obligation of the defendant to the plaintiff. It is only when
the last element occurs or takes place that it can be said in law that a cause of action
has arisen. Translated in terms of hypothetical situation regarding a written contract,
no cause of action arises until there is breach or violation thereof by either party. It is
not, therefore, from the date of the instrument but from the date of the breach that the
period of prescription of the action starts.

In the case before Us, private respondent attached to its appellee's brief filed with the court below
copies of its demand letter of 7 June 1966, 1, 12 and 19 March 1976 all addressed to petitioner,
apparently to show the interruption of the ten-year prescriptive period. Petitioner however prays that
We disregard the demand letters because of their dubious authenticity as they were not allegedly
presented in the court below.

But this does not put petitioner in a better position. For, even if We disregard the various demands
(anyway, no evidence was adduced as to when they were received), this could only mean that the
prescriptive period never commenced to run since there was no point in time when petitioner could
have refused to pay, or committed a breach, until the judicial demand on 23 July 1976 which,
incidentally, also suspended the running of the period. This must be so as the Overdraft Agreement
stipulates that the obligation shall be payable upon demand, while the Continuing Surety Agreement,
being a supplemental agreement, merely provides that the obligation shall become due upon
maturity, with or without demand. Hence, it is only from this judicial demand that the cause of action
accrued, and not from 11 January 1966, the date the Overdraft Agreement and the Continuing
Surety Agreement were executed. Besides, even assuming that the action on the debt is already
barred by the statute of limitations, this cannot prevent the debtor from recognizing and confessing
judgment upon it, which was what petitioner did in fact.

The contention of petitioner that his obligation is limited only to Ten Thousand Pesos (P10,000.00) is
untenable. The Continuing Surety Agreement expressly provides —

[t]he liability of the SURETY shall not at anytime exceed the sum of TEN
THOUSAND ONLY . . . (P10,000.00) Philippine Currency, plus the interest thereon at
the rate or rates stated in the obligations secured hereby, and the cost and expenses
the CREDITOR incurred in the granting of the credits, loans, overdrafts . . .
(emphasis supplied), 16

while the Overdraft Agreement, which in fact is the principal agreement,

reads —

Any and all advances and payments made by the BANK to the CLIENT hereunder, in
whatever form made or allowed shall bear interest at the rate of twelve per centum
(12%) per annum, upon daily balances as shown by the books of the BANK, which
interest shall be payable monthly on the day of each month, or at the option of the
BANK, the amount thereof shall be debited to the account of the CLIENT. Interest
debited to the account of the CLIENT shall thereupon become part of the principal
due from the CLIENT and shall draw interest at the same rate (emphasis supplied). 17

Both agreements likewise expressly state that in the event judicial proceedings are instituted for the
recovery of any amount due thereunder, the client and/or the surety, as the case may be, shall pay
the bank attorney's fees and the costs of collection which shall not be less than ten percent (10%) of
the total amount due. 18 From the provisions of the agreements, it is thus crystal clear that while the
liability of the surety may be limited to the principal overdraft of Ten Thousand Pesos (P10,000.00),
his obligation extends to the interests borne by the principal loan and the attorney's fees he may be
liable for. These are the provisions of the contract between the parties which must be respected as
the contract is the law between them. 19

Petitioner's submission that respondent appellate court lost jurisdiction over the case by reason of
non-joinder of real parties in interest deserves scant consideration. We have already said in Jocson
v. Court of Appeals 20 that —

This Court has declared in a number of decisions that a transferee pendente

lite stands in exactly the same position as its predecessor-in-interest, the original
defendant, and is bound by the proceedings had in the case before the property was
transferred to it. It is a proper but not an indispensable party as it would in any event
be bound by the judgment against his predecessor. This would follow even if it is not
formally included as a defendant through an amendment of the complaint.

Moreover, this argument must outrightly be rejected as it was never brought to the attention of the
trial court nor averred before respondent appellate court. Well settled is the rule that issues not
raised in the trial court, let alone in the Court of Appeals, cannot be raised for the first time before
this Court. 21

Upon the other hand, petitioner seriously jeopardized his cause when he made a virtual confession
of judgment. In fine, had We opted to, We could have easily disposed of this petition on this ground,
and immediately upon filing at that, for it is elementary that judgment may be rendered for either the
plaintiff or the defendant on a clear and unequivocal admission of liability in the pleadings of the
opposing party. 22 Hence, where the defendant in his pleadings admits and assumes the entire
obligation as prayed for in the complaint, plaintiff is entitled to have judgment entered in accordance
with such admission, provided the admission is distinct, unequivocal and unconditional.

We realize the implications of Our decision, considering that respondent bank will be allowed to
collect accrued interests corresponding to the period when its operations were suspended by the
Central Bank. But, this is inevitable. We cannot stamp Our imprimatur on petitioner's enjoyment of
an interest-free loan in derogation of the express provisions of the Continuing Surety Agreement he
freely and voluntarily entered into with private respondent. To rule otherwise would be violative of the
clear terms of the agreement of the parties, and would only exacerbate the already critical financial
plight of respondent bank.

WHEREFORE, finding no reversible error committed by respondent Court of Appeals, the instant
petition is DISMISSED. Costs against petitioner.

SO ORDERED.

[G.R. NO. 153267 : June 23, 2005]

CHINA BANKING CORPORATION, Petitioner, v. HON. COURT OF APPEALS and ARMED FORCES AND
POLICE SAVINGS & LOAN ASSOCIATION, INC. (AFPSLAI), Respondents.
 DECISION

QUISUMBING, J.:

For review is the DecisionN1 dated November 23, 2001 of the Court of Appeals in CA-G.R. SP No. 65740,
affirming the Orders2 dated August 25, 2000 and April 17, 2001, of the Regional Trial Court of Quezon City,
Branch 216, which denied petitioner's motion to dismiss the civil action for a sum of money filed by private
respondent. Likewise impugned is the Resolution3 dated April 24, 2002 of the Court of Appeals denying
petitioner's motion for reconsideration of said decision.

The antecedent facts, as summarized by the appellate court, are as follows:

On September 24, 1996, private respondent Armed Forces and Police Savings and Loan Association, Inc.
(AFPSLAI) filed a complaint for a sum of money against petitioner China Banking Corporation (CBC) with the
Regional Trial Court of Quezon City, Branch 216.

In its Answer,4 the petitioner admitted being the registered owner of the Home Notes, the subject matter of
the complaint. These are instruments of indebtedness issued in favor of a corporation named Fund Centrum
Finance, Inc. (FCFI) and were sold, transferred and assigned to private respondent. Thus, the petitioner filed
a Motion to Dismiss alleging that the real party in interest was FCFI, which was not joined in the
complaint, and that petitioner was a mere trustee of FCFI.

The trial court denied the motion to dismiss. Petitioner filed a motion for reconsideration, which the court a
quo again denied. Petitioner elevated the case to the Court of Appeals through a Petition for Certiorariand
Prohibition. The appellate court denied the petition for lack of merit. The petitioner then brought the matter
to this Court via a Petition for Certiorari, under Rule 65. We dismissed the petition for being an improper
remedy.

Petitioner filed another Motion to Dismiss, this time invoking prescription. The lower court denied said
motion to dismiss for lack of merit. It held that it was not apparent in the complaint whether or not
prescription had set in. Thus, the trial judge directed petitioner to present its evidence. However, petitioner
instead filed a motion for reconsideration, which the trial court denied, ratiocinating thus:

This Court finds that there are conflicting claims on the issue of whether or not the action has already
prescribed. A full blown trial is in order to determine fully the rights of the contending parties.5

Undeterred, petitioner impugned, through a petition under Rule 65, the two orders of the trial court claiming
before the appellate court that:

RESPONDENT COURT GROSSLY ERRED OR GRAVELY ABUSED ITS DISCRETION AMOUNTING TO LACK OF
JURISDICTION IN DENYING THE MOTION TO DISMISS AND DECLARING THAT PRESCRIPTION HAS NOT SET
IN AGAINST PRIVATE RESPONDENT.6

In its assailed Decision, the Court of Appeals dismissed the petition, ruling that:

Since the defense of prescription under the facts obtaining did not rest on solid ground, the trial court took a
more judicious move to direct the defendant therein, herein petitioner, to present its evidence. It is self-
evident that with the evidence of both parties adduced, the trial court could proceed to decide on the merits
of the case including prescription, and thus avoid collateral proceedings such as the one at bar that unduly
prolong the final determination of the controversy. After all, prescription subsists as a valid issue in the
decision process. The trial court wanted precisely a definite and definitive-factual premise to determine
whether or not the action has prescribed. Surely, such exercise of judgment is not grave abuse of discretion
correctible by writ of certiorari . If ever he erred, it was error in judgment. Errors of judgment may be
reviewed only by appeal.7

Undaunted, petitioner now comes to this Court raising a simple issue:

WHETHER [OR] NOT THE DATE OF MATURITY OF THE INSTRUMENTS IS THE DATE OF ACCRUAL OF CAUSE
OF ACTION.8

Petitioner insists that upon the face of the complaint, prescription has set in. It claims that the Home Notes
annexed to the pleading bearing a uniform maturity date of December 2, 1983 indicate the date of accrual
of the cause of action. Hence, argues petitioner, private respondent's filing of the complaint for sum of
money on September 24, 1996, is way beyond the prescriptive period of ten years under Article 11449 of
the Civil Code. Citing Soriano v. Ubat,10 petitioner maintains the prescription period starts from the time
when the creditor may file an action, not from the time he wishes to do so.

However, private respondent counters that prescription is not apparent in the complaint because the
maturity date of the Home Notes attached thereto is not the time of accrual of petitioner's action. Relying
on Elido, Sr. v. Court of Appeals,11 private respondent insists that the action accrued only on July 20, 1995,
when demand to pay was made on petitioner. Private respondent also points out that since both the trial
court and the appellate court found that prescription is not apparent on the face of the complaint, such
factual finding should therefore be binding on this Court.

We find the petition without merit. The Court of Appeals validly dismissed the petition, there being no grave
abuse of discretion committed by the trial court in denying petitioner's motion to dismiss the complaint on
the ground of prescription.

Well-settled is the rule that since a cause of action requires, as essential elements, not only a legal right of
the plaintiff and a correlative duty of the defendant but also "an act or omission of the defendant in violation
of said legal right," the cause of action does not accrue until the party obligated refuses, expressly or
impliedly, to comply with its duty.12

Otherwise stated, a cause of action has three elements, to wit, (1) a right in favor of the plaintiff by
whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named
defendant to respect or not to violate such right; and (3) an act or omission on the part of such defendant
violative of the right of the plaintiff or constituting a breach of the obligation of the defendant to the
plaintiff.13

It bears stressing that it is only when the last element occurs that a cause of action arises. Accordingly, a
cause of action on a written contract accrues only when an actual breach or violation thereof occurs.14

Applying the foregoing principle to the instant case, we rule that private respondent's cause of action
accrued only on July 20, 1995, when its demand for payment of the Home Notes was refused by petitioner.
It was only at that time, and not before that, when the written contract was breached and private
respondent could properly file an action in court.

The cause of action cannot be said to accrue on the uniform maturity date of the Home Notes as petitioner
posits because at that point, the third essential element of a cause of action, namely, an act or omission on
the part of petitioner violative of the right of private respondent or constituting a breach of the obligation of
petitioner to private respondent, had not yet occurred.

The subject Home Notes, in fact, specifically states that payment of the principal and interest due on the
notes shall be made only upon presentation for notation and/or surrender for cancellation of the notes, thus:

Payment of the principal amount and interest due on this Note shall be made by the Company at the
principal office of the Trustee herein referred to or at such other office or agency that the Company may
designate for the purpose, in such coin or currency of the Republic of the Philippines as at the time of
payment shall be legal tender for payment of public and private debts, upon presentation for notation and/or
surrender for cancellation of this Note. . . .15 (Emphasis supplied.)

Thus, the maturity date of the Home Notes is not controlling as far as accrual of cause of action is
concerned. What said date indicates is the time when the obligation matures, when payment on the Notes
would commence, subject to presentation, notation and/or cancellation of those Notes. The date for
computing when prescription of the action for collection begins to set in is properly a function related to the
date of actual demand by the holder of the Notes for payment by the obligor, herein petitioner bank.

Since the demand was made only on July 20, 1995, while the civil action for collection of a sum of money
was filed on September 24, 1996, within a period of not more than ten years, such action was not yet
barred by prescription.

WHEREFORE, the petition is DENIED for lack of merit. The assailed Decision dated November 23, 2001,
and the Resolution dated April 24, 2002, of the Court of Appeals are AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. L-55315 September 21, 1982

WILLIAM COLE and HENRY COLE, petitioners,

vs.
POTENCIANA CASUGA VDA. DE GREGORIO, JOSEFINA G. HUFANO assisted by her
husband, ALFREDO HUFANO and THE HONORABLE COURT OF APPEALS, respondents.

Rodolfo V. Yabes for petitioners.

Manolo D. Cacanindin for respondents.

BARREDO, J.:

Petition for review of the decision of the Court of Appeals in CA-G.R. No. 59702-R, William Cole, et
al. vs. Potenciana Casuga Vda. de Gregorio, et al., affirming the judgment of the Court of First
Instance of La Union in its Civil Case No. 2606, dismissing the complaint of herein petitioners for
"quieting of title" (sic), specific performance and annulment of (subsequent) deed of sale (to another
party).

For in adequate background of Our ultimate resolution of the instant controversy as will be made
anon, the following portion of the opinion of the decision of the Appellate Court under review should
suffice:

This is an appeal by plaintiffs-appellants from the decision dated March 10, 1976 of
the Court of First Instance of La Union, Second Judicial District, San Fernando,
Branch I, in Civil Case No. 2606 for quieting of title, specific performance and
annulment of deed of sale, the dispositive portion of which reads as follows:

IN VIEW OF ALL THE FOREGOING, the Court renders judgment

dismissing plaintiff's' complaint and ordering the plaintiffs to jointly
and severally pay defendants the sum of P3,500.00 as reasonable
attorney's fees; and to pay costs.

Unhappy over the results of the case, plaintiffs-appellants appealed, invoking as

errors the following: (1) in finding and ruling that the agreement to buy and sell
(Exhibit "A") between the parents of plaintiffs and the parents of defendant Josefina
Hufano was rescinded by the parties; (2) in refusing to consider and to appreciate the
2 letters of the late William Cole, Sr., to Surveyor Luis Salanga as competent
evidence for the plaintiffs-appellants that the agreement to buy and sell (Exhibit 'A')
was not rescinded; (3) in finding and so ruling that the cause of action of plaintiffs-
appellants has prescribed; and (4) in sustaining the legality and validity of the
transfer and/or sale between defendant-appellee Potenciana Casuga Vda. de
Gregorio and her daughter and co-defendant-appellee Josefina Hufano of the land
which is the subject matter of the agreement to buy and sell (Exhibit "A").

On August 29, 1963, the parents of plaintiffs-appellants, William Cole, Sr. and
Angelina Munar Cole entered into an "Agreement to Buy and Sell" (Exhibit "A") a
parcel of land located at Bo. Dalumpinas Oeste, San Fernando, La Union (also
known as Bo. Urbiztondo, San Juan, La Union) with the owners of the same, namely,
Angel Gregorio and Potenciana Casuga Of the P6,000.00 consideration, Pl,000.00
was paid in advance by Angelina M. Cole and the balance of P5,000.00 was to be
paid in full after the preliminary survey of the land, by a Private Surveyor, for the
purpose of verifying whether or not said parcel of land contains the same area as
declared in the Tax Declaration.

On August 31, 1963, the services of a surveyor, in the person of Luis Salanga was
hired (Exhibit 'E') and he conducted a survey of the property in question on
September 24 and October 7, 1963 and submitted his survey plans to the Bureau of
Lands on June 22, 1964 for approval. Thereafter he left for the United States and
came back to the Philippines on June 6, 1965. Upon arrival he worked for the
approval of the survey which he secured on June 29, 1965 (Exhibit "B" and "B-l").
The survey plans were then delivered to the children of William Cole, Sr., the
plaintiffs-appellants, on May 31, 1966 who paid the balance of his fees (Exhibit "F").

Unknown to Wilham Cole, Sr. that Luis Salanga left for the United States and
impatient over the delay in the results of the survey as approved by the Bureau of
Lands, the former wrote the latter two angry letters, one dated October 20, 1964
(Exhibit C) and the other on April 1, 1965 (Exhibit D), eleven days before William
Cole, Sr. died on April 12, 1965.

After the death of William Cole, Sr. on April 12, 1965, Angel Gregorio died on June 3,
1965 followed by Angelina Munar Cole who died on January 10, 1966.

On May 31, 1966, plaintiffs came to know that their parents have still an unpaid
balance on the land subject matter of the instant case in the amount of P5,000.00
after they went over their papers, such as the Agreement to Buy and Sell (Exhibit
"A") and the letters of their father (Exhibits "C" and "D") to the surveyor, Mr. Salanga.
Thereupon, they tried to raise the amount needed to pay the balance but they
discovered that the property was already transferred to the only daughter of
defendant-appellee Potenciana Casuga Vda. de Gregorio, namely, defendant-
appellee Josefina G. Hufano.

On the other hand, defendants-appellees contend that when the preliminary survey
conducted by surveyor Luis Salanga on October 7, 1963, disclosed that the land
subject of the Agreement to Buy and Sell contained only an area of 23,408 square
meters instead of 32,976 square meters as stated in Tax Declaration No. 38048,
Angelina Cole rescinded the contract and Angel Gregorio returned to her the
advance payment of Pl,000.00. Neither Angelina Cole nor plaintiffs-appellants took
possession of the land, nor declared the same for taxation or paid the taxes thereon.
The agreement was likewise not registered in the name of Angelina Cole in the
Office of the Register of Deeds.

In the first and second assignment of errors, appellants assail the findings of the trial
court that the agreement to buy and sell (Exhibit 'A') between the parents of plaintiffs
and that of defendant Josefina Hufano was rescinded by the parties and its failure to
consider the significance of the two letters of William Cole, Sr. to surveyor Luis
Salanga as competent evidence to show that said agreement was not rescinded. We
agree with plaintiffs-appellants.

There is nothing in the evidence on record showing that plaintiff Henry Cole
deliberately admitted that the agreement to buy and sell was rescinded by his late
mother, Angelina Cole, during her lifetime. At most, Henry Cole gave a vague answer
to a tricky question propounded on cross-examination actually calling for two different
answers.

Atty. Cacanindin:

Q Are you not aware Mr. Witness that this agreement to buy and sell
was rescinded by your mother Angelina Cole because after the
survey she found out that the area was very much lesser than what
appears in the tax declaration? Did you come to know that?

A Yes sir. I came to know in 1966. (tsn. pp. 35 S. Aug. 21, 1975)

And this was clarified by the witness in the subsequent answers given
by him-

Q Now, did you come to know that the Pl,000.00 advance or earnest
money delivered by your mother to Angel Gregorio was returned? Did
you come to know that?

A No, Sir.

Q Did she not tell you that before your mother died?

A No Sir. (lbid.)

Not knowing, therefore, whether the Pl,000.00 partial payment was

ever returned by theGregorios to Angelina Cole, how can Henry Cole
admit that the contract Exhibit "A" was ever rescinded when the basis
of the rescission is the return of the P1,000.00.

Q Mr. Witness, do you know for a fact whether this receipt which you
mentioned was ever rescinded or cancelled?

A No Sir. (Ibid.)

Neither could the testimony of surveyor Luis Salanga be

corroborative and confirmatory of the testimony of Henry Cole on the
 alleged rescission of the contract that we have shown the latter did
not testify to and because said testimony is predicated on hearsay
evidence.

Q You said you were of the impression that money was already
returned to the Cole by Gregorio. Who gave you that impression?

A It is of public knowledge in Lingsat and the wife of Angel Gregorio

told me that the money was returned and also Hipolito (tsn. p. 17 S.
Sept. 11, 1975)

Besides, if the contract was really rescinded and the Pl,000.00 returned by the
Gregorio to the Coles a few days after a surveyor was hired on August 31, 1963 and
had verified the true area of the property in question, on the ground that the area
surveyed was much smaller than the area appearing in the Tax Declaration, what
could have impelled William Cole, Sr. to write two angry letters on October 20, 1964
and April 1, 1965 (Exhibits C and D) to the surveyor hurrying him to finish the survey
and even threatening him with legal action if he fails to do so. The inevitable answer
that surfaces with clarity is that there was no return of the partial payments made by
the Coles. Defendants-appellants could not present any document to show receipt of
the Pl,000.00 by the Coles if the latter could not then produce the Agreement (Exhibit
'A'). They should have insisted on such a receipt as a precaution to avoid any
misunderstanding, unpleasant incidents and expensive court litigations.

The testimony of defendant-appellants' witnesses, namely Josefa Espinueva and

Josefina Hufano are not only evasive and inconsistent but also conflicting.

Josefa Espinueva's testimony to the effect that after Angel Gregorio returned the
Pl,000.00 to William Cole, Sr. and demanded a receipt, but the latter stated there is
no need as he had already torn the receipt Exhibit 'A', and the Gregorios left, she
was allegedly told by Wilham Cole, Sr. that he really did not tear the receipt Exhibit
'A' but that it was with him and showed it to the witness. William Cole, Sr. allegedly
told the witness that they thought they have fooled me. They think they are wise, but
I am wiser.'

If such testimony is true and the incident narrated by Josefa Espinueva actually took
place, then it behooves said witness, as a friend of the Gregorios and one of their
witnesses, to report such incident to them as to enable the Gregorios to take such
action as may be necessary to protect themselves. Her failure to do so renders
suspect the credibility of her entire testimony for being unnatural and therefore not
true.

Again, while on one instance Josefa Espinueva claims that there was no document
signed to show the return of the P1,000.00 by the Gregorios to the Coles, in another
he claims there was a receipt which was signed to show the return of the P1,000.00
to William Cole (tsn. pp. 17-18 S. Dec. 4, 1975). If there was such a receipt why was
not the receipt presented by defendants-appellees.

Moreover, Our attention was called to the failure of defendants-appellees to bring to

the witness stand defendants-appellee Potenciana Casuga, the surviving spouse of
the late Angel Gregorio. She would have been the best witness to testify on the
matters at issue, as she was present in all the incidents now being inquired into, from
 the time of the signing of the agreement to buy and sell up to the time of the alleged
rescission of the contract. Her non-presentation raises a presumption that ff
presented her testimony would be adverse to defendants-appellees (Orfanel vs.
People, L-26877, Dec. 26, 1969, 30 SCRA 819).

As against defendants-appellees' witnesses We have the unshaken testimony of

Eduardo Caranay that the Gregorios did offer to return the P1,000.00 to the Coles
and to cancel their agreement, Exhibit "A", but William Cole, Sr. refused. The non-
cancellation of the agreement is corroborated by the two letters written by William
Cole, Sr. to surveyor Salanga pressing for the termination of the survey. Had the
agreement been cancelled, William Cole, Sr. would not have pressed Salanga for the
completion of the survey for then he would have no use for it. (Pp. 25-30, Record.)

In other words, the Court of Appeals sustained and, in Our opinion, rightly the first two errors
assigned by petitioners; hence, We can start from the premises that petitioners' action had not
prescribed before it was filed. In this connection, We hasten to add that certain factual findings of the
Appellate Court in the course of its ratiocination sustaining the above-mentioned assignments of
error appear to Us to be supportive of petitioners' pose that the Court of Appeals should have gone
full length in overruling the trial court.

According to the Court of Appeals, "Plaintiffs-Appellants' cause (sic, should be causes) of action
have (has), however, not only prescribed but (are now) barred by laches. " We do not agree. In Our
considered view, as hereunder now to be demonstrated, petitioners' two causes of action have not
prescribed, much less are they barred by laches, if not on legal grounds, on the basis of strong
manifest equitable considerations which the courts of this country have ample power to enforce.

Be it remembered that the case of petitioners is directed against two matters, (1) the non-compliance
by the respondent Potenciana Casuga Vda. de Gregorio of hers and her deceased husband's
promise to sell the land in question to petitioners, and (2) the annulment of the sale of the said land
to her corespondents mother and son, Josefina G. Hufano and Alfredo Hufano.

True it is that the above second pause of action wherein the Hufanos are co-defendants is
subordinate to the result of the action for specific performance against respondent widow,
Potenciana. But it may be advanced here that since the transfer of the controverted property was
made to the Hufanos in 1966 or 1967, it is obvious that petitioners' action, insofar as the annulment
of said transfer is concerned, was filed well within the ten-year period of prescription. And as regards
the supposed laches, nothing in the record shows that petitioners were aware of any act of the
Hufano's publicly adverse to the right of action of petitioners before the instant action was filed.

Coming now to the pretended prescription and laches relative to the cause of action of petitioners as
against the widow, Potenciana, the Court of Appeals rationalized its adverse holding as follows:

Under the present Agreement to Buy and Sell Exhibit "A", the mother of plaintiffs was
under obligation to pay the balance of P5,000.00 in full after the preliminary survey of
the land by a Private Surveyor, for the purpose of verifying whether or not said parcel
of land contains the same area as declared in the Tax Declaration.' This portion of
the agreement creates a conditional obligation (Article 1181, Civil Code of the
Philippines). The accomplishment of the preliminary survey gives rise to the
acquisition of rights by the contracting parties and the acquisition of said rights
depends upon the results of said survey. As the survey and the result thereof
occurred on October 7, 1963 and found to have an area of only 23,406 square
meters (Stipulation of Facts, pp. 30-31, R.A.) the period of prescription began to run
 from said date or on August 23, 1963 when the Agreement to Buy and Sell was
executed pursuant to Article 1187 of the Civil Code that the effects of a conditional
obligation to give once the condition has been fulfilled, shall retroact to the day of the
constitution of the obligation. But whatever is the starting date in the computation of
the period of prescription, whether from August 29, 1963 or October 7, 1963, the
filing of plaintiffs-appellants' complaint on July 25, 1974 was way beyond the period
of ten (10) years as provided for in Article 1144 of the Civil Code and consequently
barred. The contention of plaintiffs that the period of prescription should be counted
from 1966 when they discovered the agreement deserves scant consideration for
when their mother, Angelina Cole died in 1965, the period of prescription was already
running and continued to run even after her death (Martir, et al. vs, Trinidad, et al., L-
12057, May 20, 1959). This is so for the cause of action accrued in favor of their
mother and not directly in favor of the children. The plaintiffs-appellants cannot avail
themselves of several disabilities, unless they all existed at the time when the right of
action accrued. (Pp. 30-31, Record.)

xxx xxx xxx

But even assuming that plaintiffs-appellants' cause of action has not prescribed, the
same may be dismissed on the ground of laches. Unreasonable delay in the
enforcement of a claim is strongly persuasive of a lack of merit, since it is human
nature to assert a right most strongly when first invaded. Time inevitably tends to
obliterate occurrences from the memory of witnesses, and even where the
recollection appears to be entirely clear, the true clue to the solution of a case may
be hopelessly lost. These considerations constitute one of the pillars of the doctrine
long familiar in equity jurisprudence to the effect that laches or unreasonable delay
on the part of a plaintiff in seeking to enforce a right is not only persuasive of a want
of merit but may, according to the circumstances, be destructive of the right itself
(Buenaventura vs. David, 37 Phil. 435).

Taking 1966 as a reference point wherein plaintiffs-appellants claim they first

discovered the existence of the agreement Exhibit "A" and wherein the survey plans
as approved by the Bureau of Lands were first presented to them by the surveyor, it
took them until July 25, 1974 or 9 years after before they filed their complaint for the
vindication of their alleged rights, if any. It is hard to believe that, if the plaintiffs had
been convinced of the justice of their cause, they would have failed to assert their
rights. (Pp. 32-33, Record.)

Stated differently and briefly, the Appellate Court's view is that the computation of the prescriptive
period of the cause of action of petitioners was the date of the deed of promise to buy and sell on
August 23, 1963 or at the latest when "the survey and the result thereof occurred on October 7,
1963."

In this connection, it has to be underscored that according to the deed of promise to buy and sell the
balance of P5,000 of the purchase price of what petitioners' parents must have believed were more
than three hectares of land (32,976 sq. m.) per tax declaration of the Gregorios, but which turned out
to be, by actual survey, only more than two hectares (23,408 sq. m.) or 9.568 sq. m. short of what it
appeared to be, was "to be paid in full after the preliminary survey of the land by a Private Surveyor,
for the purpose of verifying whether or not said parcel of land contains the same area as declared in
the Tax Declaration." (p. 26, Rec., p. 2, CA Decision). Surely, this particular stipulation removed
entirely the possibility of the prescriptive period of petitioners' action having started on the date of
deed (August 23, 1963).
Needless to state, prescription of actions run with the mere lapse of time (Art. 1139, Civil Code). But
it is elementary that the computation of the period of prescription of any cause of action, which is the
same as saying prescription of the action, should start from the date the cause of action accrues or
from the day the right of the plaintiff is violated. In the language of Article 114 of the Civil Code which
is the one pertinently applicable to this case, "the action must be brought within ten years from the
time the right of action accrues: (1) upon a written contract."

This is as it should be. A cause of action has three elements, namely: (1) a right in favor of the
plaintiff by whatever means and under whatever law it arises or is created; (2) an obligation on the
part of the named defendant to respect or not to violate such right; and (3) an act or omission on the
part of such defendant violative of the right of the plaintiff or constituting a breach of the obligation of
the defendant to the plaintiff. It is only when the last element occurs or takes place that it can be said
in law that a cause of action has arisen. Translated in terms of a hypothetical situation regarding a
written contract, no cause of action arises until there is a breach or violation thereof by either party. It
is not, therefore, from the date of the instrument but from the date of the breach that the period of
prescription of the action starts.

In the case at bar, although the agreement to buy and sell was executed in 1963 and the survey
allegedly was finished on October 7, 1963, the Court of Appeals itself has found that the survey plan
approved by the Bureau of Lands came to the knowledge of petitioners only on May 31, 1966 (p. 26,
Rec., p. 2, CA Decision). Indeed, there is no indication at all anywhere in the record that they had
any knowledge thereof earlier. In fact, they became aware of the agreement to buy and sell and of
the outstanding balance they had to pay only then, that is why they promptly made every effort, even
to the extent of borrowing from their own lawyers to be able to pay. To their dismay, however, they
discovered that respondent widow Potenciana had already sold the property to her corespondents
herein.

In its resolution of the first two assignments of error of petitioners, as observed above, the Court of
Appeals relied heavily on the letters, Exhibits C and D, the letters of the late William Cole, Sr. of
October 24, 1964 and April 1, 1965, respectively, as proof that notwithstanding the substantial
discrepancy in the area of the land in dispute, as discovered after the survey, from the area stated in
the agreement to buy and sell, the respondents' evidence that the Coles had rescinded the said
agreement by receiving back the Pl,000 they had paid as down payment, cannot be believed. Which
finding, We are convinced is correct.

In other words, the above conclusion of the Court of Appeals proves that the Cole couple was in the
dark up to their death about the result of the survey. It was not until May 1966, and importantly, it
was already the petitioners (precisely because the Cole couple had already died) who were notified
thereof by the surveyor Salanga. Under these circumstances, it is incomprehensible now petitioners
could be charged with laches.

On the contrary, We feel it was rather inconsiderate and unkind, inconsistent with the compassionate
society among our people today - for the Court of Appeals to have failed to appreciate, considering
the apparent financial situation of petitioners, their efforts to raise the money they discovered only in
1966 was due private respondent widow, Potenciana Vda. de Gregorio. After all, there is no
evidence to which Our attention has been called that a demand had been previously made for such
payment, hence petitioners, strictly speaking, could not be considered as in technical default. What,
on the other hand, is verily condemnable was the act of said respondent widow to sell the same
property to her co-respondents without even notifying petitioners of her intention to do so, taking
advantages perhaps of the fact that Cole Sr. had already died in 1965 and Mrs. Cole died in January
1966.
Laches is predicated on inaction, inattention, indifference or apathy or failure to do anything directed
towards the assertion of a right. We cannot say any such attitude appears to be attributable to
petitioners. Up to eleven days before he died on April 12, 1965, Cole Sr. was still berating Surveyor
Salanga about not finishing the awaited survey, upon the completion of which their obligation to pay
the balance of the purchase price agreed upon depended. It was only after he and even his wife had
died, that Salanga delivered the survey plan to petitioners. Thereafter, petitioners immediately
sought legal course and money. To perceive laches in such a milieu of circumstances is to miss the
point of that principle of equity altogether.

Considering all the foregoing, We hold that the Court of Appeals erred in finding petitioners guilty of
laches and in holding that their causes of action, first, for specific performance, and second, for
annulment of the sale to the Hufanos have prescribed. The right of the vendors to collect the balance
of the purchase price having arisen only in 1966, their cause of action to recover arose only then. On
the other hand,petitioners' right to demand consummation of the sale by an action of specific
performance also arose only in 1966, after the survey's completion was brought to their attention.
The portion of the stipulation of facts at the pre-trial in the court below to the effect that "the property
(in question) was surveyed on October 7, 1963 and found to have an area of 23,406 sq. m. is of no
moment, absent any admission or proof that the Coles were informed thereof before 1966 (which
would have been included in the stipulations if such indeed were the fact, We hold that the finding of
the Court of Appeals that respondent Potenciana's pretense that the deceased Mrs. Cole received
back the P1,000 down payment is not supported by the evidence on record, shows that the herein
respondent widow lacked candidness to the Court. Withal, it appears that said respondent even
before the condition precedent, namely the completion of the survey, had hardly materialized, sold
without previously demanding from the Coles the payment of the balance of the purchase price, the
property to her co-respondents, the Hufanos.

One last point. In the decision of the trial court, there is a finding that the respondent Josefina
Hufano mortgaged the property in question to the Philippine National Bank on November 29,1967
and to the Rural Bank of Aringay on June 30, 1972. Whether or not the banks acted in bad faith in
said mortgages may well be determined in the proceedings for the execution of this judgment. In any
event, petitioners are entitled to the specific performance prayed for in their complaint, with the
property being delivered to them upon their payment of the purchase price of P5,000 without interest
because it is evident respondent Vda. de Gregorio acted in bad faith in double selling said property,
hence the said respondent is under obligation to pay the banks the loans covered by said
mortgages. The sale to the Hufanos for obvious reasons is hereby declared null and void.

PREMISES CONSIDERED, judgment is hereby rendered reversing the decision of the Court of
Appeals in the sense that the action of petitioners is hereby declared as not having yet prescribed
when they filed the same, that they are not guilty of laches, that the sale by respondent Potenciana
Casuga Vda. de Gregorio of the property in issue to her co-respondents the Hufanos is null and void
and that, the respondent should pay to the banks the loans covered by the mortgages
aforementioned and all private respondents are t• deliver possession of the said property to
petitioners free from all liens and encumbrances.

Costs against private respondent Potenciana Casuga Vda. de Gregorio.

SECOND DIVISION
 [G.R. NO. 146519. July 8, 2005]

RURAL BANK OF CALINOG (ILOILO),

INC., Petitioner, v. COURT OF APPEALS, SPOUSES GREGORIO
CERBAÑA and FILMA CERBO-CERBAÑA,Respondents.

DECISION

TINGA, J.:

In this Petition 1 dated January 16, 2000, Rural Bank of Calinog

(Iloilo), Inc. assails the Decision2 of the Court of Appeals dated
November 18, 1999, which granted the Petition for Certiorari filed
by private respondents, reversed and set aside the order of
dismissal issued by the trial court,3 and reinstated the complaint
filed against petitioner, and its Resolution4 dated November 24,
2000, which denied petitioner's motion for reconsideration.

The antecedents, quoted from the assailed Decision, are as follows:

Petitioners and Carmen Cerbo represented by petitioners filed Civil

Case No. 97016 for annulment of the certificate of sale at public
auction, accounting and damages against private respondents.

Petitioners alleged that Carmen D. Cerbo executed a real estate

mortgage over her property covered by Transfer Certificate of Title
No. T-118033, in favor of private respondent Rural Bank of Calinog
(Calinog Bank for brevity); that the mortgage was foreclosed and
the subject property was sold at public auction with private
respondent Calinog Bank as the highest bidder; that petitioners
redeemed the subject property by depositing the amount
of P18,000.00 to private respondent Calinog Bank; that to complete
payment of the total redemption price of the subject property,
petitioners obtained a loan from private respondent Rural Bank of
Dingle, Iloilo, (Dingle Bank, for brevity) in the amount
of P109,000.00; that to secure payment of the loan obtained from
private respondent Dingle Bank petitioners mortgaged the subject
property in favor [of] private respondent Dingle Bank; that
petitioners have paid the loan obtained from private respondents;
that on September 26, 1996, petitioners received a Notice of Sale at
public auction of the subject property allegedly for failure to pay the
mortgage debt; that petitioners demanded from private respondents
an accounting of all payments made and the holding in abeyance by
private respondent Dingle Bank of the public sale; that the public
sale proceeded as scheduled and the subject property was
adjudicated in favor of private respondent Calinog Bank; that
because of the failure of the private respondents to account all
payments made by and for petitioners the mortgaged property was
unjustly foreclosed.

On October 21, 1998, private respondent Calinog Bank moved for

the dismissal of the petitioners' complaint.

Private respondent Calinog Bank contended that Carmen Cerbo is

the only one who has a cause of action against it because she was
the one who executed the Contract of Real Estate Mortgage; that
since Carmen Cerbo is already dead, the case should be dismissed
against private respondent Calinog Bank; that petitioners do not
have the legal personality to represent the late Carmen Cerbo; that
petitioners lack cause of action against private respondent Calinog
Bank.

Petitioners opposed the motion to dismiss filed by private

respondent Calinog Bank. Petitioners contended that as heirs of
Carmen Cerbo, they have the personality and the cause of action to
institute the action against private respondent Calinog Bank.

On February 2, 1999, assailed order was issued granting private

respondent Calinog Bank's motion to dismiss.

Petitioners filed a motion for reconsideration of the order granting

private respondent Calinog Bank's motion to dismiss. The same was
denied by public respondent.5

Aggrieved by the order of the trial court, the Spouses Cerbaña,

private respondents herein, filed with the appellate court a Petition
for Certioraricontending that the dismissal of the case was improper
and that they are the real parties-in-interest in the case being
children of the late Carmen Cerbo and having paid the redemption
price to petitioner Rural Bank of Calinog.
In granting the petition, the Court of Appeals distinguished between
lack of capacity to sue and lack of personality to sue. The first refers
to the plaintiff's general disability to sue, such as on account of
minority, incompetence, lack of juridical personality or other
disqualifications; the second refers to the fact that the plaintiff is
not the real party in interest. Since private respondents filed the
civil suit not just as representatives of Carmen Cerbo but also for
and in their own behalf, the appellate court found them to have
both capacity and personality to sue.

The appellate court further ruled that the allegations of the

complaint furnish sufficient basis to maintain the same and should
not have been dismissed by the trial court. Private respondents
need not be parties to the mortgage contract in order to have a
cause of action to recover the payments which they allege to have
paid the bank in excess of the redemption price.

Moreover, the case falls under the recognized exceptions to the rule
that certiorari cannot take the place of appeal since the trial court
dismissed the complaint only because Carmen Cerbo was already
dead at the time of the filing of the complaint. According to the
Court of Appeals, this is tantamount to clear abuse of discretion.

Petitioner asserts that private respondents do not have a cause of

action against it because they did not claim that they were
instituting an action as heirs of Carmen Cerbo; petitioner has the
right to demand payment of the redemption price; there was no
undue delivery of money to petitioner because private respondents
merely paid the redemption price; and the appellate court did not
declare that the trial court committed grave abuse of discretion but
merely a clear abuse of discretion.

In their Comments6 dated March 11, 2003, private respondents aver

that the instant petition is merely a restatement of the issues
already passed upon by the Court of Appeals. They reiterate that
they instituted the complaint independent of Carmen Cerbo.

We gave due course to the petition and required the parties to

submit their respective memoranda.7 In compliance with the Court's
resolution, petitioner and private respondents filed their memoranda
respectively dated May 20, 20038 and May 21, 2003.9

The principal legal question raised in the instant petition is whether

the complaint filed by private respondents with the trial court states
a cause of action.

A cause of action exists if the following elements are present: (1) a

right in favor of the plaintiff by whatever means and under
whatever law it arises or is created; (2) an obligation on the part of
the named defendant to respect or not to violate such right; and (3)
an act or omission on the part of such defendant violative of the
right of plaintiff or constituting a breach of the obligation of
defendant to the plaintiff for which the latter may maintain an
action for recovery of damages.10

In determining whether the allegations of a complaint are sufficient

to support a cause of action, it must be borne in mind that the
complaint does not have to establish or allege the facts proving the
existence of a cause of action at the outset; this will have to be
done at the trial on the merits of the case. If the allegations in a
complaint can furnish a sufficient basis by which the complaint can
be maintained, the same should not be dismissed regardless of the
defenses that may be assessed by the defendants. To sustain a
motion to dismiss for lack of cause of action, the complaint must
show that the claim for relief does not exist rather than that a claim
has been defectively stated or is ambiguous, indefinite or
uncertain.11 Moreover, a defendant moving to dismiss a complaint
on the ground of lack of cause of action is regarded as having
hypothetically admitted all the averments thereof.12

An examination of the complaint reveals that it sufficiently alleges a

cause of action against petitioner. The pertinent portions of the
complaint are reproduced below:

5. That Carmen D. Cerbo executed that Real Estate Mortgage on

April 5, 1988 involving her property covered by Transfer Certificate
of Title No. T-118033 of the Registry of Deeds for the Province of
Iloilo, in favor of Rural Bank of Calinog, Inc., a copy of said Real
Estate Mortgage is hereto attached as Annex "A";
6. That for failure to pay the mortgage indebtedness of Carmen D.
Cerbo to Rural Bank of Calinog, Inc., foreclosed the mortgaged
property and adjudicated the same in its favor as the highest bidder
at the time of public auction sale for a price of P63,616.65 as shown
by Certificate of Sale at Public Auction hereto attached as Annex
"B";

7. That sometime in August 28, 1991, plaintiff Gregorio N. Cerbaña

made a deposit of P18,000.00 to Rural Bank of Calinog, Inc., as
deposit on asset acquired from Felimon Cerbo/Carmen Cerbo,
machine copy of Official Receipt No. 22356 dated August 28, 1991
is hereto attached as Annex "C";

8. That sometime in January 20, 1992, plaintiff Spouses Gregorio

Cerbaña and Filma Cerbaña secured that agricultural loan from
defendant Community Rural Bank of Dingle (Iloilo), Inc., in the
amount of P109,000.00 and obtained a net proceeds of P83,392.47
as shown in the Discount Statement dated January 20, 1992 hereto
attached as Annex "D";

9. That for the net proceeds of P83,392.47, defendant Community

Rural Bank of Dingle (Iloilo), Inc., issued check No. 16925 dated
January 20, 1992 for P43,392.47 and Far East Bank Check No.
C1853959 dated January 20, 1992 for P40,000.00, copies of said
checks are hereto attached as Annexes "E" and "F" respectively;

10. That aforesaid checks (Annexes "E" and "F") were paid to
defendant Rural Bank of Calinog (Iloilo), Inc. and the latter issued
its Official Receipt No. 22977 dated January 20, 1992
for P76,000.00 with notation below of P7,000.00 as attorney's fees,
or for a total amount of P83,000.00. Copy of said receipt is hereto
attached as Annex "G";

11. That the excess amount of P392.47 was not accounted for by
defendant Rural Bank of Calinog (Iloilo), Inc., to Spouses Gregorio
and Filma Cerbaña, neither was the P18,000.00 deposit made by
said spouses and covered by Annex "C" hereof, deducted from the
repurchase price of the property of Carmen Cerbo;
12. That the loan of P109,000.00 with defendant Community Rural
Bank of Dingle, (Iloilo), Inc. was settled by spouses by
paying P80,000.00 on May 8, 1992 for which they were issued O.R.
No. 9105 A and the P89,000.00 was subject of a re-loan on October
19, 1992 with defendant Rural Bank of Dingle (Iloilo), Inc.;

13. That sometime in December 22, 1991, plaintiff Gregorio

Cerbaña, paid in full the account with defendant Community Rural
Bank of Dingle (Iloilo), Inc., as shown by Official Receipt hereto
attached as Annex "H";

14. That plaintiff spouses Gregorio and Filma Cerbaña, were not
properly informed of the handling [of] their loan account with
Community Rural Bank of Dingle (Iloilo), Inc., such that they were
in the dark of the application of payments they [sic] were made;

15. That on September 26, 1996 the plaintiff Spouses Gregorio and
Filma Cerbaña were caught in surprise to receive that Sheriff's
Notice of Sale at Public Auction, copy of which is hereto attached as
Annex "I";

16. That because of the notice (Annex "I") Spouses Gregorio and
Filma Cerbaña sought the assistance of an accountant/lawyer to
examine their account with Community Rural Bank of Dingle (Iloilo),
Inc., and their lawyer/accountant sent that [sic] letters dated
October 17, 1996 and October 21, 1996 respectively to defendants
rural banks, copies of which are hereto attached as Annexes "J" and
"K", respectively;

17. That said letters were inserted to inform the defendant rural
banks to account for the claims of plaintiff spouses, and for
Community Rural Bank of Dingle (Iloilo), Inc., to defer foreclosure
of the mortgaged property, but those letters were unavailing as
defendants Community Rural Bank of Dingle (Iloilo), Inc.,
proceeded with the sale at public auction of the mortgaged property
as scheduled;

18. That the foreclosure and outright sale at public auction of the
mortgaged properties of plaintiffs are shocking to conscience
considering that per computation of an accountant, the obligation of
plaintiff Spouses amounts to only P1,153.02 when all their
payments made are accounted for by both defendant rural banks;

19. That for failure of defendant rural banks to account for the
payments of plaintiffs which resulted to the foreclosure and sale at
public auction of mortgaged properties of plaintiffs, the latter was
obliged to engage the services of counsel at an agreed fee
of P25,000.00 plus P1,500.00 per court appearance to defend and
protect their rights herein transgressed by defendants;

20. That the unconscionable acts of defendants brought about moral

anxiety on plaintiffs who likewise claim moral damages in an
amount which may be assessed by this Honorable Court as proper
in the circumstances;

21. That in the filing of this instant case, the plaintiffs incurred
actual expenses of P5,000.00 and they are bound to suffer
additional actual expenses until this case is finally terminated.13

It is enough that private respondents allege that they made a

deposit in the amount of P18,000.00 after the mortgaged property
was sold to petitioner at public auction; that they subsequently
applied for and obtained an agricultural loan from another rural
bank, the net proceeds of which they paid to petitioner in order to
discharge the obligation under the mortgage constituted on Carmen
Cerbo's property; that the excess amount of P392.47 was not
accounted for by petitioner; and that the P18,000.00 deposit was
not deducted from the repurchase price of the property. In fine,
private respondents contend that they were the ones who paid
Carmen Cerbo's loan obligation with petitioner. Whether these
allegations entitle private respondents to the reliefs prayed for is a
question which can best be resolved after trial on the merits at
which each party can present evidence to prove their respective
allegations and defenses.

It is significant to note that petitioner already filed an answer to the

complaint at which it admitted that private respondent Gregorio
Cerbaña made a deposit of P18,000.00 as initial payment on the
redemption price, and that the latter made a total payment
of P101,000.00. Petitioner, therefore, had acknowledged that it was
Gregorio Cerbaña, Carmen Cerbo's son-in-law,14 who was making
payments on the loan obligation. In fact, petitioner referred to
Gregorio Cerbaña as the redemptioner of the foreclosed
property.15 This admission cannot be disavowed by petitioner's
allegation in its motion to dismiss filed eight (8) months after its
answer,16 that private respondents do not have a cause of action
against it just because Carmen Cerbo had already passed away.

While the death of Carmen Cerbo certainly extinguished whatever

cause of action she had against petitioner, private respondents'
cause of action, based on the allegations in the complaint, was not
thereby similarly extinguished. Indeed, assuming the allegations of
the complaint to be true, private respondents, having paid the
redemption price, have the right to demand an accounting, to be
refunded for whatever excess payments they made, and even to
redeem the property. Correlatively, petitioner, having accepted
payment from private respondents, has the obligation to account for
such payment, to return the excess, if any, and to allow
redemption.

As regards the ancillary procedural question concerning the

propriety of certiorari in lieu of appeal, we find that private
respondents' resort to certiorari is warranted under the
circumstances. While it is true that certiorari is not a substitute for
appeal, jurisprudence exempts from the application of this rule
cases when the trial court's decision or resolution was issued
without jurisdiction or with grave abuse of discretion.17 Considering
that the trial court in this case completely disregarded the fact that
private respondents also filed the complaint on their own behalf and
in so doing prevented the latter from having their day in court, it
gravely abused its discretion justifying private respondents' Petition
for Certiorari.

Given these circumstances, a remand of the instant case is in order

to allow private respondents to have their day in court, and to give
the trial court an opportunity to evaluate the evidence, apply the
law, and make an appropriate decree.

WHEREFORE, the petition is DENIED. The Decision and Resolution

of the Court of Appeals dated November 18, 1999 and November
24, 2000 are hereby AFFIRMED. The case is REMANDED to the
Regional Trial Court of Iloilo City for trial on the merits. Costs
against petitioner.

SO ORDERED.

[G.R. NO. 129928 : August 25, 2005]

MISAMIS OCCIDENTAL II COOPERATIVE, INC., Petitioners, v. VIRGILIO S. DAVID, Respondent.

DECISION

TINGA, J.:

In this Petition for Review1 under Rule 45 of the 1997 Rules of Civil Procedure, petitioner Misamis Occidental
II Electric Cooperative, Inc. (hereinafter, MOELCI II) seeks the reversal of the Decision2 of the Court of
Appeals, Former Ninth Division in C.A. G.R. SP No. 41626 and its Resolution3 denying MOELCI II's motion for
reconsideration. The questioned Decision dismissed MOELCI II's petition for certiorariunder Rule 65 and
effectively affirmed the trial court's orders dated 16 November 19954 and 13 March 19965 which respectively
denied petitioner's Motion (For Preliminary Hearing of Affirmative Defenses and Deferment of Pre-Trial
Conference)6 and Motion for Reconsideration.7

The antecedents are as follows:

Private respondent Virgilio S. David (hereinafter, David), a supplier of electrical hardware,8 filed a case for
specific performance and damages against MOELCI II, a rural electric cooperative in Misamis Occidental,
docketed as Civil Case No. 94-69402 entitled "Virgilio David v. Misamis Occidental II Electric Cooperative,
Inc. (MOELCI II)." The said case, which was essentially a collection suit, pending before Judge Felixberto
Olalia (hereinafter, Judge Olalia) of the Regional Trial Court of Manila, Branch 8 (the trial court), was
predicated on a document attached as Annex "A" to the Amended Complaint9 that according to David is the
contract pursuant to which he sold to MOELCI II one (1) unit of 10 MVA Transformer.10

MOELCI II filed its Answer to Amended Complaint11 which pleaded, among others, affirmative defenses
which also constitute grounds for dismissal of the complaint. These grounds were lack of cause of action,
there being allegedly no enforceable contract between David and MOELCI II under the Statute of Frauds
pursuant to Section 1 (g) and (i), Rule 16 of the Rules of Court, and improper venue.12

In accordance with Section 5, Rule 16 of the Rules of Court,13 (now Section 6, Rule 16 of the 1997 Rules of
Civil Procedure) MOELCI II filed with the trial court a Motion (For Preliminary Hearing of Affirmative
Defenses and Deferment of Pre-Trial Conference)14 (hereinafter referred to as Motion). In said Motion,
MOELCI II in essence argued that the document attached as Annex "A" to the Amended Complaint was only
a quotation letter and not a contract as alleged by David. Thus, it contends that David's Amended
Complaint is dismissible for failure to state a cause of action.15

In his opposition to MOELCI II's Motion, David contended in the main that because a motion to dismiss on
the ground of failure to state a cause of action is required to be based only on the allegations of the
complaint, the "quotation letter," being merely an attachment to the complaint and not part of its
allegations, cannot be inquired into.16

MOELCI II filed a rejoinder to the opposition in which it asserted, citing extensively the ruling of the Court
in World Wide Insurance & Surety Co., Inc. v. Macrohon,17 that a complaint cannot be separated from its
annexes; hence, the trial court in resolving a motion to dismiss on the ground of failure to state a cause of
action must consider the complaint's annexes.18

After the parties filed their respective memoranda, Judge Olalia issued an order dated 16 November 1995
denying MOELCI II's motion for preliminary hearing of affirmative defenses. MOELCI II's motion for
reconsideration of the said order was likewise denied in another order issued by Judge Olalia on 13 March
1996.19

MOELCI II elevated this incident to the Court of Appeals by way of a special civil action for certiorari ,
alleging grave abuse of discretion on the part of Judge Olalia in the issuance of the two aforesaid orders.

On 14 March 1997, the Court of Appeals dismissed MOELCI II's petition holding that the allegations in
David's complaint constitute a cause of action. With regard to MOELCI II's contention that David's Amended
Complaint is dismissible as the document, attached thereto as Annex "A," upon which David's claim is based
is not a contract of sale but rather a quotation letter, the Court of Appeals ruled that the interpretation of
the document requires evidence aliunde which is not allowed in determining whether or not the complaint
states a cause of action. The appellate court further declared that when the trial court is confronted with a
motion to dismiss on the ground of lack of cause of action, it is mandated to confine its examination for the
resolution thereof to the allegations of the complaint and is specifically enjoined from receiving evidence for
that purpose.20

With the denial of its Motion for Reconsideration, petitioner is now before this Court seeking a review of the
appellate court's pronouncements. MOELCI II asserts that the Court of Appeals committed serious error in:
(1) ruling that the resolution of its motion to dismiss on the ground of lack of cause of action necessitated
hearings by the trial court with the end in view of determining whether or not the document attached as
Annex "A" to the Amended Complaint is a contract as alleged in the body of said pleading; and (2) not
ordering the trial court to dismiss the Amended Complaint on the ground of lack of cause of action.21 Anent
the first ground, MOELCI II further claims that with the denial of its Petition , the appellate court in effect
exhorted the trial court to defer the resolution of its motion to dismiss until after the hearing of the case on
the merits contrary to Rule 1622 of the Rules of Court and well-settled jurisprudence.23

In his comment,24 David counters that a sufficient cause of action exists. He also points out that he and
MOELCI II differ in the interpretation of the construction of the document attached as Annex "A" of
the Amended Complaint; hence, there is a need to conduct hearings thereon. He likewise contends that the
trial court did not defer the resolution of petitioner's motion to dismiss. On the contrary, the trial court
denied squarely the motion "to abbreviate the proceedings and for the parties to proceed to trial and avoid
piece meal resolution of issues."25

In its Reply,26 MOELCI II reiterates its position that the document attached as Annex "A" of the Amended
Complaint clearly is a quotation letter and not a perfected contract of sale as alleged by David. The absence
of doubt or ambiguity of the contents and import of the document leaves no room for its interpretation.

At issue is whether the Court of Appeals erred in dismissing the petition for certiorari and in holding that the
trial court did not commit grave abuse of discretion in denying petitioner's Motion.

We find no error in the ruling of the Court of Appeals.

In Municipality of Biñan, Laguna v. Court of Appeals,27 decided under the old Rules of Court, we held that a
preliminary hearing permitted under Section 5, Rule 16, is not mandatory even when the same is prayed
for. It rests largely on the sound discretion of the court, thus:

SEC. 5. Pleading grounds as affirmative defenses. - Any of the grounds for dismissal provided for in this
rule, except improper venue, may be pleaded as an affirmative defense, and a preliminary hearing may be
had thereon as if a motion to dismiss had been filed.

The use of the word "may" in the aforequoted provision shows that such a hearing is not mandatory but
discretionary. It is an auxiliary verb indicating liberty, opportunity, permission and possibility.28
Such interpretation is now specifically expressed in the 1997 Rules of Civil Procedure. Section 6, Rule 16
provides that a grant of preliminary hearing rests on the sound discretion of the court, to wit -

SEC. 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.'

Based on the foregoing, a preliminary hearing undeniably is subject to the discretion of the trial court.
Absent any showing that the trial court had acted without jurisdiction or in excess thereof or with such grave
abuse of discretion as would amount to lack of jurisdiction, as in the present case, the trial court's order
granting or dispensing with the need for a preliminary hearing may not be corrected by certiorari.29

Moreover, consistent with our ruling in The Heirs of Juliana Clavano v. Genato,30 as MOELCI II's Motion is
anchored on the ground that the Complaint allegedly stated no cause of action, a preliminary hearing
thereon is more than unnecessary as it constitutes an erroneous and improvident move. No error therefore
could be ascribed to the trial court in the denial of such Motion. The Court ruled in the cited case, thus:

. . . . respondent Judge committed an error in conducting a preliminary hearing on the private respondent's
affirmative defenses. It is a well-settled rule that in a motion to dismiss based on the ground that the
complaint fails to state a cause of action, the question submitted to the court for determination is the
sufficiency of the allegations in the complaint itself. Whether those allegations are true or not is beside the
point, for their truth is hypothetically admitted by the motion. The issue rather is: admitting them to be
true, may the court render a valid judgment in accordance with the prayer of the complaint? Stated
otherwise, the sufficiency of the cause of action must appear on the face of the complaint in order to sustain
a dismissal on this ground. No extraneous matter may be considered nor facts not alleged, which would
require evidence and therefore must be raised as defenses and await the trial. In other words, to determine
the sufficiency of the cause of action, only the facts alleged in the complaint, and no other should be
considered.

The respondent Judge departed from this rule in conducting a hearing and in receiving evidence in support
of the private respondent's affirmative defense, that is, lack of cause of action.31

To determine the existence of a cause of action, only the statements in the complaint may be properly
considered. It is error for the court to take cognizance of external facts or hold preliminary hearings to
determine their existence. If the allegations in a complaint furnish sufficient basis by which the complaint
can be maintained, the same should not be dismissed regardless of the defenses that may be averred by the
defendants.32

The test of sufficiency of facts alleged in the complaint as constituting a cause of action is whether or not
admitting the facts alleged, the court could render a valid verdict in accordance with the prayer of said
complaint.33

In the case at bar, the Amended Complaint states in paragraphs 3, 4, 5, and 6, thus:

FIRST CAUSE OF ACTION

3. On June 8 1992 the parties entered into a contract for the sale by the plaintiff to the defendant of one (1)
unit 10 MVA Power transformer with accessories for a total price of P5,200,000.00 plus 69 KV Line
Accessories for a total price of P2,169,500.00 under the following relevant terms and conditions:

1. Fifty percent (50%) downpayment upon signing of contract.

Fifty percent (50%) upon delivery

2. Delivery - Ninety (90) working days upon receipt of your Purchase Order and Downpayment
Copy of the contract is hereto attached as Annex "A."

4. Because of the standing relationship between the parties and the urgent need on the part of the
defendant for the power transformer to remedy the electric supply deficiency in its area of coverage the
plaintiff waived the 50% downpayment and delivered soon thereafter the 10 MVA transformer with
accessories evidence (sic) by a copy of the sales invoice hereto attached as Annex "B".

5. Despite demands however, verbal and written, since December 1992, the defendant has failed to pay the
price thereof of P5,200,000.00 plus the custom duties and incidental expenses of P272,722.27.

SECOND CAUSE OF ACTION

6. Apart from the above transaction, the plaintiff has been, on a regular basis, delivering various electrical
hardware to the defendant which, as of 31 January 1994, despite demands, has an outstanding balance
of P281,939.76.34

And David prayed as follows:

WHEREFORE, it is respectfully prayed that judgment render ordering the defendant to pay the plaintiff:

ON THE FIRST CAUSE OF ACTION

1. The total sum of P5,472,722.27 plus the stipulated interest at 24% per annum from December 1992 until
fully paid.

ON THE SECOND CAUSE OF ACTION

2. The balance of P281,939.76 plus the stipulated interest at 24% per annum from due dates until fully paid.

COMMON PROPER (sic)

3. Attorney's fee at 25% of the foregoing amounts plus expenses of litigation and not less than P100,000.00
with costs.

4. Other reliefs as may be just and equitable in the premises.35

It has been hypothetically admitted that the parties had entered into a contract sale David bound himself to
supply MOELCI II (1) unit 10 MVA Power transformer with accessories for a total price of P5,200,000.00 plus
69 KV Line Accessories for a total price of P2,169,500.00; that despite written and verbal demands, MOELCI
II has failed to pay the price thereof plus the custom duties and incidental expenses of P272,722.27; and
that apart from the previously stated contract of sale, David regularly delivered various electrical hardware
to MOELCI II which, despite demands, has an outstanding balance of P281,939.76.

We believe all the foregoing sufficiently lay out a cause of action. Even extending our scrutiny to Annex "A,"
which is after all deemed a part of the Amended Complaint, will not result to a change in our conclusion.

Contrary to MOELCI II's assertion, Annex "A" is not an "undisguised quotation letter."36 While Annex "A" is
captioned as such, the presence of the signatures of both the General Manager and the Chairman of the
Committee of Management immediately below the word "CONFORME" appearing on the document's last
page37 lends credulity to David's contention that there was, or might have been, a meeting of minds on the
terms embodied therein. Thus, the appendage of Annex "A" does not entirely serve to snuff out David's
claims.

In fact, the ambiguity of the import and nature of Annex "A" which necessitates a resort to its proper
interpretation, fortifies the propriety of the trial court's
denial of MOELCI II's Motion. The interpretation of a document requires introduction of evidence which is
precisely disallowed in determining whether or not a complaint states a cause of action. The Court of
Appeals therefore correctly dismissed MOELCI II's petition and upheld the trial court's ruling.

Now, whether in truth Annex "A" is, as entitled, a mere quotation letter is a matter that could best be
proven during a full-blown hearing rather than through a preliminary hearing as this may involve extensive
proof. Verily, where a preliminary hearing will not suffice, it is incumbent upon the trial court to deny a
motion for preliminary hearing and go on to trial. The veracity of the assertions of the parties can be
ascertained at the trial of the case on the merits.38

Finally, we do not agree with MOELCI II's contention that the Court of Appeals sanctioned the trial court's
deferment of the resolution of MOELCI II's Motion. The trial court squarely denied the Motion and not merely
deferred its resolution.39 Thus, there is no deferment to speak of that should be enjoined.

WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals dated 14 March 1997 and
its Resolution dated 14 July 1997 are AFFIRMED. Costs against petitioner.

SO ORDERED.

Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

Endnotes:

[G.R. NO. 158121 : December 12, 2007]

HEIRS OF VALERIANO S. CONCHA, SR. NAMELY: TERESITA CONCHA-PARAN, VALERIANO P.

CONCHA, JR., RAMON P. CONCHA, EDUARDO P. CONCHA, REPRESENTED BY HIS LEGAL
GUARDIAN, REYNALDO P. CONCHA, ALBERTO P. CONCHA, BERNARDO P. CONCHA and
GLORIA,Petitioners, v. SPOUSES GREGORIO J. LUMOCSO1 and BIENVENIDA GUYA, CRISTITA J.
LUMOCSO VDA. DE DAAN, AND SPOUSES JACINTO J. LUMOCSO and BALBINA T.
LUMOCSO,2Respondents.

DECISION

PUNO, C.J.:

On appeal by certiorari under Rule 45 of the Rules of Court are the decision3 and resolution4 of the Court of
Appeals (CA) in CA-G.R. SP No. 59499, annulling the resolutions5 and order6 of the Regional Trial Court
(RTC) of Dipolog City, Branch 9, in Civil Case Nos. 5188, 5433 and 5434 which denied the separate motions
to dismiss and Joint Motion for Reconsideration filed by the respondents.

The relevant facts are undisputed.

Petitioners, heirs of spouses Dorotea and Valeriano Concha, Sr., claim to be the rightful owners of Lot No.
6195 (Civil Case No. 5188), a one-hectare portion of Lot No. 6196-A (Civil Case No. 5433), and a one-
hectare portion of Lot Nos. 6196-B and 7529-A (Civil Case No. 5434), all situated in Cogon, Dipolog City,
under Section 48(b) of Commonwealth Act No. 141 (C.A. No. 141), otherwise known as the Public Land Act.
Respondent siblings Gregorio Lumocso (Civil Case No. 5188), Cristita Lumocso Vda. de Daan (Civil Case No.
5433) and Jacinto Lumocso (Civil Case No. 5434), are the patent holders and registered owners of the
subject lots.
The records show that on August 6, 1997, Valeriano Sr.7 and his children, petitioners Valeriano Jr., Ramon,
Eduardo, Alberto, Bernardo, Teresita, Reynaldo, and Gloria, all surnamed Concha, filed a complaint for
Reconveyance and/or Annulment of Title with Damages against "Spouses Gregorio Lomocso and Bienvenida
Guya." They sought to annul Free Patent No. (IX-8)985 and the corresponding Original Certificate of Title
(OCT) No. P-22556 issued in the name of "Gregorio Lumocso" covering Lot No. 6195. The case was raffled
to the RTC of Dipolog City, Branch 9, and docketed as Civil Case No. 5188. In their Amended Complaint,
petitioners prayed that judgment be rendered:

1. Declaring Free Patent No. (IX-8)985 and Original Certificate of Title No. 22556 issued to defendants as
null and void ab initio;

2. Declaring Lot No. 6195 or 1.19122-hectare as private property of the plaintiffs under Sec. 48(b) of CA No.
141 otherwise known as the Public Land Act as amended by RA 1942;

3. Ordering the defendant Lomocsos to reconvey the properties (sic) in question Lot No. 6195 or the
1.19122 hectares in favor of the plaintiffs within 30 days from the finality of the decision in this case and if
they refuse, ordering the Clerk of Court of this Honorable Court to execute the deed of reconveyance with
like force and effect as if executed by the defendant[s] themselves;

4. Ordering defendant Lomocsos to pay P60,000.00 for the 21 forest trees illegally cut; P50,000.00 for
moral damages; P20,000.00 for Attorney's fees; P20,000.00 for litigation expenses; and to pay the cost of
the proceedings;

5. Declaring the confiscated three (sic) flitches kept in the area of the plaintiffs at Dampalan San Jose,
Dipolog with a total volume of 2000 board feet a[s] property of the plaintiff [they] being cut, collected and
taken from the land possessed, preserved, and owned by the plaintiffs;

6. The plaintiffs further pray for such other reliefs and remedies which this Honorable Court may deem just
and equitable in the premises.8

On September 3, 1999, two separate complaints for Reconveyance with Damages were filed by
petitioners,9 this time against "Cristita Lomocso Vda. de Daan" for a one-hectare portion of Lot No. 6196-A
and "Spouses Jacinto Lomocso and Balbina T. Lomocso" for a one-hectare portion of Lot Nos. 6196-B and
7529-A. The two complaints were also raffled to Branch 9 of the RTC of Dipolog City and docketed as Civil
Case Nos. 5433 and 5434, respectively. In Civil Case No. 5433, petitioners prayed that judgment be
rendered:

1. Declaring [a] portion of Lot 6196-A titled under OCT (P23527) 4888 equivalent to one hectare located at
the western portion of Lot 4888 as private property of the plaintiffs under Sec. 48(B) CA 141 otherwise
known as Public Land OCT (sic) as amended by RA No. 1942;

2. Ordering the defendant to reconvey the equivalent of one (1) hectare forested portion of her property in
question in favor of the plaintiffs within 30 days from the finality of the decision in this case segregating one
hectare from OCT (P23527) 4888, located at its Western portion and if she refuse (sic), ordering the Clerk of
Court of this Honorable Court to execute the deed of reconveyance with like force and effect, as if executed
by the defenda[n]t herself;

3. Ordering defendant to pay P30,000.00 for the 22 forest trees illegally cut; P20,000.00 for moral
damages; P20,000.00 for Attorney's fees; P20,000.00 for litigation expenses; and to pay the cost of the
proceedings.10

In Civil Case No. 5434, petitioners prayed that judgment be rendered:

1. Declaring [a] portion of Lot 7529-A under OCT (P-23207) 12870 and Lot 6196-B OCT (P-20845) 4889
equivalent to one hectare located as (sic) the western portion of said lots as private property of the plaintiffs
under Sec. 48(b) of [C.A. No.] 141 otherwise know[n] as the [P]ublic [L]and [A]ct as amended by RA 1942;
2. Ordering the defendants to reconvey the equivalent of one (1) hectare forested portion of their properties
in question in favor of the plaintiffs within 30 days from the finality of the decision in this case segregating
one hectare from OCT (P-23207) 12870 and OCT (T-20845)-4889 all of defendants, located at its Western
portion and if they refuse, ordering the Clerk of Court of this Honorable Court to execute the deed of
reconveyance with like force and effect as if executed by the defendants themselves[;]

3. Ordering defendants to pay P20,000.00 for the six (6) forest trees illegally cut; P20,000.00 for moral
damages; P20,000.00 for Attorney's fees; P20,000.00 for litigation expenses; and to pay the cost of the
proceedings.11

The three complaints12 commonly alleged: a) that on May 21, 1958, petitioners' parents (spouses Valeriano
Sr. and Dorotea Concha) acquired by homestead a 24-hectare parcel of land situated in Cogon, Dipolog City;
b) that since 1931, spouses Concha "painstakingly preserved" the forest in the 24-hectare land, including
the excess four (4) hectares "untitled forest land" located at its eastern portion; c) that they possessed this
excess 4 hectares of land (which consisted of Lot No. 6195, one-hectare portion of Lot No. 6196-A and one-
hectare portion of Lot Nos. 6196-B and 7529-A) "continuously, publicly, notoriously, adversely, peacefully,
in good faith and in concept of the (sic) owner since 1931;" d) that they continued possession and
occupation of the 4-hectare land after the death of Dorotea Concha on December 23, 1992 and Valeriano Sr.
on May 12, 1999; e) that the Concha spouses "have preserved the forest trees standing in [the subject lots]
to the exclusion of the defendants (respondents) or other persons from 1931" up to November 12, 1996 (for
Civil Case No. 5188) or January 1997 (for Civil Case Nos. 5433 and 5434) when respondents, "by force,
intimidation, [and] stealth forcibly entered the premises, illegally cut, collected, [and] disposed" of 21 trees
(for Civil Case No. 5188), 22 trees (for Civil Case No. 5433) or 6 trees (for Civil Case No. 5434); f) that "the
land is private land or that even assuming it was part of the public domain, plaintiffs had already acquired
imperfect title thereto" under Sec. 48(b) of C.A. No. 141, as amended by Republic Act (R.A.) No. 1942; g)
that respondents allegedly cut into flitches the trees felled in Lot No. 6195 (Civil Case No. 5188) while the
logs taken from the subject lots in Civil Case Nos. 5433 and 5434 were sold to a timber dealer in Katipunan,
Zamboanga del Norte; h) that respondents "surreptitiously" filed free patent applications over the lots
despite their full knowledge that petitioners owned the lots; i) that the geodetic engineers who conducted
the original survey over the lots never informed them of the survey to give them an opportunity to oppose
respondents' applications; j) that respondents' free patents and the corresponding OCTs were issued "on
account of fraud, deceit, bad faith and misrepresentation"; and k) that the lots in question have not been
transferred to an innocent purchaser.

On separate occasions, respondents moved for the dismissal of the respective cases against them on the
same grounds of: (a) lack of jurisdiction of the RTC over the subject matters of the complaints; (b) failure to
state causes of action for reconveyance; (c) prescription; and (d) waiver, abandonment, laches and
estoppel.13 On the issue of jurisdiction, respondents contended that the RTC has no jurisdiction over the
complaints pursuant to Section 19(2) of Batas Pambansa Blg. (B.P.) 129, as amended by R.A. No. 7691, as
in each case, the assessed values of the subject lots are less than P20,000.00.

Petitioners opposed,14 contending that the instant cases involve actions the subject matters of which are
incapable of pecuniary estimation which, under Section 19(1) of B.P. 129, as amended by R.A. 7691, fall
within the exclusive original jurisdiction of the RTCs. They also contended that they have two main causes of
action: for reconveyance and for recovery of the value of the trees felled by respondents. Hence, the totality
of the claims must be considered which, if computed, allegedly falls within the exclusive original jurisdiction
of the RTC.

The trial court denied the respective motions to dismiss of respondents.15 The respondents filed a Joint
Motion for Reconsideration,16 to no avail.17

Dissatisfied, respondents jointly filed a Petition for Certiorari, Prohibition and Preliminary Injunction with
Prayer for Issuance of Restraining Order Ex Parte18 with the CA, docketed as CA-G.R. SP No. 59499. In its
Decision,19 the CA reversed the resolutions and order of the trial court. It held that even assuming that the
complaints state a cause of action, the same have been barred by the statute of limitations. The CA ruled
that an action for reconveyance based on fraud prescribes in ten (10) years, hence, the instant complaints
must be dismissed as they involve titles issued for at least twenty-two (22) years prior to the filing of the
complaints. The CA found it unnecessary to resolve the other issues.

Hence, this appeal in which petitioners raise the following issues, viz:
FIRST - WHETHER OR NOT RESPONDENT COURT OF APPEALS (FORMER FIRST DIVISION) ERRED IN
REVERSING THE ORDER OF THE COURT A QUO DENYING THE MOTION FOR DISMISSAL, CONSIDERING THE
DISMISSAL OF A PARTY COMPLAINT IS PREMATURE AND TRIAL ON THE MERITS SHOULD BE CONDUCTED
TO THRESH OUT EVIDENTIARY MATTERS.

SECOND - WHETHER OR NOT THE RESPONDENT COURT OF APPEALS (FORMER FIRST DIVISION) ERRED IN
DISMISSING THE PETITIONERS' COMPLAINTS ON [THE] GROUND OF PRESCRIPTION.

THIRD - WHETHER OR NOT THE RESPONDENT COURT OF APPEALS (FORMER FIRST DIVISION) ERRED IN
CONCLUDING THAT THERE IS NO DOCUMENTARY EVIDENCE ON RECORD TO SHOW THAT PETITIONERS
OWN THE SUBJECT FOREST PORTION OF THE PROPERTIES ERRONEOUSLY INCLUDED IN THE TITLES OF
PRIVATE RESPONDENTS.

FOURTH - WHETHER OR NOT THE PETITION OF HEREIN PRIVATE RESPONDENTS FILED WITH THE
RESPONDENT COURT OF APPEALS (FORMER FIRST DIVISION) SHOULD HAVE BEEN DISMISSED
OUTRIGHTLY FOR PRIVATE RESPONDENTS' THEREIN FAILURE TO COMPLY WITH THE MANDATORY
REQUIREMENT OF SECTION 1 RULE 65 OF THE RULES OF COURT TO SUBMIT CERTIFIED TRUE COPIES OF
THE ASSAILED ORDERS OF THE TRIAL COURT WHICH RENDERED THEIR PETITION (CA G.R. 59499)
DEFICIENT IN FORM AND SUBSTANCE CITING THE CASE OF CATUIRA v. COURT OF APPEALS (172 SCRA
136).20

In their memorandum,21 respondents reiterated their arguments in the courts below that: a) the complaints
of the petitioners in the trial court do not state causes of action for reconveyance; b) assuming the
complaints state causes of action for reconveyance, the same have already been barred by prescription; c)
the RTC does not have jurisdiction over the subject matter of the instant cases; d) the claims for
reconveyance in the complaints are barred by waiver, abandonment, or otherwise extinguished by laches
and estoppel; and e) there is no special reason warranting a review by this Court.

Since the issue of jurisdiction is determinative of the resolution of the instant case yet the CA skirted the
question, we resolved to require the parties to submit their respective Supplemental Memoranda on the
issue of jurisdiction.22

In their Supplemental Memorandum,23 petitioners contend that the nature of their complaints, as
denominated therein and as borne by their allegations, are suits for reconveyance, or annulment or
cancellation of OCTs and damages. The cases allegedly involve more than just the issue of title and
possession since the nullity of the OCTs issued to respondents and the reconveyance of the subject
properties were also raised as issues. Thus, the RTC has jurisdiction under Section 19(1) of B.P. 129, which
provides that the RTC has jurisdiction "[i]n all civil actions in which the subject of the litigation is incapable
of pecuniary estimation." Petitioners cited: a) Raymundo v. CA24 which set the criteria for determining
whether an action is one not capable of pecuniary estimation; b) Swan v. CA25 where it was held that an
action for annulment of title is under the jurisdiction of the RTC; c) Santos v. CA26 where it was similarly
held that an action for annulment of title, reversion and damages was within the jurisdiction of the RTC; and
d) Commodities Storage and ICE Plant Corporation v. CA27 where it was held that "[w]here the action
affects title to the property, it should be filed in the RTC where the property is located." Petitioners also
contend that while it may be argued that the assessed values of the subject properties are within the
original jurisdiction of the municipal trial court (MTC), they have included in their prayers "any interest
included therein" consisting of 49 felled natural grown trees illegally cut by respondents. Combining the
assessed values of the properties as shown by their respective tax declarations and the estimated value of
the trees cut, the total amount prayed by petitioners exceeds twenty thousand pesos (P20,000.00). Hence,
they contend that the RTC has jurisdiction under Section 19(2) of B.P. 129.

Jurisdiction over the subject matter is the power to hear and determine cases of the general class to which
the proceedings in question belong.28 It is conferred by law and an objection based on this ground cannot be
waived by the parties.29 To determine whether a court has jurisdiction over the subject matter of a case, it is
important to determine the nature of the cause of action and of the relief sought.30

The trial court correctly held that the instant cases involve actions for reconveyance.31 An action for
reconveyance respects the decree of registration as incontrovertible but seeks the transfer of property,
which has been wrongfully or erroneously registered in other persons' names, to its rightful and legal
owners, or to those who claim to have a better right.32 There is no special ground for an action for
reconveyance. It is enough that the aggrieved party has a legal claim on the property superior to that of the
registered owner33 and that the property has not yet passed to the hands of an innocent purchaser for
value.34

The reliefs sought by the petitioners in the instant cases typify an action for reconveyance. The following are
also the common allegations in the three complaints that are sufficient to constitute causes of action for
reconveyance, viz:

(a) That plaintiff Valeriano S. Concha, Sr. together with his spouse Dorotea Concha have painstakingly
preserve[d] the forest standing in the area [of their 24-hectare homestead] including the four hectares
untitled forest land located at the eastern portion of the forest from 1931 when they were newly married,
the date they acquired this property by occupation or possession;35

(b) That spouses Valeriano S. Concha Sr. and Dorotea P. Concha have preserved the forest trees standing in
[these parcels] of land to the exclusion of the defendants Lomocsos or other persons from 1931 up to
November 12, 1996 [for Civil Case No. 5188] and January 1997 [for Civil Case Nos. 5433 and 5434] when
defendants[,] by force, intimidation, [and] stealth[,] forcibly entered the premises, illegal[ly] cut, collected,
disposed a total of [twenty-one (21) trees for Civil Case No. 5188, twenty-two (22) trees for Civil Case No.
5433 and six (6) trees for Civil Case No. 5434] of various sizes;36

(c) That this claim is an assertion that the land is private land or that even assuming it was part of the
public domain, plaintiff had already acquired imperfect title thereto under Sec. 48(b) of [C.A.] No. 141[,]
otherwise known as the Public Land Act[,] as amended by [R.A.] No. [7691];37

(d) That [respondents and their predecessors-in-interest knew when they] surreptitiously filed38 [their
respective patent applications and were issued their respective] free patents and original certificates of title
[that the subject lots belonged to the petitioners];39

(e) [That respondents' free patents and the corresponding original certificates of titles were issued] on
account of fraud, deceit, bad faith and misrepresentation;40 and

(f) The land in question has not been transferred to an innocent purchaser.41

These cases may also be considered as actions to remove cloud on one's title as they are intended to
procure the cancellation of an instrument constituting a claim on petitioners' alleged title which was used to
injure or vex them in the enjoyment of their alleged title.42

Being in the nature of actions for reconveyance or actions to remove cloud on one's title, the applicable law
to determine which court has jurisdiction is Section 19(2) of B.P. 129, as amended by R.A. No. 7691, viz:

Section 19. Jurisdiction in Civil Cases. - - Regional Trial Courts shall exercise exclusive original jurisdiction: x
xx

(2) In all civil actions which involve the title to, or possession of, real property, or any interest therein,
where the assessed value of the property involved exceeds Twenty thousand pesos (P20,000.00) or for civil
actions in Metro Manila, where such value exceeds Fifty thousand pesos (P50,000.00) except actions for
forcible entry into and unlawful detainer of lands or buildings, original jurisdiction over which is conferred
upon the Metropolitan Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts;

x x x.

In the cases at bar, it is undisputed that the subject lots are situated in Cogon, Dipolog City and their
assessed values are less than P20,000.00, to wit:

Civil Case No. Lot No. Assessed Value

 5188 6195 P1,030.00

5433 6196-A 4,500.00

5434 6196-B 4,340.00

7529-A 1,880.00.43

Hence, the MTC clearly has jurisdiction over the instant cases.

Petitioners' contention that this case is one that is incapable of pecuniary estimation under the exclusive
original jurisdiction of the RTC pursuant to Section 19(1) of B.P. 129 is erroneous.

In a number of cases, we have held that actions for reconveyance44 of or for cancellation of title45 to or to
quiet title46 over real property are actions that fall under the classification of cases that involve "title to, or
possession of, real property, or any interest therein."

The original text of Section 19(2) of B.P. 129 as well as its forerunner, Section 44(b) of R.A. 296,47 as
amended, gave the RTCs (formerly courts of first instance) exclusive original jurisdiction "[i]n all civil
actions which involve the title to, or possession of, real property, or any interest therein, except
actions for forcible entry into and unlawful detainer of lands or buildings, original jurisdiction over which is
conferred upon Metropolitan Trial Courts, [MTCs], and Municipal Circuit Trial Courts (conferred upon the city
and municipal courts under R.A. 296, as amended)." Thus, under the old law, there was no substantial effect
on jurisdiction whether a case is one, the subject matter of which was incapable of pecuniary estimation,
under Section 19(1) of B.P. 129 or one involving title to property under Section 19(2). The distinction
between the two classes became crucial with the amendment introduced by R.A. No. 769148 in 1994 which
expanded the exclusive original jurisdiction of the first level courts to include "all civil actions which involve
title to, or possession of, real property, or any interest therein where the assessed value of the property
or interest therein does not exceed Twenty thousand pesos (P20,000.00) or, in civil actions in
Metro Manila, where such assessed value does not exceed Fifty thousand pesos (P50,000.00)
exclusive of interest, damages of whatever kind, attorney's fees, litigation expenses and
costs." Thus, under the present law, original jurisdiction over cases the subject matter of which involves
"title to, possession of, real property or any interest therein" under Section 19(2) of B.P. 129 is divided
between the first and second level courts, with the assessed value of the real property involved as the
benchmark. This amendment was introduced to "unclog the overloaded dockets of the RTCs which would
result in the speedier administration of justice."49

The cases of Raymundo v. CA50 and Commodities Storage and ICE Plant Corporation v. CA,51relied
upon by the petitioners, are inapplicable to the cases at bar. Raymundo involved a complaint for
mandatory injunction, not one for reconveyance or annulment of title. The bone of contention was whether
the case was incapable of pecuniary estimation considering petitioner's contention that the pecuniary claim
of the complaint was only attorney's fees of P10,000, hence, the MTC had jurisdiction. The Court defined the
criterion for determining whether an action is one that is incapable of pecuniary estimation and held that the
issue of whether petitioner violated the provisions of the Master Deed and Declaration of Restriction of the
Corporation is one that is incapable of pecuniary estimation. The claim for attorney's fees was merely
incidental to the principal action, hence, said amount was not determinative of the court's jurisdiction. Nor
can Commodities Storage and ICE Plant Corporationprovide any comfort to petitioners for the issue
resolved by the Court in said case was venue and not jurisdiction. The action therein was for damages,
accounting and fixing of redemption period which was filed on October 28, 1994, before the passage of R.A.
No. 7691. In resolving the issue of venue, the Court held that "[w]here the action affects title to property, it
should be instituted in the [RTC] where the property is situated. The Sta. Maria Ice Plant & Cold Storage is
located in Sta. Maria, Bulacan. The venue in Civil Case No. 94-727076 was therefore improperly laid."

Worse, the cases of Swan v. CA52 and Santos v. CA53 cited by the petitioners, contradict their own position
that the nature of the instant cases falls under Section 19(1) of B.P. 129. The complaints
in Swan and Santos were filed prior to the enactment of R.A. No. 7691. In Swan, the Court held that the
action being one for annulment of title, the RTC had original jurisdiction under Section 19(2) of B.P. 129.
In Santos, the Court similarly held that the complaint for cancellation of title, reversion and damages is also
one that involves title to and possession of real property under Section 19(2) of B.P. 129. Thus, while the
Court held that the RTC had jurisdiction, the Court classified actions for "annulment of title" and
"cancellation of title, reversion and damages" as civil actions that involve "title to, or possession of, real
property, or any interest therein" under Section 19(2) of B.P. 129.

Petitioners' contention that the value of the trees cut in the subject properties constitutes "any interest
therein (in the subject properties)" that should be computed in addition to the respective assessed values of
the subject properties is unavailing. Section 19(2) of B.P. 129, as amended by R.A. No. 7691, is clear that
the RTC shall exercise jurisdiction "in all civil actions which involve the title to, or possession of, real
property, or any interest therein, where the assessed value of the property involved exceeds Twenty
thousand pesos (P20,000.00) or for civil actions in Metro Manila, where such value exceeds Fifty
thousand pesos (P50,000.00)." It is true that the recovery of the value of the trees cut from the subject
properties may be included in the term "any interest therein." However, the law is emphatic that in
determining which court has jurisdiction, it is only the assessed value of the realty involved that should be
computed.54 In this case, there is no dispute that the assessed values of the subject properties as shown by
their tax declarations are less than P20,000.00. Clearly, jurisdiction over the instant cases belongs not to
the RTC but to the MTC.

IN VIEW WHEREOF, the decision of the Court of Appeals is hereby AFFIRMED that the RTC of Dipolog City,
Branch 9, has no jurisdiction in Civil Case Nos. 5188, 5433 and 5434.

SO ORDERED.

G.R. No. 132848-49 June 26, 2001

PHILROCK, INC., petitioner,

vs.
CONSTRUCTION INDUSTRY ARBITRATION COMMISSION and Spouses VICENTE and NELIA
CID, respondents.

PANGANIBAN, J.:

Courts encourage the use of alternative methods of dispute resolution. When parties agree to settle
their disputes arising from or connected with construction contracts, the Construction Industry
Arbitration Commission (CIAC) acquires primary jurisdiction. It may resolve not only the merits of
such controversies; when appropriate, it may also award damages, interests, attorney’s fees and
expenses of litigation.

The Case

Before us is a Petition for Review under Rule 45 of the Rules of Court. The Petition seeks the
reversal of the July 9, 1997 Decision1 and the February 24, 1998 Resolution of the Court of Appeals
(CA) in the consolidated cases docketed as CA-GR SP Nos. 39781 and 42443. The assailed
Decision disposed as follows:

"WHEREFORE, judgment is hereby rendered DENYING the petitions and,

accordingly, AFFIRMING in totothe CIAC’s decision. Costs against petitioner."2
The assailed Resolution ruled in this wise:

"Considering that the matters raised and discussed in the motion for reconsideration filed by
appellant’s counsel are substantially the same arguments which the Court had passed upon
and resolved in the decision sought to be reconsidered, and there being no new issue raised,
the subject motion is hereby DENIED."3

The Facts

The undisputed facts of the consolidated cases are summarized by the CA as follows:

"On September 14, 1992, the Cid spouses, herein private respondents, filed a Complaint for
damages against Philrock and seven of its officers and engineers with the Regional Trial
Court of Quezon City, Branch 82.

"On December 7, 1993, the initial trial date, the trial court issued an Order dismissing the
case and referring the same to the CIAC because the Cid spouses and Philrock had filed an
Agreement to Arbitrate with the CIAC.

"Thereafter, preliminary conferences were held among the parties and their appointed
arbitrators. At these conferences, disagreements arose as to whether moral and exemplary
damages and tort should be included as an issue along with breach of contract, and whether
the seven officers and engineers of Philrock who are not parties to the Agreement to
Arbitrate should be included in the arbitration proceedings. No common ground could be
reached by the parties, hence, on April 2, 1994, both the Cid spouses and Philrock
requested that the case be remanded to the trial court. On April 13, 1994, the CIAC issued
an Order stating, thus:

'x x x the Arbitral Tribunal hereby formally dismisses the above-captioned case for
referral to Branch 82 of the Regional Trial Court, Quezon City where it first
originated.

SO ORDERED.'

"The Cid spouses then filed with said Branch of the Regional Trial Court of Quezon City a
Motion To Set Case for Hearing which motion was opposed by Philrock.

"On June 13, 1995, the trial court declared that it no longer had jurisdiction over the case and
ordered the records of the case to be remanded anew to the CIAC for arbitral proceedings.

"Pursuant to the aforementioned Order of the Regional Trial C[o]urt of Quezon City, the
CIAC resumed conducting preliminary conferences. On August 21, 1995, herein [P]etitioner
Philrock requested to suspend the proceedings until the court clarified its ruling in the Order
dated June 13, 1995. Philrock argued that said Order was based on a mistaken premise that
'the proceedings in the CIAC fell through because of the refusal of [Petitioner] Philrock to
include the issue of damages therein,' whereas the true reason for the withdrawal of the case
from the CIAC was due to Philrock's opposition to the inclusion of its seven officers and
engineers, who did not give their consent to arbitration, as party defendants. On the other
hand, private respondent Nelia Cid manifested that she was willing to exclude the seven
officers and engineers of Philrock as parties to the case so as to facilitate or expedite the
proceedings. With such manifestation from the Cid spouses, the Arbitral Tribunal denied
 Philrock's request for the suspension of the proceedings. Philrock's counsel agreed to the
continuation of the proceedings but reserved the right to file a pleading elucidating the
position he [had] raised regarding the Court's Order dated June 13, 1995. The parties then
proceeded to finalize, approve and sign the Terms of Reference. Philrock's counsel and
representative, Atty. Pericles C. Consunji affixed his signature to said Terms of Reference
which stated that 'the parties agree that their differences be settled by an Arbitral Tribunal x x
x x' (p. 9, Terms of Reference, p. 200, Rollo).

"On September 12, 1995, [P]etitioner Philrock filed its Motion to Dismiss, alleging therein that
the CIAC had lost jurisdiction to hear the arbitration case due to the parties' withdrawal of
their consent to arbitrate. The motion was denied by x x x CIAC per Order dated September
22, 1995. On November 8, public respondent ordered the parties to appear before it on
November 28, 1995 for the continuation of the arbitral proceedings, and on February 7,
1996, public respondent directed [P]etitioner Philrock to set two hearing dates in the month
of February to present its evidence and to pay all fees assessed by it, otherwise x x x
Philrock would be deemed to have waived its right to present evidence.

"Hence, petitioner instituted the petition for certiorari but while said petition was pending, the
CIAC rendered its Decision dated September 24, 1996, the dispositive portion of which
reads, as follows:

'WHEREFORE, judgment is hereby rendered in favor of the Claimant, directing Respondent

to pay Claimant as follows:

1. P23,276.25 representing the excess cash payment for materials ordered by the
Claimants, (No. 7 of admitted facts) plus interests thereon at the rate of 6% per
annum from September 26, 1995 to the date payment is made.

2. P65,000.00 representing retrofitting costs.

3. P13,404.54 representing refund of the value of delivered but unworkable concrete

mix that was laid to waste.

4. P50,000.00 representing moral damages.

5. P50,000.00 representing nominal damages.

6. P50,000.00 representing attorney's fees and expenses of litigation.

7. P144,756.80 representing arbitration fees, minus such amount that may already
have been paid to CIAC by respondent.

"Let a copy of this Decision be furnished the Honorable Salvador C. Ceguera, presiding
judge, Branch 82 of Regional Trial Court of Quezon City who referred this case to the
Construction Industry Arbitration Commission for arbitration and proper disposition.' (pp. 44-
45, Rollo, CA-G.R. SP No. 42443) "4

Before the CA, petitioner filed a Petition for Review, docketed as CA-GR SP No. 42443, contesting
the jurisdiction of the CIAC and assailing the propriety of the monetary awards in favor of respondent
spouses. This Petition was consolidated by the CA with CA-GR SP No. 39781, a Petition for
Certiorari earlier elevated by petitioner questioning the jurisdiction of the CIAC.
 Ruling of the Court of Appeals

The CA upheld the jurisdiction of the CIAC5 over the dispute between petitioner and private
respondent. Under Executive Order No. 1008, the CIAC acquires jurisdiction when the parties agree
to submit their dispute to voluntary arbitration. Thus, in the present case, its jurisdiction continued
despite its April 13, 1994 Order referring the case back to the Regional Trial Court (RTC) of Quezon
City, Branch 82, the court of origin. The CIAC’s action was based on the principle that once
acquired, jurisdiction remains "until the full termination of the case unless a law provides the
contrary." No such "full termination" of the case was evident in the said Order; nor did the CIAC or
private respondents intend to put an end to the case.

Besides, according to Section 3 of the Rules of Procedure Governing Construction Arbitration,

technical rules of law or procedure are not applicable in a single arbitration or arbitral tribunal. Thus,
the "dismissal" could not have divested the CIAC of jurisdiction to ascertain the facts of the case,
arrive at a judicious resolution of the dispute and enforce its award or decision.

Since the issues concerning the monetary awards were questions of fact, the CA held that those
awards were inappropriate in a petition for certiorari. Such questions are final and not appealable
according to Section 19 of EO 1008, which provides that "arbitral awards shall be x x x final and
[u]nappealable except on questions of law which shall be appealable to the Supreme Court x x x."
Nevertheless, the CA reviewed the records and found that the awards were supported by substantial
evidence. In matters falling under the field of expertise of quasi-judicial bodies, their findings of fact
are accorded great respect when supported by substantial evidence.

Hence, this Petition.6

Issues

The petitioner, in its Memorandum, raises the following issues:

"A.

Whether or not the CIAC could take jurisdiction over the case of Respondent Cid spouses against
Petitioner Philrock after the case had been dismissed by both the RTC and the CIAC.

"B.

Whether or not Respondent Cid spouses have a cause of action against Petitioner Philrock.

"C.

Whether or not the awarding of the amount of P23,276.75 for materials ordered by Respondent
Spouses Cid plus interest thereon at the rate of 6% from 26 September 1995 is proper.

"D.

Whether or not the awarding of the amount of P65,000.00 as retrofitting costs is proper.

"E.
Whether or not the awarding of the amount of P1,340,454 for the value of the delivered but the
allegedly unworkable concrete which was wasted is proper.

"F.

Whether or not the awarding o[f] moral and nominal damages and attorney's fees and expenses of
litigation in favor of respondents is proper.

"G.

Whether or not Petitioner Philrock should be held liable for the payment of arbitration fees."7

In sum, petitioner imputes reversible error to the CA (1) for upholding the jurisdiction of the CIAC
after the latter had dismissed the case and referred it to the regular court, (2) for ruling that
respondent spouses had a cause of action against petitioner, and (3) for sustaining the award of
damages.

This Court’s Ruling

The Petition has no merit.

First Issue:

Jurisdiction

Petitioner avers that the CIAC lost jurisdiction over the arbitration case after both parties had
withdrawn their consent to arbitrate. The June 13, 1995 RTC Order remanding the case to the CIAC
for arbitration was allegedly an invalid mode of referring a case for arbitration.

We disagree. Section 4 of Executive Order 1008 expressly vests in the CIAC original and exclusive
jurisdiction over disputes arising from or connected with construction contracts entered into by
parties that have agreed to submit their dispute to voluntary arbitration.8

It is undisputed that the parties submitted themselves to the jurisdiction of the Commission by virtue
of their Agreement to Arbitrate dated November 24, 1993. Signatories to the Agreement were Atty.
Ismael J. Andres and Perry Y. Uy (president of Philippine Rock Products, Inc.) for petitioner, and
Nelia G. Cid and Atty. Esteban A. Bautista for respondent spouses.9

Petitioner claims, on the other hand, that this Agreement was withdrawn by respondents on April 8,
1994, because of the exclusion of the seven engineers of petitioners in the arbitration case. This
withdrawal became the basis for the April 13, 1994 CIAC Order dismissing the arbitration case and
referring the dispute back to the RTC. Consequently, the CIAC was divested of its jurisdiction to hear
and decide the case.

This contention is untenable. First, private respondents removed the obstacle to the continuation of
the arbitration, precisely by withdrawing their objection to the exclusion of the seven
engineers. Second, petitioner continued participating in the arbitration even after the CIAC Order
had been issued. It even concluded and signed the Terms of Reference10 on August 21, 1995, in
which the parties stipulated the circumstances leading to the dispute; summarized their respective
positions, issues, and claims; and identified the composition of the tribunal of arbitrators. The
document clearly confirms both parties’ intention and agreement to submit the dispute to voluntary
arbitration. In view of this fact, we fail to see how the CIAC could have been divested of its
jurisdiction.

Finally, as pointed out by the solicitor general, petitioner maneuvered to avoid the RTC’s final
resolution of the dispute by arguing that the regular court also lost jurisdiction after the arbitral
tribunal’s April 13, 1994 Order referring the case back to the RTC. In so doing, petitioner conceded
and estopped itself from further questioning the jurisdiction of the CIAC. The Court will not
countenance the effort of any party to subvert or defeat the objective of voluntary arbitration for its
own private motives. After submitting itself to arbitration proceedings and actively participating
therein, petitioner is estopped from assailing the jurisdiction of the CIAC, merely because the latter
rendered an adverse decision.11

Second Issue:

Cause of Action

Petitioner contends that respondent spouses were negligent in not engaging the services of an
engineer or architect who should oversee their construction, in violation of Section 308 of the
National Building Code. It adds that even if the concrete it delivered was defective, respondent
spouses should bear the loss arising from their illegal operation. In short, it alleges that they had no
cause of action against it.

We disagree. Cause of action is defined as an act or omission by which a party violates the right of
another.12 A complaint is deemed to have stated a cause of action provided it has indicated the
following: (1) the legal right of the plaintiff, (2) the correlative obligation of the defendant, and (3) the
act or the omission of the defendant in violation of the said legal right.13 The cause of action against
petitioner was clearly established. Respondents were purchasers of ready-mix concrete from
petitioner. The concrete delivered by the latter turned out to be of substandard quality. As a result,
respondents sustained damages when the structures they built using such cement developed cracks
and honeycombs. Consequently, the construction of their residence had to be stopped.

Further, the CIAC Decision clearly spelled out respondents’ cause of action against petitioner, as
follows:

"Accordingly, this Tribunal finds that the mix was of the right proportions at the time it left the
plant. This, however, does not necessarily mean that all of the concrete mix delivered had
remained workable when it reached the jobsite. It should be noted that there is no evidence
to show that all the transit mixers arrived at the site within the allowable time that would
ensure the workability of the concrete mix delivered.

"On the other hand, there is sufficiently strong evidence to show that difficulties were
encountered in the pouring of concrete mix from certain transit mixers necessitating the
[addition] of water and physically pushing the mix, obviously because the same [was] no
longer workable. This Tribunal holds that the unworkability of said concrete mix has been
firmly established.

"There is no dispute, however, to the fact that there are defects in some areas of the poured
structures. In this regard, this Tribunal holds that the only logical reason is that the
unworkable concrete was the one that was poured in the defective sections."14

Third Issue:
 Monetary Awards

Petitioner assails the monetary awards given by the arbitral tribunal for alleged lack of basis in fact
and in law. The solicitor general counters that the basis for petitioner’s assigned errors with regard to
the monetary awards is purely factual and beyond the review of this Court. Besides, Section 19, EO
1008, expressly provides that monetary awards by the CIAC are final and unappealable.

We disagree with the solicitor general. As pointed out earlier, factual findings of quasi-judicial bodies
that have acquired expertise are generally accorded great respect and even finality, if they are
supported by substantial evidence.15 The Court, however, has consistently held that despite statutory
provisions making the decisions of certain administrative agencies "final," it still takes cognizance of
petitions showing want of jurisdiction, grave abuse of discretion, violation of due process, denial of
substantial justice or erroneous interpretation of the law.16 Voluntary arbitrators, by the nature of their
functions, act in a quasi-judicial capacity, such that their decisions are within the scope of judicial
review.17

Petitioner protests the award to respondent spouses of P23,276.25 as excess payment with six
percent interest beginning September 26, 1995. It alleges that this item was neither raised as an
issue by the parties during the arbitration case, nor was its justification discussed in the CIAC
Decision. It further contends that it could not be held liable for interest, because it had earlier
tendered a check in the same amount to respondent spouses, who refused to receive it.

Petitioner’s contentions are completely untenable. Respondent Nelia G. Cid had already raised the
issue of overpayment even prior to the formal arbitration. In paragraph 9 of the Terms of Reference,
she stated:

"9. Claimants were assured that the problem and her demands had been the subject of
several staff meetings and that Arteche was very much aware of it, a memorandum having
been submitted citing all the demands of [c]laimants. This assurance was made on July 31,
1992 when Respondents Secillano, Martillano and Lomibao came to see Claimant Nelia Cid
and offered to refund P23,276.25, [t]he difference between the billing by Philrock’s Marketing
Department in the amount of P125,586.25 and the amount charged by Philrock's Batching
Plant Department in the amount of only P102,586.25, which [c]laimant refused to accept by
saying, ‘Saka na lang’."18

The same issue was discussed during the hearing before the arbitration tribunal on December 19,
1995.19 It was also mentioned in that tribunal’s Decision dated September 24, 1996.20

The payment of interest is based on Article 2209 of the Civil Code, which provides that if the
obligation consists of the payment of a sum of money, and the debtor incurs delay, the indemnity for
damages shall be the payment of legal interest which is six per cent per annum, in the absence of a
stipulation of the rate.

Awards for Retrofitting Costs, Wasted Unworkable

But Delivered Concrete, and Arbitration Fees

Petitioner maintains that the defects in the concrete structure were due to respondent spouses’
failure to secure the services of an engineer or architect to supervise their project. Hence, it claims
that the award for retrofitting cost was without legal basis. It also denies liability for the wasted
unworkable but delivered concrete, for which the arbitral court awarded P13,404.54. Finally, it
complains against the award of litigation expenses, inasmuch as the case should not have been
instituted at all had respondents complied with the requirements of the National Building Code.
We are unconvinced. Not only did respondents disprove the contention of petitioner; they also
showed that they sustained damages due to the defective concrete it had delivered. These were
items of actual damages they sustained due to its breach of contract.

Moral and Nominal Damages, Attorney’s Fees and Costs

Petitioner assails the award of moral damages, claiming no malice or bad faith on its part.

We disagree. Respondents were deprived of the comfort and the safety of a house and were
exposed to the agony of witnessing the wastage and the decay of the structure for more than seven
years. In her Memorandum, Respondent Nelia G. Cid describes her family’s sufferings arising from
the unreasonable delay in the construction of their residence, as follows: "The family lives separately
for lack of space to stay in. Mrs. Cid is staying in a small dingy bodega, while her son occupies
another makeshift room. Their only daughter stayed with her aunt from 1992 until she got married in
1996. x x x."21 The Court also notes that during the pendency of the case, Respondent Vicente Cid
died without seeing the completion of their home.22 Under the circumstances, the award of moral
damages is proper.

Petitioner also contends that nominal damages should not have been granted, because it did not
breach its obligation to respondent spouses.

Nominal damages are recoverable only if no actual or substantial damages resulted from the breach,
or no damage was or can be shown.23 Since actual damages have been proven by private
respondents for which they were amply compensated, they are no longer entitled to nominal
damages.

Petitioner protests the grant of attorney’s fees, arguing that respondent spouses did not engage the
services of legal counsel. Also, it contends that attorney’s fees and litigation expenses are awarded
only if the opposing party acted in gross and evident bad faith in refusing to satisfy plaintiff’s valid,
just and demandable claim.

We disagree. The award is not only for attorney’s fees, but also for expenses of litigation. Hence, it
does not matter if respondents represented themselves in court, because it is obvious that they
incurred expenses in pursuing their action before the CIAC, as well as the regular and the appellate
courts. We find no reason to disturb this award. 1âwphi1.nêt

WHEREFORE, the Petition is DENIED and the assailed Decision AFFIRMED; however, the award
of nominal damages is DELETED for lack of legal basis. Costs against petitioner.

SO ORDERED.

Melo, Vitug, Gonzaga-Reyes, Sandoval-Gutierrez, JJ., concur.

G.R. No. 186979 August 11, 2010

SOCORRO LIMOS, ROSA DELOS REYES and SPOUSES ROLANDO DELOS REYES and
EUGENE DELOS REYES Petitioners,
vs.
SPOUSES FRANCISCO P. ODONES and ARWENIA R. ODONES, Respondents.

DECISION

NACHURA, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the August
14, 2008 Decision1 of the Court of Appeals (CA) in C.A. GR. SP No. 97668 and its Resolution2 dated
March 9, 2009 denying petitioners’ motion for reconsideration.

The impugned Decision affirmed the resolution dated November 16, 20063 and Order dated January
5, 20074 of the trial court, which respectively denied petitioners’ Motion to Set for Preliminary Hearing
the Special and Affirmative Defenses5 and motion for reconsideration.6

The antecedents:

On June 17, 2005, private respondents-spouses Francisco Odones and Arwenia Odones, filed a
complaint for Annulment of Deed, Title and Damages against petitioners Socorro Limos, Rosa Delos
Reyes and Spouses Rolando Delos Reyes and Eugene Delos Reyes, docketed as Civil Case No.
05-33 before the Regional Trial Court (RTC) of Camiling, Tarlac, Branch 68.

The complaint alleged that spouses Odones are the owners of a 940- square meter parcel of land
located at Pao 1st, Camiling, Tarlac by virtue of an Extrajudicial Succession of Estate and Sale
dated, January 29, 2004, executed by the surviving grandchildren and heirs of Donata Lardizabal in
whom the original title to the land was registered. These heirs were Soledad Razalan Lagasca,
Ceferina Razalan Cativo, Rogelio Lagasca Razalan and Dominador Razalan.

It took a while before respondents decided to register the document of conveyance; and when they
did, they found out that the land’s Original Certificate of Title (OCT) was cancelled on April 27, 2005
and replaced by Transfer Certificate of Title (TCT) No. 329427 in the name of herein petitioners.

Petitioners were able to secure TCT No. 329427 by virtue of a Deed of Absolute Sale allegedly
executed by Donata Lardizabal and her husband Francisco Razalan on April 18, 1972.

Petitioners then subdivided the lot among themselves and had TCT No. 329427 cancelled. In lieu
thereof, three new TCTs were issued: TCT No. 392428 in the names of Socorro Limos and spouses
Rolando Delos Reyes and Eugene Delos Reyes, TCT No. 392429 in the names of Spouses delos
Reyes and TCT No. 392430 in the name of Rosa Delos Reyes.

Respondents sought the cancellation of these new TCTs on the ground that the signatures of
Donata Lardizabal and Francisco Razalan in the 1972 Deed of Absolute Sale were forgeries,
because they died on June 30, 1926 and June 5, 1971, respectively.7

In response, petitioners filed a Motion for Bill of Particulars8 claiming ambiguity in respondents’ claim
that their vendors are the only heirs of Donata Lardizabal. Finding no merit in the motion, the trial
court denied the same and ordered petitioners to file their answer to the complaint.9

In their answer,10 petitioners pleaded affirmative defenses, which also constitute grounds for
dismissal of the complaint. These grounds were: (1) failure to state a cause of action inasmuch as
the basis of respondents’ alleged title is void, since the Extrajudicial Succession of Estate and Sale
was not published and it contained formal defects, the vendors are not the legal heirs of Donata
Lardizabal, and respondents are not the real parties-in-interest to question the title of petitioners,
because no transaction ever occurred between them; (2) non-joinder of the other heirs of Donata
Lardizabal as indispensable parties; and (3) respondents’ claim is barred by laches.

In their Reply, respondents denied the foregoing affirmative defenses, and insisted that the
Extrajudicial Succession of Estate and Sale was valid. They maintained their standing as owners of
the subject parcel of land and the nullity of the 1972 Absolute Deed of Sale, upon which respondents
anchor their purported title.11 They appended the sworn statement of Amadeo Razalan declaring,
among other things that:

(2) Na hindi ko minana at ibinenta ang nasabing lupa kay Socorro Limos at Rosa delos
Reyes at hindi totoo na ako lang ang tagapagmana ni Donata Lardizabal;

xxxx

(4) Ang aming lola na si Donata Lardizabal ay may tatlong (3) anak na patay na sina Tomas
Razalan, Clemente Razalan at Tomasa Razalan;

(5) Ang mga buhay na anak ni Tomas Razalan ay sina; 1. Soledad Razalan; 2. Ceferina
Razalan; 3. Dominador Razalan; at 4. Amadeo Razalan. Ang mga buhay na anak ni
Clemente Razalan ay sina 1. Rogelio Lagasca (isang abnormal). Ang mga buhay na anak ni
Tomasa Razalan ay sina 1. Sotera Razalan at 2 pang kapatid;

x x x x12

Thereafter, petitioners served upon respondents a Request for Admission of the following matters:

1. That the husband of the deceased Donata Lardizabal is Francisco Razalan;

2. That the children of the deceased Sps. Donata Lardizabal and Francisco Razalan are
Mercedes Razalan, Tomasa Razalan and Tomas Razalan;

3. That this Tomasa Razalan died on April 27, 1997, if not when? [A]nd her heirs are (a)
Melecio Partido surviving husband, and her surviving children are (b) Eduardo Partido
married to Elisa Filiana, (c) Enrique Razalan Partido married to Lorlita Loriana, (d) Eduardo
Razalan Partido, (e) Sotera Razalan Partido married to James Dil-is and (f) Raymundo
Razalan Partido married to Nemesia Aczuara, and all residents of Camiling, Tarlac.

4. That Amadeo Razalan is claiming also to be a grandchild and also claiming to be sole
forced heir of Donata Lardizabal pursuant to the Succession by a Sole Heir with Sale dated
January 24, 2000, executed before Atty. Rodolfo V. Robinos.

5. That Amadeo Razalan is not among those who signed the Extra[j]udicial Succession of
Estate and Sale dated January 29, 2004 allegedly executed in favor of the plaintiffs, Sps.
Francisco/Arwenia Odones;

6. That as per Sinumpaang Salaysay of Amadeo Razalan which was submitted by the
plaintiffs, the children of Tomasa Razalan are Sotera Razalan and 2 brothers/sisters. These
children of Tomasa Razalan did not also sign the Extra[j]udicial Succession of Estate and
Sale;
 7. That there is/are no heirs of Clemente Razalan who appeared to have executed the
Extra[j]udicial Succession of Estate and Sale;

8. That Soledad Razalan Lagasca, Ceferina Razalan Cativo, Rogelio Lagasca Razalan and
Dominador Razalan did not file any letters (sic) of administration nor declaration of heirship
before executing the alleged Extra[j]udicial Succession of Estate and Sale in favor of
plaintiffs.13

Respondents failed to respond to the Request for Admission, prompting petitioners to file a Motion to
Set for Preliminary Hearing on the Special and Affirmative Defenses,14 arguing that respondents’
failure to respond or object to the Request for Admission amounted to an implied admission
pursuant to Section 2 of Rule 26 of the Rules of Court. As such, a hearing on the affirmative
defenses had become imperative because petitioners were no longer required to present evidence
on the admitted facts.

Respondents filed a comment on the Motion, contending that the facts sought to be admitted by
petitioners were not material and relevant to the issue of the case as required by Rule 26 of the
Rules of Court. Respondents emphasized that the only attendant issue was whether the 1972 Deed
of Absolute Sale upon which petitioners base their TCTs is valid.15

In its Resolution dated November 16, 2006, the RTC denied the Motion and held that item nos. 1 to
4 in the Request for Admission were earlier pleaded as affirmative defenses in petitioners’ Answer,
to which respondents already replied on July 17, 2006. Hence, it would be redundant for
respondents to make another denial. The trial court further observed that item nos. 5, 6, and 7 in the
Request for Admission were already effectively denied by the Extrajudicial Succession of Estate and
Sale appended to the complaint and by the Sinumpaang Salaysay of Amadeo Razalan attached to
respondents’ Reply.16 Petitioners moved for reconsideration17 but the same was denied in an Order
dated January 5, 2007.18

Petitioners elevated this incident to the CA by way of a special civil action for certiorari, alleging
grave abuse of discretion on the part of the RTC in issuing the impugned resolution and order.

On August 14, 2008, the CA dismissed the petition ruling that the affirmative defenses raised by
petitioners were not indubitable, and could be best proven in a full-blown hearing.19

Their motion for reconsideration20 having been denied,21 petitioners are now before this Court
seeking a review of the CA’s pronouncements.

In essence, petitioners contend that the affirmative defenses raised in their Motion are indubitable,
as they were impliedly admitted by respondents when they failed to respond to the Request for
Admission. As such, a preliminary hearing on the said affirmative defenses must be conducted
pursuant to our ruling in Gochan v. Gochan.22

We deny the petition.

Pertinent to the present controversy are the rules on modes of discovery set forth in Sections 1 and
2 of Rule 26 of the Rules of Court, viz:

Section 1. Request for admission. – At any time after issues have been joined, a party may file and
serve upon any other party a written request for the admission by the latter of the genuineness of
any material and relevant document described in and exhibited with the request or of the truth of any
material and relevant matter of fact set forth in the request. Copies of the documents shall be
delivered with the request unless copies have already been furnished.

SEC. 2 Implied admission. – Each of the matters of which an admission is requested shall be
deemed admitted unless, within a period designated in the request, which shall be not less than
fifteen (15) days after service thereof, or within such further time as the court may allow on motion,
the party to whom the request is directed files and serves upon the party requesting the admission a
sworn statement either denying specifically the matters for which an admission is requested or
setting forth in detail the reasons why he cannot truthfully either admit or deny those matters.

xxxx

Under these rules, a party who fails to respond to a Request for Admission shall be deemed to have
impliedly admitted all the matters contained therein. It must be emphasized, however, that the
application of the rules on modes of discovery rests upon the sound discretion of the court.

As such, it is the duty of the courts to examine thoroughly the circumstances of each case and to
determine the applicability of the modes of discovery, bearing always in mind the aim to attain an
expeditious administration of justice.23

The determination of the sanction to be imposed upon a party who fails to comply with the modes of
discovery also rests on sound judicial discretion.24 Corollarily, this discretion carries with it the
determination of whether or not to impose the sanctions attributable to such fault.

As correctly observed by the trial court, the matters set forth in petitioners’ Request for Admission
were the same affirmative defenses pleaded in their Answer which respondents already traversed in
their Reply. The said defenses were likewise sufficiently controverted in the complaint and its
annexes. In effect, petitioners sought to compel respondents to deny once again the very matters
they had already denied, a redundancy, which if abetted, will serve no purpose but to delay the
proceedings and thus defeat the purpose of the rule on admission as a mode of discovery which is
"to expedite trial and relieve parties of the costs of proving facts which will not be disputed on trial
and the truth of which can be ascertained by reasonable inquiry."25

A request for admission is not intended to merely reproduce or reiterate the allegations of the
requesting party’s pleading but should set forth relevant evidentiary matters of fact described in the
request, whose

purpose is to establish said party’s cause of action or defense. Unless it serves that purpose, it is
pointless, useless, and a mere redundancy.26

Verily then, if the trial court finds that the matters in a Request for Admission were already admitted
or denied in previous pleadings by the requested party, the latter cannot be compelled to admit or
deny them anew. In turn, the requesting party cannot reasonably expect a response to the request
and thereafter, assume or even demand the application of the implied admission rule in Section 2,
Rule 26.

In this case, the redundant and unnecessarily vexatious nature of petitioners’ Request for Admission
rendered it ineffectual, futile, and irrelevant so as to proscribe the operation of the implied admission
rule in Section 2, Rule 26 of the Rules of Court. There being no implied admission attributable to
respondents’ failure to respond, the argument that a preliminary hearing is imperative loses its point.
Moreover, jurisprudence27 has always been firm and constant in declaring that when the affirmative
defense raised is failure to state a cause of action, a preliminary hearing thereon is unnecessary,
erroneous, and improvident.

In any event, a perusal of respondents’ complaint shows that it was sufficiently clothed with a cause
of action and they were suited to file the same.

In an action for annulment of title, the complaint must contain the following allegations: (1) that the
contested land was privately owned by the plaintiff prior to the issuance of the assailed certificate of
title to the defendant; and (2) that the defendant perpetuated a fraud or committed a mistake in
obtaining a document of title over the parcel of land claimed by the plaintiff.28

Such action goes into the issue of ownership of the land covered by a Torrens title, hence, the relief
generally prayed for by the plaintiff is to be declared as the land’s true owner.29 Thus, the real party-
in-interest is the person claiming title or ownership adverse to that of the registered owner.30

The herein complaint alleged: (1) that respondents are the owners and occupants of a parcel of land
located at Pao 1st Camiling, Tarlac, covered by OCT No. 11560 in the name of Donata Lardizabal
by virtue of an Extrajudicial Succession of Estate and Sale; and (2) that petitioners fraudulently
caused the cancellation of OCT No. 11560 and the issuance of new TCTs in their names by
presenting a Deed of Absolute Sale with the forged signatures of Donata Lardizabal and her
husband, Francisco Razalan.

The absence of any transaction between petitioners and respondents over the land is of no moment,
as the thrust of the controversy is the respondents’ adverse claims of rightful title and ownership
over the same property, which arose precisely because of the conflicting sources of their respective
claims.

As to the validity of the Extrajudicial Succession of Estate and Sale and the status of petitioners’
predecessors-in-interest as the only heirs of Donata Lardizabal, these issues go into the merits of
the parties’ respective claims and defenses that can be best determined on the basis of
preponderance of the evidence they will adduce in a full-blown trial. A preliminary hearing, the
objective of which is for the court to determine whether or not the case should proceed to trial, will
not sufficiently address such issues.

Anent the alleged non-joinder of indispensable parties, it is settled that the non-joinder of
indispensable parties is not a ground for the dismissal of an action. The remedy is to implead the
non-party claimed to be indispensable. Parties may be added by order of the court on motion of the
party or on its own initiative at any stage of the action and/or such times as are just. It is only when
the plaintiff refuses to implead an indispensable party despite the order of the court, that the latter
may dismiss the complaint.31 In this case, no such order was issued by the trial court. 1aw phi 1

Equally settled is the fact that laches is evidentiary in nature and it may not be established by mere
allegations in the pleadings and can not be resolved in a motion to dismiss.32

Finally, we cannot subscribe to petitioners’ contention that the status of the heirs of Donata
Lardizabal who sold the property to the respondents must first be established in a special
proceeding. The pronouncements in Heirs of Yaptinchay v. Hon. Del Rosario33 and in Reyes v.
Enriquez34 that the petitioners invoke do not find application in the present controversy.

In both cases, this Court held that the declaration of heirship can be made only in a special
proceeding and not in a civil action. It must be noted that in Yaptinchay and Enriquez, plaintiffs’
action for annulment of title was anchored on their alleged status as heirs of the original owner
whereas in this case, the respondents’ claim is rooted on a sale transaction. Respondents herein are
enforcing their rights as buyers in good faith and for value of the subject land and not as heirs of the
original owner. Unlike in Yaptinchay and Enriquez, the filiation of herein respondents to the original
owner is not determinative of their right to claim title to and ownership of the property.

WHEREFORE, foregoing considered, the instant Petition is DENIED. The Decision of the Court of
Appeals dated August 14, 2008 and its Resolution dated March 9, 2009 are hereby AFFIRMED.

SO ORDERED.

G.R. No. 190432

ASIA BREWERY, INC. and CHARLIE S. GO, Petitioners,

vs.
EQUITABLE PCI BANK (now BANCO DE ORO-EPCI, INC.), Respondents

DECISION

SERENO, CJ,:

This is a petition for review1 under Rule 45 assailing the Orders2 of the Regional Trial Court (RTC) of
Makati City in Civil Case No. 04-336. The RTC ordered the dismissal of petitioners' Complaint for
lack of cause of action and denied their motion for reconsideration.

Petitioner Asia Brewery, Inc. (ABI) is a corporation organized and existing under the laws of the
Philippines, while petitioner Charlie S. Go (Go) was, at the time of the filing of this Petition, its
assistant vice president for finance.3Respondent is a banking institution also organized and existing
under the laws of the Philippines.4

On 23 March 2004, petitioners filed a Complaint5 for payment, reimbursement, or restitution against
respondent before the RTC. On 7 May 2004, the latter filed its Answer (with Counterclaims),6 in
which it also raised the special and/or affirmative defense of lack of cause of action, among others.

Records show that after an exchange of pleadings between the parties,7 the RTC issued the assailed
Orders without proceeding to trial. It dismissed the Complaint for lack of cause of action, and also
denied respondent's counterclaims. Respondent did not appeal from that ruling. Only petitioners
moved for reconsideration, but their motion was likewise denied.

ANTECEDENT FACTS

The antecedent facts, as alleged by petitioners, are as follows:

Within the period of September 1996 to July 1998, 10 checks and 16 demand drafts (collectively,
"instruments") were issued in the name of Charlie Go.8 The instruments, with a total value of
₱3,785,257.38, bore the annotation "endorsed by PCI Bank, Ayala Branch, All Prior Endorsement
And/Or Lack of Endorsement Guaranteed."9 All the demand drafts, except those issued by the
Lucena City and Ozamis branches of Allied Bank, were crossed. 10

In their Complaint, petitioners narrate:

10. None of the above checks and demand drafts set out under the First, Second, Third, Fourth,
Fifth, and Sixth Causes of Action reached payee, co-plaintiff Charlie S. Go.

11. All of the above checks and demand drafts fell into the hands of a certain Raymond U. Keh, then
a Sales Accounting Manager of plaintiff Asia Brewery, Inc., who falsely, willfully, and maliciously
pretending to be the payee, co-plaintiff Charlie S. Go, succeeded in opening accounts with
defendant Equitable PCI Bank in the name of Charlie Go and thereafter deposited the said checks
and demand drafts in said accounts and withdrew the proceeds thereof to the damage and prejudice
of plaintiff Asia Brewery, Inc. 11

Raymond Keh was allegedly charged with and convicted of theft and ordered to pay the value of the
checks, but not a single centavo was collected, because he jumped bail and left the country while
the cases were still being tried. 12

In demanding payment from respondent, petitioners relied on Associated Bank v. CA, 13 in which this
Court held "the possession of check on a forged or unauthorized indorsement is wrongful, and when
the money is collected on the check, the bank can be held for moneys had and received." 14

In its Answer, respondent interpreted paragraphs 10 and 11 of the Complaint as an admission that
the instruments had not been delivered to the payee, petitioner Go. 15 It argued that the Complaint
failed to state a cause of action and that petitioners had no cause of action against it, because I) the
Complaint failed to indicate that ABI was a party to any of the instruments; 16 and 2) Go never
became the holder or owner of the instruments due to nondelivery and, hence, did not acquire any
right or interest. 17 Respondent also opined that the claims were only enforceable against the drawers
of the checks and the purchasers of the demand drafts, and not against it as a mere "presentor
bank," because the nondelivery to Go was analogous to payment to a wrong party. 18

Respondent argued that Development Bank of Rizal v. Sima Wei 19 was squarely applicable to the
case and cited these portions of the Decision therein:20

Thus, the payee of a negotiable instrument acquires no interest with respect thereto until its delivery
to him. Delivery of an instrument means transfer of possession, actual or constructive, from one
person to another. Without the initial delivery of the instrument from the drawer to the payee, there
can be no liability on the instrument. Moreover, such delivery must be intended to give effect to the
instrument.

The allegations of the petitioner in the original complaint show that the two (2) China Bank checks.
numbered 384934 and 384935, were not delivered to the payee, the petitioner herein. Without the
delivery of said checks to petitioner-payee, the former did not acquire any right or interest therein
and cannot therefore assert any cause of action,founded on said checks, whether against the drawer
Sima Wei or against the Producers Bank or any of the other respondents.

xxxx

However, insofar as the other respondents are concerned, petitioner Bank has no privity with them.
Since petitioner Bank never received the checks on which it based its action against said
respondents, it never owned them (the checks) nor did it acquire any interest therein. Thus, anything
which the respondents may have done with respect to said checks could not have prejudiced
petitioner Bank. It had no right or interest in the checks which could have been violakd hy said
respondents. Petitioner Bank has therefore no cause of action against said respondents, in the
alternative or otherwise. If at all it is Sima Wei, the drawer, who would have a cause of action against
her co-respondents, if the allegations in the complaint are found to be true.

The RTC agreed with respondent that Development Bank v. Sima Wei was applicable.21 It ruled that
petitioners could not have any cause of action against respondent, because the instruments had
never been delivered; and that the cause of action pertained to the drawers of the checks and the
purchasers of the demand drafts.22 As to the propriety of a direct suit against respondent, the trial
court found that the former exercised diligence in ascertaining the true identity of Charlie Go,
although he later turned out to be an impostor. This was unlike the finding in Associated Bank v.
CA23 where the collecting bank allowed a person who was clearly not the payee to deposit the
checks and withdraw the amounts.24

ISSUES

Petitioners argue that the trial court seriously erred in dismissing their Complaint for lack of cause of
action. They maintain that the al legations were sufficient to establish a cause of action in favor of
Go.25 They insist that the allegation that the instruments were payable to Go was sutTtcient to
establish a cause of action.26 According to them, the fact that the instruments never reached the
payee did not mean that there was no delivery, because delivery can be either actual or
constructive. 27 They point out that Section 16 of the Negotiable Instruments Law even provides for a
presumption of delivery. 28 They further argue that the defense of lack of delivery is personal to the
maker or drawer, and that respondent was neither.29 Petitioners emphasize that all the instruments
were crossed (except those issued by the Lucena and Ozamis branches of Allied Bank) and bore
the annotation by respondent that: "[A]ll prior endorsement and/or lack of endorsement guaranteed."
In this light, the bank was allegedly estopped from claiming nondelivery.30

Petitioners observe that there was no other reason given for the dismissal of the case aside from
lack of cause of action. They stress that not a single witness or documentary evidence was
presented in support of the affirmative defense.31

COURT'S RULING

A reading of the Order dated 30 January 2008 reveals that the RTC dismissed the Complaint for lack
of cause of action prior to trial. At that time, this Court, in the 2003 case Bank of America NT&SA v.
CA, 32 had already emphasized that lack or absence of cause of action is not a ground for the
dismissal of a complaint; and that the issue may only be raised after questions of fact have been
resolved on the basis of stipulations, admissions, or evidence presented.

In this case, the trial court proceeded to rule in favor of the dismissal simply because it believed that
the facts of another case were "[o]n all fours [with] the instant controversy."33 It was gravely
erroneous, and deeply alarming, for the RTC to have reached such a conclusion without first
establishing the facts of the case pending before it. It must be noted that the documents submitted to
it were mere photocopies that had yet to be examined, proven, authenticated, and admitted.

We are compelled to correct this glaring and serious error committed by the trial court. Accordingly,
we grant the petition.
Failure to state a cause of action is not the same as lack of cause of action; the terms are not
interchangeable. It may be observed that lack of cause of action is not among the grounds that may
be raised in a motion to dismiss under Rule 16 of the Rules of Court. The dismissal of a Complaint
for lack of cause of action is based on Section 1 of Rule 33, which provides:

Section 1. Demurrer to evidence. - After the plaintiff has completed the presentation of his evidence,
the defendant may move for dismissal on the ground that upon the facts and the law the plaintiff has
shown no right to relief. If his motion is denied he shall have the right to present evidence. If the
motion is granted but on appeal the order of dismissal is reversed he shall be deemed to have
waived the right to present evidence. (Emphasis supplied)

If the Complaint fails to state a cause of action, a motion to dismiss must be made before a
responsive pleading is filed; and the issue can be resolved only on the basis of the allegations in the
initiatory pleading.34 On the other hand, if the Complaint lacks a cause of action, the motion to
dismiss must be filed after the plaintiff has rested its case. 35

In the first situation, the veracity of the allegations is immaterial; however, in the second situation,
the judge must determine the veracity of the allegations based on the evidence presented. 36

In PNB v. Spouses Rivera, 37 this Court upheld the CA ruling that the trial court therein erred in
dismissing the Complaint on the ground of lack of cause of action. We said that ''dismissal due to
lack of cause of action may be raised any time after the questions of fact have been resolved on the
basis of stipulations, admissions, or evidence presented by the plaintiff."38 In the case at bar, the
action has not even reached the pretrial stage.

In Pamaran v. Bank of Commerce, 39 petitioners came directly to this Court and raised the issue of
whether the trial court had erred in dismissing its Complaint only upon a motion to dismiss by way of
affirmative defenses raised in the Answer of the defendant therein. The Court ruled then:

Not only did the RTC Olongapo disregard the allegations in the Complaint, it also failed to
consider that the Bankcom's arguments necessitate the examination of the evidence that can
be done through a full-blown trial. The determination of whether Rosa has a right over the subject
house and of whether Bankcom violated this right cannot be addressed in a mere motion to dismiss.
Such determination requires the contravention of the allegations in the Complaint and the full
adjudication of the merits of the case based on all the evidence adduced by the parties. (Emphasis
supplied)

In the same manner, the arguments raised by both of the parties to this case require an examination
of evidence. Even a determination of whether there was "delivery" in the legal sense necessitates a
presentation of evidence. It was erroneous for the RTC to have concluded that there was no
delivery, just because the checks did not reach the payee. It failed to consider Section 16 of the
Negotiable Instruments Law, which envisions instances when instruments may have been delivered
to a person other than the payee. The provision states:

Sec. 16. Delivery; when effectual; when presumed. - Every contract on a negotiable instrument is
incomplete and revocable until delivery of the instrument for the purpose of giving effect thereto. As
between immediate parties and as regards a remote party other than a holder in due course,
the delivery, in order to be effectual, must be made either by or under the authority of the party
making, drawing, accepting, or indorsing, as the case may he; and, in such case, the delivery may
be shown to have been conditional, or for a special purpose only, and not for the purpose of
transferring the property in the instrument. But where the instrument is in the hands of a holder in
due course, a valid delivery thereof by all parties prior to him so as to make them liable to him is
conclusively presumed. And where the instrument is no longer in the possession of a party
whose signature appears thereon, a valid and intentional delivery by him is presumed until
the contrary is proved. (Emphasis supplied)

Hence, in order to resolve whether the Complaint lacked a cause of action, respondent must have
presented evidence to dispute the presumption that the signatories validly and intentionally delivered
the instrument.

Even assuming that the trial court merely used the wrong terminology, that it intended to dismiss the
Complaint on the ground of failure to state a cause of action, the Complaint would still have to be
reinstated.

The test to determine whether a complaint states a cause of action against the defendants is this:
admitting hypothetically the truth of the allegations of fact made in the complaint, may a judge validly
grant the relief demanded in the complaint?40

We believe that petitioner met this test.

A cause of action has three elements: 1) the legal right of the plaintiff; 2) the correlative obligation of
the defendant not to violate the right; and 3) the act or omission of the defendant in violation of that
legal right.41 In the case at bar, petitioners alleged in their Complaint as follows:

1) They have a legal right to be paid for the value of the instruments.

18. In the said case of Associated Bank vs. Court of Appeals, it was held that the "weight of authority
is to the effect that 'the possession of a check on a forged or unauthorized indorsement is wrongful,
and when the money is collected on the check, the bank can be held for moneys had and received.'
The proceeds are held for the rightful owner of the payment and may be recovered by him. The
position of the bank taking the check on the forged or unauthorized indorsement is the same as if it
had taken the check and collected without indorsement at all. The act of the bank amounts to
conversion of the check. "42

2) Respondent has a correlative obligation to pay, having guaranteed all prior endorsements.

15. All of the commercial checks and demand drafts mentioned in the First, Second, Third, Fourth,
Fifth and Sixth Causes of Action were endorsed by PCI-Bank-Ayala Branch "All Prior Endorsement
And / Or Lack of Endorsement Guaranteed. 43

3) Respondent refused to pay despite demand.

17. In a letter dated 19 November 2003 which was duly received by defendant Equitable PCI Bank,
Legal Services Division, on December 17, 2003, plaintiff Charlie S. Go, relying on the decision in
Associated Bank v. Court of Appeals, 208 SCRA 465, demanded from defendant Equitable PCI
Bank payment, reimbursement or restitution of the value of the commercial checks and demand
drafts mentioned in the First, Second, Third, Fourth, Fifth and Sixth Causes of Action. x x x
1âwphi 1

xxxx

19. Instead of acceding to plaintiffs' valid and justifiable demand, defendant Equitable PCI Bank
refused x x x.44
It is of no moment that respondent denies that it has any obligation to pay. In determining the
presence of the elements, the inquiry is confined to the four corners of the complaint.45 In fact, even if
some of the allegations are in the form of conclusions of law, the elements of a cause of action may
still be present. 46

The Court believes that it need not delve into the issue of whether the instruments have been
delivered, because it is a matter of defense that would have to be proven during trial on the merits.
In Aquino v. Quiazon, 47 we held that if the allegations in a complaint furnish sufficient basis on which
the suit may be maintained, the complaint should not be dismissed regardless of the defenses that
may be raised by the defendants.48 In other words, "[a]n affirmative defense, raising the ground that
there is no cause of action as against the defendants poses a question of fact that should be
resolved after the conduct of the trial on the merits."49

WHEREFORE, the petition is GRANTED. The Order dated 30 January 2008 issued by Judge
Benjamin T. Pozon and the Order dated 23 November 2009 issued by Judge Winlove Dumayas in
Civil Case No. 04- 336 are REVERSED and SET ASIDE. The Complaint is REINSTATED, and the
case is ordered REMANDED to the Regional Trial Court of Makati City for further proceedings. Let
the records of the case be likewise remanded to the court a quo.

SO ORDERED.

THIRD DIVISION
[ G.R. No. 197358, April 05, 2017 ]
BUTUAN DEVELOPMENT CORPORATION (BDC), PETITIONER, VS. THE
TWENTY-FIRST DIVISION OF THE HONORABLE COURT OF APPEALS
(MINDANAO STATION), MAX ARRIOLA, JR., DE ORO RESOURCES, INC. (DORI)
AND LOUIE A. LIBARIOS, RESPONDENTS.

DECISION
REYES, J.:
This is a petition for certiorari[1] under Rule 65 of the Rules of Court seeking to annul and set aside the
Decision[2]dated January 14, 2011 and Resolution[3] dated May 24, 2011 issued by the Court of Appeals (CA) in CA-
G.R. SP No. 01473.

The Facts

On March 31, 1966, Butuan Development Corporation (BDC), which was then still in the process of incorporation,
through its then President Edmundo Satorre (Satorre), purchased from the Spouses Jose and Socorro Sering
(Spouses Sering) a 7.6923-hectare parcel of land situated in Butuan City (subject property).[4] Thus, on January 28,
1969, the Registry of Deeds for Butuan City issued Transfer Certificate of Title (TCT) No. RT-4724[5] in the name of
BDC.[6]

On May 5, 1998, Max L. Arriola, Jr. (Max Jr.), representing himself as the Chairman of BDC and armed with a duly
notarized Resolution[7] of the BDC Board of Directors therefor, mortgaged the subject property to De Oro Resources,
Inc. (DORI) and its President Louie A. Libarios (Libarios).[8]

On May 13, 2002, Satorre, together with Ma. Laurisse Satorre-Gabor, Liza Therese Satorre-Balansag, Edmundo C.
Satorre II, and Leslie Mae Satorre-King, executed the Articles of Incorporation[9] of BDC. The Securities and
Exchange Commission approved the Articles of Incorporation and issued the Certificate of Incorporation[10] of BDC on
May 23, 2002.
On August 23, 2005, BDC filed a complaint for declaration of nullity of real estate mortgage [11] (REM) with the
Regional Trial Court (RTC) of Agusan del Norte and Butuan City against Max Jr., Libarios, and DORI (collectively, the
respondents), and Casilda L. Arriola, Rebecca J. Arriola, and Joseph L. Arriola. It alleged that, sometime in 2004, it
discovered that the owner's duplicate copy of TCT No. RT-4724 was missing and efforts to locate the same proved
futile. However, it subsequently discovered that the owner's duplicate copy of TCT No. RT-4724 was already in
Libario's possession, pursuant to the REM executed by the Arriolas who misrepresented themselves as the owners
and directors of BDC.[12] Accordingly, claiming that the said REM was a nullity, BDC prayed that the same be
nullified.[13]

In their answer,[14] Libarios and DORI denied that the Arriolas misrepresented themselves as the directors of BDC
since, at the time of the execution of the REM, the Arriolas had possession of the subject property and the owner's
duplicate copy of TCT No. RT-4724.[15] Further, the tax declaration over the subject property filed with the Butuan City
Assessor's Office indicated that Max Arriola, Sr. (Max Sr.) was the administrator of the subject property.[16]

As special and affirmative defense, Libarios and DORI claimed that the complaint filed by BDC should be dismissed
outright for failing to state a cause of action since at the time of the execution of the REM on May 5, 1998, BDC did
not yet exist, having been incorporated only on May 23, 2002, and, hence, could not have claimed ownership of the
subject property.[17]

Max Jr., in his Answer,[18] echoed the foregoing contentions set forth by Libarios and DORI and, additionally, claimed
that the owner's duplicate copy of TCT No. RT-4724, from the time it was issued on January 28, 1969, had been in
the possession of their family since it was his father Max Sr. who actually paid for the acquisition of the subject
property.[19]

Ruling of the RTC

On February 22, 2006, the RTC heard the respondents' special and affirmative defense and, thereafter, directed the
parties to submit their respective memoranda.[20]

On August 11, 2006, the RTC issued an Order,[21] the decretal portion of which reads:
WHEREFORE, in view of the foregoing, the special/affirmative defenses put forward by the defendants cannot be
given due consideration for lack of merit.

SO ORDERED.[22]
The RTC opined that, taking into account BDC's allegation that it purchased the subject property while it was still in
the process of incorporation and, thus, obtained title to the same in its name, any act which amounts to alienation of
the subject property done by any person other than the corporation itself, through its Board of Directors, shall give
rise to violation of BDC's rights. The respondents filed their respective motions for reconsideration [23] of the Order
dated August 11, 2006, but it was denied by the RTC in its Order [24] dated November 24, 2006, the dispositive portion
of which reads:
WHEREFORE, in the light of the foregoing, the motion for reconsideration is hereby DENIED for lack of merit.

SO ORDERED.[25]
The respondents then filed a petition for certiorari[26] with the CA, claiming that the RTC gravely abused its discretion
in brushing aside their special and affirmative defense. The respondents likewise prayed for the issuance of a
temporary restraining order and/or a writ of preliminary injunction. The respondents maintained that BDC, at the time
of the execution of the REM, was not yet incorporated and, hence, had no right to hold a property in its own name.

Ruling of the CA

Consequently, on January 14, 2011, the CA rendered the herein assailed Decision; [27] which declared:
WHEREFORE, the instant petition is GRANTED. The assailed Orders are SET ASIDE and a new one issued
DISMISSING the Complaint for failure to state a cause of action.

SO ORDERED.[28]
The CA opined that corporate existence begins only from the moment a certificate of incorporation is issued, and,
thus, BDC had no corporate existence and juridical personality when it purchased the subject property. Thus, the CA
held that, having no right over the subject property, no cause of action could have accrued in favor of BDC when the
subject property was mortgaged to Libarios and DORI.[29]
BDC sought a reconsideration[30] of the Decision dated January 14, 2011, but it was denied by the CA in its
Resolution[31] dated May 24, 2011, thus:
ACCORDINGLY, the motion for reconsideration is hereby DENIED for lack of merit.

SO ORDERED.[32]
Hence, this petition.

BDC maintains that it has a cause of action against the respondents notwithstanding that it was not yet incorporated
at the time of the execution of the REM on May 5, 1998.[33] Further, BDC alleges that Libarios and DORI are
estopped from questioning the legal personality of BDC; it claims that DORI and Libarios, at the time of the execution
of the REM, treated BDC as a corporation and may no longer raise the fact that BDC was not yet incorporated at the
time they entered into the mortgage.[34]

On the other hand, the respondents, in their Comment, [35] maintain that this petition for certiorari is not the proper
remedy to assail the CA's Decision dated January 14, 2011 and Resolution dated May 24, 2011. They aver that BDC
should have filed a petition for review on certiorari under Rule 45 of the Rules of Court instead.[36] In any case, the
respondents claim that the CA did not commit any abuse of discretion when it set aside, the RTC's Orders dated
August 11, 2006 and November 24, 2006.[37] They point out that BDC was not yet incorporated at the time of the
execution of the REM and, hence, could not hold title to any property in its own name. [38]

Issue

Essentially, the issue set forth for the Court's resolution is whether the CA gravely abused its discretion when it set
aside the RTC's Orders dated August 11, 2006 and November 24, 2006, ruling that BDC's complaint failed to state a
cause of action.

Ruling of the Court

The petition is granted.

Prefatorily, there is a need to address the respondents' claim that BDC should have filed an appeal under Rule 45 of
the Rules of Court instead of filing this certiorari suit.

The CA's disposition is a final judgment, as distinguished from an interlocutory order, as the same finally disposed of
the petition for certiorari filed by the respondents and left nothing more to be done by the CA in respect thereto.
Sections 1 and 2 of Rule 45 essentially states that a party desiring to appeal by certiorari from a judgment or a final
order of the CA may file with this Court a verified petition for review on certiorari within 15 days from notice of the
judgment or final order.

BDC's counsel received a copy of the CA's Resolution dated May 24, 2011, denying reconsideration of the Decision
dated January 14, 2011, on May 31, 2011.[39] Thus, BDC only had until June 15, 2011 within which to file with this
Court a petition for review on certiorari assailing the CA's Decision dated January 14, 2011 and Resolution dated May
24, 2011.

However, BDC failed to file a petition for review on certiorari within the period to do so and, instead, opted to file a
petition for certiorari under Rule 65 with this Court on July 4, 2011. Evidently, this petition for certiorari is merely being
used by BDC as a substitute for the lost remedy of appeal under Rule 45.

A party cannot substitute the special civil action of certiorari under Rule 65 of the Rules of Court for the remedy of
appeal. The existence and availability of the right of appeal are antithetical to the availability of the special civil action
of certiorari.[40] Remedies of appeal (including petitions for review) and certiorari are mutually exclusive, not
alternative or successive. Hence, certiorari is not and cannot be a substitute for an appeal, especially if one's own
negligence or error in one's choice of remedy occasioned such loss or lapse. One of the requisites of certiorari is that
there be no available appeal or any plain, speedy and adequate remedy. Where an appeal is available, certiorari will
not prosper, even if the ground therefor is grave abuse of discretion. [41]

Nevertheless, the acceptance of a petition for certiorari, as well as the grant of due course thereto is, generally,
addressed to the sound discretion of the court. The provisions of the Rules of Court, which are technical rules, may
be relaxed in certain exceptional situations.[42] While a petition for certiorari is dismissible for being the wrong remedy,
there are exceptions to this rule, to wit: (a) when public welfare and the advancement of public policy dictates; (b)
when the broader interest of justice so requires; (c) when the writs issued are null and void; or (d) when the
questioned order amounts to an oppressive exercise of judicial authority.[43]
In view of the factual circumstances in this case, the dismissal of the petition for certiorari would result in the
miscarriage of justice. On account of the CA's unwarranted dismissal of its complaint, as will be explained later, BDC
was effectively denied due process as it was unduly prevented from presenting evidence to prove its claim. The CA
arbitrarily directed the dismissal of BDC's complaint on the ground that the complaint failed to state a cause of action.

One of the grounds for the dismissal of a complaint is the failure of the pleading asserting the claim to state a cause
of action.[44] The elements of a cause of action are: (1) a right in favor of the plaintiff by whatever means and under
whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate
such right; and (3) act or omission on the part of such defendant in violation of the right of the plaintiff or constituting a
breach of the obligation of the defendant to the plaintiff for which the latter may maintain an action for recovery of
damages or other appropriate relief.[45]

In resolving whether the complaint states a cause of action or not, only the facts alleged in the complaint are
considered. The test is whether the court can render a valid judgment on the complaint based on the facts alleged
and the prayer asked for. Only ultimate facts, not legal conclusions or evidentiary facts, are considered for purposes
of applying the test.[46]

In this case, BDC's complaint, inter alia, alleged that:

5. Sometime on March 31, 1996, while the [BDC] was still in the process of incorporation, thru its then
President and General Manager, [SATORRE], purchased a parcel of land from the [Spouses Sering], x x x as
evidenced by a Deed of Absolute Sale, machine copy of which is hereto attached as Annex "B" hereof;

6. Subsequent to the execution of Annex "B" hereof, [TCT] bearing No. RT-4724 was issued unto and in favor of
the [BDC] x x x;

7. [BDC], thru its legitimate officers, has been paying the real estate taxes due on the aforesaid parcel of land, and
not the "[ARRIOLAs]" who are not in any way connected with the legitimate, genuine and authentic plaintiffx
x x;

xxxx

10. Sometime in the year 2004, [BDC] discovered that the owner's copy of [TCT] bearing No. RT-4724 was missing
and efforts to locate the same proved futile as it could nowhere be found, hence [BDC] through counsel filed a
petition in Court for issuance of the owner's copy of said title;

11. To [BDC's] great surprise, it surfaced that the aforesaid certificate of title is now in the possession of [Libarios] as
it appears that the land covered by said title was mortgaged to [DORI] by the defendant "ARRIOLAs" who
misrepresented themselves as owners and directors of [BDC.][47] (Emphasis ours)
Based on the foregoing allegations, BDC's complaint sufficiently stated a cause of action for declaration of nullity of
the REM. Basically, BDC alleged in its complaint that it is the owner of the subject property as evidenced by TCT No.
RT-4724, which was issued in its name after it purchased the subject property, through Satorre, from the Spouses
Sering on March 31, 1966. It bears stressing that a certificate of title issued is an absolute and indefeasible evidence
of ownership of the property in favor of the person whose name appears therein. [48] BDC further alleged that the
subject property was mortgaged to DORI and Libarios without their knowledge or consent and that the Arriolas were
not in any way connected with BDC.

What is clear is that the issues of whether the REM constituted over the subject property is void and whether BDC
has a right to the subject property at the time of the execution of the REM would have been best resolved during the
trial.

The. respondents' affirmative defense that BDC, at the time of the execution of the REM, had no right to hold the
subject property in its name being merely an unincorporated association, if at all, amounts to an allegation that BDC
has no cause of action against the respondents. However, failure to state a cause of action is different from lack of
cause of action. Failure to state a cause of action refers to the insufficiency of the pleading, and is a ground for
dismissal under Rule 16 of the Rules of Court. On the other hand, lack of cause action refers to a situation where the
evidence does not prove the cause of action alleged in the pleading. [49] The remedy in the first is to move for the
dismissal of the pleading, while the remedy in the second is to demur to the evidence.[50]

WHEREFORE, in consideration of the foregoing disquisitions, the petition is GRANTED. The Decision dated January
14, 2011 and Resolution dated May 24, 2011 of the Court of Appeals in CA-G.R. SP No. 01473 are
hereby REVERSED and SET ASIDE. The Orders dated August 11, 2006 and November 24, 2006 of the Regional
Trial Court of Agusan del Norte and Butuan City, Branch 5, in SP Civil Case No. 1259 are REINSTATED. The case is
remanded to the trial court for further proceedings.

SO ORDERED.

THIRD DIVISION

[G.R. No. 152272 : March 05, 2012]

JUANA COMPLEX I HOMEOWNERS ASSOCIATION, INC., ANDRES C. BAUTISTA, BRIGIDO

DIMACULANGAN, DOLORES P. PRADO, IMELDA DE LA CRUZ, EDITHA C. DY, FLORENCIA M.
MERCADO, LEOVINO C. DATARIO, AIDA A. ABAYON, NAPOLEON M. DIMAANO, ROSITA G.
ESTIGOY AND NELSON A. LOYOLA, PETITIONERS, VS. FIL-ESTATE LAND, INC., FIL ESTATE
ECOCENTRUM CORPORATION, LA PAZ HOUSING AND DEVELOPMENT CORPORATION, WARBIRD
SECURITY AGENCY, ENRIQUE RIVILLA, MICHAEL E. JETHMAL AND MICHAEL ALUNAN,
RESPONDENTS.

[G. R. NO. 152397]

FIL-ESTATE LAND, INC., FIL ESTATE ECOCENTRUM CORPORATION, LA PAZ HOUSING AND
DEVELOPMENT CORPORATION, WARBIRD SECURITY AGENCY, ENRIQUE RIVILLA, MICHAEL E.
JETHMAL AND MICHAEL ALUNAN, PETITIONERS, VS. JUANA COMPLEX I HOMEOWNERS
ASSOCIATION, INC., ANDRES C. BAUTISTA, BRIGIDO DIMACULANGAN, DOLORES P. PRADO,
IMELDA DE LA CRUZ, EDITHA C. DY, FLORENCIA M. MERCADO, LEOVINO C. DATARIO, AIDA A.
ABAYON, NAPOLEON M. DIMAANO, ROSITA G. ESTIGOY AND NELSON A. LOYOLA, RESPONDENTS.

DECISION

MENDOZA, J.:

Before the Court are two (2) consolidated petitions assailing the July 31, 2001 Decision[1] and February 21,
2002 Resolution[2] of the Court of Appeals (CA) in CA-G.R. SP No. 60543, which annulled and set aside the
March 3, 1999 Order[3] of the Regional Trial Court, Branch 25, Biñan, Laguna (RTC), granting the application
for the issuance of a writ of preliminary injunction, and upheld the June 16, 2000 Omnibus Order[4] denying
the motion to dismiss.cralaw

The Facts:

On January 20, 1999, Juana Complex I Homeowners Association, Inc. (JCHA), together with individual
residents of Juana Complex I and other neighboring subdivisions (collectively referred as JCHA, et. al.),
instituted a complaint[5] for damages, in its own behalf and as a class suit representing the regular
commuters and motorists of Juana Complex I and neighboring subdivisions who were deprived of the use of
La Paz Road, against Fil-Estate Land, Inc. (Fil-Estate), Fil-estate Ecocentrum Corporation (FEEC), La Paz
Housing & Development Corporation (La Paz), and Warbird Security Agency and their respective officers
(collectively referred as Fil-Estate, et al.).

The complaint alleged that JCHA, et al. were regular commuters and motorists who constantly travelled
towards the direction of Manila and Calamba; that they used the entry and exit toll gates of South Luzon
Expressway (SLEX) by passing through right-of-way public road known as La Paz Road; that they had been
using La Paz Road for more than ten (10) years; that in August 1998, Fil-estate excavated, broke and
deliberately ruined La Paz Road that led to SLEX so JCHA, et al. would not be able to pass through the said
road; that La Paz Road was restored by the residents to make it passable but Fil-estate excavated the road
again; that JCHA reported the matter to the Municipal Government and the Office of the Municipal Engineer
but the latter failed to repair the road to make it passable and safe to motorists and pedestrians; that the
act of Fil-estate in excavating La Paz Road caused damage, prejudice, inconvenience, annoyance, and loss of
precious hours to them, to the commuters and motorists because traffic was re-routed to narrow streets
that caused terrible traffic congestion and hazard; and that its permanent closure would not only prejudice
their right to free and unhampered use of the property but would also cause great damage and irreparable
injury.

Accordingly, JCHA, et al. also prayed for the immediate issuance of a Temporary Restraining Order (TRO)or
a writ of preliminary injunction (WPI) to enjoin Fil-Estate, et al. from stopping and intimidating them in their
use of La Paz Road.

On February 10, 1999, a TRO was issued ordering Fil-Estate, et al, for a period of twenty (20) days, to stop
preventing, coercing, intimidating or harassing the commuters and motorists from using the La Paz Road. [6]

Subsequently, the RTC conducted several hearings to determine the propriety of the issuance of a WPI.

On February 26, 1999, Fil-Estate, et al. filed a motion to dismiss[7] arguing that the complaint failed to state
a cause of action and that it was improperly filed as a class suit. On March 5, 1999, JCHA, et al. filed their
comment[8] on the motion to dismiss to which respondents filed a reply.[9]

On March 3, 1999, the RTC issued an Order [10]

granting the WPI and required JCHA, et al. to post a bond.

On March 19, 1999, Fil-Estate, et al. filed a motion for reconsideration[11] arguing, among others, that JCHA,
et al. failed to satisfy the requirements for the issuance of a WPI. On March 23, 1999, JCHA, et al. filed their
opposition to the motion.[12]

The RTC then issued its June 16, 2000 Omnibus Order, denying both the motion to dismiss and the motion
for reconsideration filed by Fil-Estate, et al.

Not satisfied, Fil-Estate, et al. filed a petition for certiorari and prohibition before the CA to annul (1) the
Order dated March 3, 1999 and (2) the Omnibus Order dated June 16, 2000. They contended that the
complaint failed to state a cause of action and that it was improperly filed as a class suit. With regard to the
issuance of the WPI, the defendants averred that JCHA, et al. failed to show that they had a clear and
unmistakable right to the use of La Paz Road; and further claimed that La Paz Road was a torrens registered
private road and there was neither a voluntary nor legal easement constituted over it.[13]

On July 31, 2001, the CA rendered the decision partially granting the petition, the dispositive portion of
which reads:

WHEREFORE, the petition is hereby partially GRANTED. The Order dated March 3, 1999 granting the writ of
preliminary injunction is hereby ANNULLED and SET ASIDE but the portion of the Omnibus Order dated June
16, 2000 denying the motion to dismiss is upheld.

SO ORDERED.[14]

The CA ruled that the complaint sufficiently stated a cause of action when JCHA, et al. alleged in their
complaint that they had been using La Paz Road for more than ten (10) years and that their right was
violated when Fil-Estate closed and excavated the road. It sustained the RTC ruling that the complaint was
properly filed as a class suit as it was shown that the case was of common interest and that the individuals
sought to be represented were so numerous that it was impractical to include all of them as parties. The CA,
however, annulled the WPI for failure of JCHA, et al. to prove their clear and present right over La Paz Road.
The CA ordered the remand of the case to the RTC for a full-blown trial on the merits.

Hence, these petitions for review.

In G.R. No. 152272, JCHA, et al. come to this Court, raising the following issues:

(A)

THE HONORABLE COURT OF APPEALS, IN HOLDING THAT A FULL-BLOWN TRIAL ON THE MERITS
IS REQUIRED TO DETERMINE THE NATURE OF THE LA PAZ ROAD, HAD DEPARTED FROM THE
ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDINGS AS TO CALL FOR AN EXERCISE OF
THE POWER OF SUPERVISION.
 (B)

THE HONORABLE COURT OF APPEALS, IN HOLDING THAT THE PETITIONERS FAILED TO SATISFY
THE REQUIREMENTS FOR THE ISSUANCE OF A WRIT OF PRELIMINARY INJUNCTION, HAD
DECIDED NOT IN ACCORD WITH LAW AND WITH THE APPLICABLE DECISIONS OF THE SUPREME
COURT.[15]

In G.R. No. 152397, on the other hand, Fil-Estate, et al. anchor their petition on the following issues:

I.

The Court of Appeals’ declaration that respondents’ Complaint states a cause of action is contrary
to existing law and jurisprudence.

II.

The Court of Appeals’ pronouncement that respondents’ complaint was properly filed as a class
suit is contrary to existing law and jurisprudence.

III.

The Court of Appeals’ conclusion that full blown trial on the merits is required to determine the
nature of the La Paz Road is contrary to existing laws and jurisprudence. [16]

JCHA, et al. concur with the CA that the complaint sufficiently stated a cause of action. They, however,
disagree with the CA’s pronouncement that a full-blown trial on the merits was necessary. They claim that
during the hearing on the application of the writ of injunction, they had sufficiently proven that La Paz Road
was a public road and that commuters and motorists of their neighboring villages had used this road as their
means of access to the San Agustin Church, Colegio De San Agustin and to SLEX in going to Metro Manila
and to Southern Tagalog particularly during the rush hours when traffic at Carmona Entry/Exit and Susana
Heights Entry/Exit was at its worst.

JCHA, et al. argue that La Paz Road has attained the status and character of a public road or burdened by an
apparent easement of public right of way. They point out that La Paz Road is the widest road in the
neighborhood used by motorists in going to Halang Road and in entering the SLEX-Halang toll gate and that
there is no other road as wide as La Paz Road existing in the vicinity. For residents of San Pedro, Laguna,
the shortest, convenient and safe route towards SLEX Halang is along Rosario Avenue joining La Paz Road.

Finally, JCHA, et al. argue that the CA erred when it voided the WPI because the public nature of La Paz
Road had been sufficiently proven and, as residents of San Pedro and Biñan, Laguna, their right to use La
Paz Road is undeniable.

In their Memorandum,[17] Fil-Estate, et al. explain that La Paz Road is included in the parcels of land covered
by Transfer Certificates of Title (TCT) Nos. T-120008, T-90321 and T-90607, all registered in the name of La
Paz. The purpose of constructing La Paz Road was to provide a passageway for La Paz to its intended
projects to the south, one of which was the Juana Complex I. When Juana Complex I was completed, La Paz
donated the open spaces, drainage, canal, and lighting facilities inside the Juana Complex I to the
Municipality of Biñan. The streets within the subdivisions were then converted to public roads and were
opened for use of the general public. The La Paz Road, not being part of the Juana Complex I, was excluded
from the donation. Subsequently, La Paz became a shareholder of FEEC, a consortium formed to develop
several real properties in Biñan, Laguna, known as Ecocentrum Project. In exchange for shares of stock, La
Paz contributed some of its real properties to the Municipality of Biñan, including the properties constituting
La Paz Road, to form part of the Ecocentrum Project.

Fil-Estate, et al. agree with the CA that the annulment of the WPI was proper since JCHA, et al. failed to
prove that they have a clear right over La Paz Road. Fil-Estate, et al. assert that JCHA, et al. failed to prove
the existence of a right of way or a right to pass over La Paz Road and that the closure of the said road
constituted an injury to such right. According to them, La Paz Road is a torrens registered private road and
there is neither a voluntary nor legal easement constituted over it. They claim that La Paz Road is a private
property registered under the name of La Paz and the beneficial ownership thereof was transferred to FEEC
when La Paz joined the consortium for the Ecocentrum Project.
Fil-Estate, et al., however, insist that the complaint did not sufficiently contain the ultimate facts to show a
cause of action. They aver the bare allegation that one is entitled to something is an allegation of a
conclusion which adds nothing to the pleading.

They likewise argue that the complaint was improperly filed as a class suit for it failed to show that JCHA, et
al. and the commuters and motorists they are representing have a well-defined community of interest over
La Paz Road. They claim that the excavation of La Paz Road would not necessarily give rise to a common
right or cause of action for JCHA, et al. against them since each of them has a separate and distinct
purpose and each may be affected differently than the others.

The Court’s Ruling

The issues for the Court’s resolution are: (1) whether or not the complaint states a cause of action; (2)
whether the complaint has been properly filed as a class suit; and (2) whether or not a WPI is warranted.

Section 2, Rule 2 of the Rules of Court defines a cause of action as an act or omission by which a party
violates the right of another. A complaint states a cause of action when it contains three (3) essential
elements of a cause of action, namely:

(1) the legal right of the plaintiff,

(2) the correlative obligation of the defendant, and
(3) the act or omission of the defendant in violation of said legal right.[18]

The question of whether the complaint states a cause of action is determined by its averments regarding the
acts committed by the defendant.[19] Thus, it must contain a concise statement of the ultimate or essential
facts constituting the plaintiff’s cause of action.[20] To be taken into account are only the material allegations
in the complaint; extraneous facts and circumstances or other matters aliunde are not considered.[21]

The test of sufficiency of facts alleged in the complaint as constituting a cause of action is whether or not
admitting the facts alleged, the court could render a valid verdict in accordance with the prayer of said
complaint.[22] Stated differently, if the allegations in the complaint furnish sufficient basis by which the
complaint can be maintained, the same should not be dismissed regardless of the defense that may be
asserted by the defendant.[23]

In the present case, the Court finds the allegations in the complaint sufficient to establish a cause of
action. First, JCHA, et al.’s averments in the complaint show a demandable right over La Paz Road. These
are: (1) their right to use the road on the basis of their allegation that they had been using the road for
more than 10 years; and (2) an easement of a right of way has been constituted over the said roads. There
is no other road as wide as La Paz Road existing in the vicinity and it is the shortest, convenient and safe
route towards SLEX Halang that the commuters and motorists may use. Second, there is an alleged violation
of such right committed by Fil-Estate, et al. when they excavated the road and prevented the commuters
and motorists from using the same. Third, JCHA, et al. consequently suffered injury and that a valid
judgment could have been rendered in accordance with the relief sought therein.

With respect to the issue that the case was improperly instituted as a class suit, the Court finds the
opposition without merit.

Section 12, Rule 3 of the Rules of Court defines a class suit, as follows:

Sec. 12. Class suit. – When the subject matter of the controversy is one of common or general interest to
many persons so numerous that it is impracticable to join all as parties, a number of them which the court
finds to be sufficiently numerous and representative as to fully protect the interests of all concerned may
sue or defend for the benefit of all. Any party in interest shall have the right to intervene to protect his
individual interest.

The necessary elements for the maintenance of a class suit are: 1) the subject matter of controversy is one
of common or general interest to many persons; 2) the parties affected are so numerous that it is
impracticable to bring them all to court; and 3) the parties bringing the class suit are sufficiently numerous
or representative of the class and can fully protect the interests of all concerned.[24]
In this case, the suit is clearly one that benefits all commuters and motorists who use La Paz Road. As
succinctly stated by the CA:

The subject matter of the instant case, i.e., the closure and excavation of the La Paz Road, is initially shown
to be of common or general interest to many persons. The records reveal that numerous individuals have
filed manifestations with the lower court, conveying their intention to join private respondents in the suit
and claiming that they are similarly situated with private respondents for they were also prejudiced by the
acts of petitioners in closing and excavating the La Paz Road. Moreover, the individuals sought to be
represented by private respondents in the suit are so numerous that it is impracticable to join them all as
parties and be named individually as plaintiffs in the complaint. These individuals claim to be residents of
various barangays in Biñan, Laguna and other barangays in San Pedro, Laguna.

Anent the issue on the propriety of the WPI, Section 3, Rule 58 of the Rules of Court lays down the rules for
the issuance thereof. Thus:

(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in
restraining the commission or continuance of the acts complained of, or in the performance of an act or acts,
either for a limited period or perpetually;

(b) That the commission, continuance or non-performance of the act or acts complained of during the
litigation would probably work injustice to the applicant; or

(c) That a party, court, or agency or a person is doing, threatening, or attempting to do, or is procuring or
suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the
subject of the action or proceeding, and tending to render the judgment ineffectual.

A writ of preliminary injunction is available to prevent a threatened or continuous irremediable injury to

parties before their claims can be thoroughly studied and adjudicated.[25] The requisites for its issuance are:
(1) the existence of a clear and unmistakable right that must be protected; and (2) an urgent and
paramount necessity for the writ to prevent serious damage.[26] For the writ to issue, the right sought to be
protected must be a present right, a legal right which must be shown to be clear and positive.[27] This means
that the persons applying for the writ must show that they have an ostensible right to the final relief prayed
for in their complaint.[28]

In the case at bench, JCHA, et al. failed to establish a prima facie proof of violation of their right to justify
the issuance of a WPI. Their right to the use of La Paz Road is disputable since they have no clear legal right
therein. As correctly ruled by the CA:

Here, contrary to the ruling of respondent Judge, private respondents failed to prove as yet that they have a
clear and unmistakable right over the La Paz Road – which was sought to be protected by the injunctive
writ. They merely anchor their purported right over the La Paz Road on the bare allegation that they have
been using the same as public road right-of-way for more than ten years. A mere allegation does not meet
the standard of proof that would warrant the issuance of the injunctive writ. Failure to establish the
existence of a clear right which should be judicially protected through the writ of injunction is a sufficient
ground for denying the injunction.

Consequently, the case should be further heard by the RTC so that the parties can fully prove their
respective positions on the issues.

Due process considerations dictate that the assailed injunctive writ is not a judgment on the merits but
merely an order for the grant of a provisional and ancillary remedy to preserve the status quo until the
merits of the case can be heard. The hearing on the application for issuance of a writ of preliminary
injunction is separate and distinct from the trial on the merits of the main case. [29] The evidence submitted
during the hearing of the incident is not conclusive or complete for only a "sampling" is needed to give the
trial court an idea of the justification for the preliminary injunction pending the decision of the case on the
merits.[30] There are vital facts that have yet to be presented during the trial which may not be obtained or
presented during the hearing on the application for the injunctive writ.[31] Moreover, the quantum of
evidence required for one is different from that for the other.[32]
cralaw

WHEREFORE, the petitions are DENIED. Accordingly, the July 31, 2001 Decision and February 21, 2002
Resolution of the Court of Appeals in CA-G.R. SP No. 60543 are AFFIRMED.

SO ORDERED.

FIRST DIVISION

[G.R. NO. 167724 : June 27, 2006]

BPI FAMILY SAVINGS BANK, INC., Petitioner, v. MARGARITA VDA. DE COSCOLLUELA, Respondent.

DECISION

CALLEJO, SR., J.:

Assailed before this Court is a Petition for Review under Rule 45 of the Rules of Court of the Decision1 of the
Court of Appeals (CA) in CA-G.R. SP No. 69732 granting respondent's petition for certiorari, and its
resolution denying petitioner's motion for reconsideration.

The Antecedents

Respondent Margarita Coscolluela and her husband Oscar Coscolluela obtained an agricultural sugar crop
loan from the Far East Bank & Trust Co. (FEBTC) Bacolod City Branch (later merged with petitioner Bank of
the Philippine Islands) for crop years 1997 and 1998.2 However, in the book of FEBTC, the loan account of
the spouses was treated as a single account,3 which amounted to P13,592,492.00 as evidenced by 67
Promissory Notes4 executed on various dates, from August 29, 1996 to January 23, 1998, to wit:

Amount
Promissory Note No. Date
(in Phil. Peso)

1. 02-052-960971 29 August 1996 148,000

2. 02-052-961095 23 September 1996 1,200,000

3. 02-052-961122 27 September 1996 550,000

4. 02-052-961205 11 October 1996 180,000

5. 02-052-961231 18 October 1996 155,000

6. 02-052-961252 24 October 1996 190,000

7. 02-052-961274 30 October 1996 115,000

8. 02-052-961310 8 November 1996 90,000

9. 02-052-961373 21 November 1996 125,000

10. 02-052-961442 6 December 1996 650,000

 11. 02-052-961464 12 December 1996 240,000

12. 02-052-961498 19 December 1996 164,000

13. 02-052-961542 27 December 1996 200,000

14. 02-052-970018 3 January 1997 120,000

15. 02-052-970052 10 January 1997 185,000

16. 02-052-970078 15 January 1997 80,000

17. 02-052-970087 17 January 1997 170,000

18. 02-052-970131 23 January 1997 180,000

19. 02-052-970163 31 January 1997 220,000

20. 02-052-970190 7 February 1997 110,000

21. 02-052-970215 13 February 1997 170,000

22. 02-052-970254 20 February 1997 140,000

23. 02-052-970293 28 February 1997 130,000

24. 02-052-970345 7 March 1997 90,000

25. 02-052-970367 13 March 1997 50,000

26. 02-052-970402 21 March 1997 160,000

27. 02-052-970422 26 March 1997 190,000 28. 02-052-970453 4 April 1997 82,000 29. 02-052-
ςη αñ rοbl ε š νιr⠀ υα l lαω l ιbrαrÿ

970478 11 April 1997 150,000 30. 02-052-970502 17 April 1997 80,000 31. 02-052-970539 25 April 1997
145,000 32. 02-052-970558 30 April 1997 135,000 33. 02-052-970589 8 May 1997 54,000 34. 02-052-
970770 25 June 1997 646,492 35. 02-052-970781 27 June 1997 160,000 36. 02-052-970819 4 July 1997
250,000 37. 02-052-970852 11 July 1997 350,000 38. 02-052-970926 1 August 1997 170,000 39. 02-052-
970949 5 August 1997 200,000 40. 02-052-970975 8 August 1997 120,000 41. 02-052-970999 15 August
1997 150,000 42. 02-052-971028 22 August 1997 110,000 43. 02-052-971053 29 August 1997 130,000
44. 02-052-971073 4 September 1997 90,000 45. 02-052-971215 12 September 1997 160,000 46. 02-
052-971253 19 September 1997 190,000 47. 02-052-971280 26 September 1997 140,000 48. 02-052-
971317 2 October 1997 115,000 49. 02-052-971340 10 October 1997 115,000 50. 02-052-971351 15
October 1997 700,000 51. 02-052-971362 16 October 1997 90,000 52. 02-052-971394 24 October 1997
185,000 53. 02-052-971407 29 October 1997 170,000 54. 02-052-971449 6 November 1997 105,000 55.
02-052-971464 13 November 1997 170,000 56. 02-052-971501 20 November 1997 150,000 57. 02-052-
971527 25 November 1997 620,000 58. 02-052-971538 28 November 1997 130,000 59. 02-052-971569 4
December 1997 140,000 60. 02-052-971604 12 December 1997 220,000 61. 02-052-971642 18 December
1997 185,000 62. 02-052-971676 23 December 1997 117,000 63. 02-052-971688 29 December 1997
100,000 64. 02-052-980019 7 January 1998 195,000 65. 02-052-980032 8 January 1998 170,000 66. 02-
052-980064 15 January 1998 225,000 67. 02-052-980079 23 January 1998 176,000
The promissory notes listed under Nos. 1 to 33 bear the maturity date of February 9, 1998, with a 30-day
extension of up to March 11, 1998, while those listed under Nos. 34 to 67 bear December 28, 1998 as
maturity date.

Meanwhile, on June 13, 1997, the spouses Coscolluela executed a real estate mortgage in favor of FEBTC
over their parcel of land located in Bacolod City covered by Transfer Certificate of Title (TCT) No. T-109329
as security of loans on credit accommodation obtained by the spouses from FEBTC and those that may be
obtained by the mortgagees which was fixed at P7,000,000.00, as well as those that may be extended by
the mortgagor to the mortgagees.5

Under the terms and conditions of the real estate mortgage, in the event of failure to pay the mortgage
obligation or any portion thereof when due, the entire principal, interest, penalties and other charges then
outstanding, shall become immediately due; upon such breach or violation of the terms and conditions
thereof, FEBTC may, at its absolute discretion foreclose the same extrajudicially in accordance with the
procedure prescribed by Act No. 3135, as amended, and for the purpose appointed FEBTC as its attorney-in-
fact with full power and authority to enter the premises where the mortgaged property is located and to take
actual possession and control thereof without need of any order of any court, nor written permission from
the spouses, and with special power to sell the mortgaged property at a public or private sale at the option
of the mortgagee; and that the spouses expressly waived the term of 30 days or any other terms granted by
law as the period which must elapse before the mortgage agreement may be foreclosed and, in any case,
such period has already lapsed.

The mortgage was registered with the Registry of Deeds of Bacolod and was annotated in the title of the
land on June 20, 1997.6 Meantime, Oscar died intestate and was survived by his widow, herein respondent.

For failure to settle the outstanding obligation on the maturity dates, FEBTC sent a final demand letter7to
respondent on March 10, 1999 demanding payment, within five days from notice, of the principal of the loan
amounting to P13,481,498.68, with past due interests and penalties or in the total amount
of P19,482,168.31 as of March 9, 1999.8 Respondent failed to settle her obligation.

On June 10, 1999, FEBTC filed a petition for the extrajudicial foreclosure of the mortgaged property,
significantly only for the total amount of P4,687,006.68 exclusive of balance, interest and penalty, covered
by promissory notes from 1 to 33, except nos. 2 and 10.9

While the extrajudicial foreclosure proceeding was pending, petitioner FEBTC filed a complaint10 with the
Regional Trial Court (RTC) of Makati City, Branch 64, against respondent for the collection of the principal
amount of P8,794,492.00 plus interest and penalty, or the total amount of P12,672,000.31, representing
the amounts indicated in the rest of the promissory notes, specifically Promissory Note Nos. 34 to 67, as
well as those dated December 6, 1996 and September 23, 1996:

PN No. Date Amount Annex

2-052-980079 January 02, 1998 176,000.00 A

2-052-980064 January 15, 1998 225,000.00 B

2-052-980032 January 08, 1998 170,000.00 C

2-052-980019 January 07, 1998 195,000.00 D

2-052-971688 December 29, 1997 100,000.00 E

2-052-971676 December 23, 1997 117,000.00 F

2-052-971642 December 18, 1997 185,000.00 G

2-052-971604 December 12, 1997 220,000.00 H

2-052-971569 December 04, 1997 140,000.00 I

2-052-971538 November 28, 1997 130,000.00 J

2-052-971527 November 25, 1997 620,000.00 K

2-052-971501 November 20, 1997 150,000.00 L

2-052-971464 November 13, 1997 170,000.00 M

2-052-971449 November 06, 1997 105,000.00 N

2-052-971407 October 29, 1997 170,000.00 O

2-052-971394 October 24, 1997 185,000.00 P

2-052-971362 October 16, 1997 90,000.00 Q

2-052-971351 October 15, 1997 700,000.00 R

2-052-971340 October 15, 1997 115,000.00 S

2-052-971317 October 02, 1997 115,000.00 T

2-052-971280 September 26, 1997 140,000.00 U

2-052-971253 September 19, 1997 190,000.00 V

2-052-971215 September 12, 1997 160,000.00 W

2-052-971073 September 04, 1997 90,000.00 X

2-052-971053 August 29, 1997 130,000.00 Y

2-052-971028 August 22, 1997 110,000.00 Z

2-052-970999 August 15, 1997 150,000.00 AA

2-052-970975 August 08, 1997 120,000.00 BB

2-052-970949 August 05, 1997 200,000.00 CC

2-052-970926 August 01, 1997 170,000.00 DD

 2-052-970852 July 11, 1997 350,000.00 EE

2-052-970819 July 04, 1997 250,000.00 FF

2-052-970781 June 27, 1997 160,000.00 GG

2-052-970770 June 25, 1997 646,492.00 HH

2-052-961442 December 06, 1996 650,000.00 II

2-052-961095 September 23, 1996 1,200,000.00 JJ11

Petitioner prayed that, after due proceedings, judgment be rendered in its favor, thus:

WHEREFORE, it is respectfully prayed that, after trial, judgment be rendered in its favor and against
defendants ordering them to pay the following:

A. The amount TWELVE MILLION SIX HUNDRED SEVENTY-TWO THOUSAND PESOS and 31/100
(P12,672,000.31), with additional stipulated interest and penalty equivalent to one (1%) percent of the
amount due for every thirty (30) days or fraction thereof, until fully paid;

b. Expense of litigation amounting to P50,000.00;

c. The amount of P500,000.00 as attorney's fees.

Other reliefs just and equitable in the premises are similarly prayed for.12

In her answer, respondent alleged, by way of special and affirmative defense, that the complaint was barred
by litis pendentia, specifically, the pending petition for the extrajudicial foreclosure of the real estate
mortgage, thus:

8) That plaintiff is guilty of forum shopping, in that some of the promissory notes attached to plaintiff's
complaint are also the same promissory notes which were made the basis of the plaintiff in their
extrajudicial foreclosure of mortgage filed against the defendant-spouses and also marked in evidence in
support of their opposition to the issuance of the preliminary injunction in Civil Case No. 99-10864;

9) That plaintiff-bank has not only charged but over charged the defendant-spouses with excessive and
exorbitant interest over and above those authorized by law. And in order to add more injury to the
defendants, plaintiff also included other charges not legally collectible from the defendant-spouses;

10) That the act of the plaintiff-bank in seeking to collect twice on the same promissory notes is not only
unfair and unjust but also condemnable as plaintiff seek to unjustly enrich itself at the expense of the
defendants;

11) That there is another action pending between the same parties for the same cause;

12) That the claim or demand set forth in the plaintiff's complaint has either been waived, abandoned or
otherwise extinguished.13

Petitioner presented Emmanuel Ganuelas, its loan officer in its Bacolod City Branch, as sole witness. He
testified that the spouses Coscolluela were granted an agricultural sugar loan which is designed to finance
the cultivation and plantation of sugar farms of the borrowers.14 Borrowers were allowed to make successive
drawdowns or availments against the loan as their need arose. Each drawdown is covered by a promissory
note with uniform maturity dates.15 The witness also testified that the loan account of the spouses was a
"single loan account."16

After petitioner rested its case, respondent filed a demurrer to evidence17 contending, among others, that,
with Ganuelas' admission, there is only one loan account secured by the real estate mortgage, that the
promissory notes were executed as evidence of the loans. Plaintiff was thus barred from instituting a
personal action for collection of the drawdowns evidenced by Promissory Note Nos. 2, 10, and 34 to 67 after
instituting a petition for extrajudicial foreclosure of the real estate mortgage for the amount covered by
Promissory Note Nos. 1, 3 to 9, and 11 to 33. Respondent insisted that by filing a complaint for a sum of
money, petitioner thereby split its cause of action against her; hence, the complaint must perforce be
dismissed on the ground of litis pendentia.

Petitioner opposed the demurrer arguing that while the loans were considered as a single account, each
promissory note executed by respondent constituted a separate contract. It reiterated that its petition for
the extrajudicial and foreclosure of the real estate mortgage before the Ex-Oficio Provincial Sheriff involves
obligations different and separate from those in its action for a sum of money before the court. Thus,
petitioner could avail of the personal action for the collection of the amount evidenced by the 36 promissory
notes not subject of its petition for the extrajudicial foreclosure of the real estate mortgage. Petitioner insists
that the promissory notes subject of its collection suit should be treated separately from the other set of
obligations, that is, the 31 promissory notes subject of its extrajudicial foreclosure petition.18

In its Order19 dated January 10, 2002, the trial court denied the demurrer on the ground that the promissory
notes executed by respondent and her deceased husband contained different amounts, and each note
covered a loan distinct from the others. Thus, petitioner had the option to file a petition for the extrajudicial
foreclosure of the real estate mortgage covering 31 of the promissory notes, and, as to the rest, to file an
ordinary action for collection. Petitioner, thus, merely opted to institute an action for collection of the debt
on the 36 promissory notes, and waived its action for the foreclosure of the security given on these notes.

Respondent filed a motion for reconsideration,20 which the trial court denied in its February 19, 2002
Order,21 prompting her to file a certiorari petition22 under Rule 65 with the CA, assailing the January 10,
2002 and February 19, 2002 Orders of the trial court. Respondent alleged that:

1. PUBLIC RESPONDENT GRAVELY ABUSED HER DISCRETION TANTAMOUNT TO LACK AND/OR EXCESS OF
JURISDICTION IN HOLDING THAT THE RESPONDENT BANK CAN FILE SIMULTANEOUS ACTIONS FOR
FORECLOSURE AND FOR COLLECTION.

Meanwhile, on January 6, 2003, the parcel of land subject of the aforementioned real estate mortgage was
sold at public auction where petitioner emerged as the highest bidder.23

On September 30, 2004, the CA rendered its Decision24 granting the petition, holding, under prevailing
jurisprudence, the remedies - either a real action to foreclose the mortgage or a personal action to collect
the debt - of a mortgage creditor are alternative and not cumulative. Since respondent availed of the first
one, it was deemed to have waived the second. Further, the filing of both actions results in a splitting of a
single cause of action. Thus, in denying her Demurrer to Evidence, the RTC committed grave abuse of
discretion as it overruled settled judicial pronouncements. The dispositive part of the decision states:

WHEREFORE, the instant petition is GRANTED. The assailed Orders dated January 10, 2002 and February
19, 2002 are SET ASIDE.

SO ORDERED.

The CA cited the ruling of this Court in Bachrach Motor Co., Inc. v. Esteban Icarañgal and Oriental
Commercial Co., Inc.25

Aggrieved, petitioner filed a motion for reconsideration26 on October 12, 2004. Respondent filed her
opposition27 to the motion on October 26, 2004. The CA thereafter denied the motion in a resolution
promulgated on April 6, 2005.28
Petitioner filed the instant Petition for Review on Certiorari, alleging that:

I.

THE COURT OF APPEALS ERRED IN GRANTING THE PETITION FOR CERTIORARI OF RESPONDENT ON THE
GROUND OF GRAVE ABUSE OF DISCRETION.

xxxx

The Trial Court did not commit grave abuse of discretion amounting to lack or excess of jurisdiction in
denying the Demurrer to Evidence filed by the respondents. Petitioner, in instituting a petition for the Extra
Judicial Foreclosure of the Mortgage of respondents based on 31 promissory notes executed by respondents
and another action to collect on a separate set of 36 promissory notes, did not split their cause of action.

xxxx

The trial court did not commit grave abuse of discretion amounting to lack or excess of jurisdiction when it
denied respondents' Demurrer to Evidence. In this wise, the Petition for Certiorari filed by respondents
should not have been granted.29

During the pendency of this appeal, petitioner filed with this Court on December 2, 2005 a manifestation
and joint motion for substitution, informing the court that petitioner bank has assigned to the Philippine
Asset Investment, Inc. all its rights, title and interest over its non-performing loan accounts pursuant to
Republic Act No. 9182 entitled "The Special Purpose Vehicle Act of 2002."

The issues raised in this case are (1) whether the petition for certiorari under Rule 65 of the Rules of Court
filed by respondent in the CA was the proper remedy to assail the January 10, 2002 Order of the trial court;
(2) whether the appellate court issued its January 10, 2002 Order with grave abuse of its discretion
amounting to excess or lack of jurisdiction.

Petitioner avers that the January 10, 2002 Order of the RTC denying the Demurrer to Evidence of
respondent was interlocutory, and as such could not be the subject of a petition for certiorari .30 The RTC did
not commit a grave abuse of its discretion in issuing its January 10, 2002 Order. Petitioner maintains that
respondent executed 67 separate loan obligations evidenced by 67 separate promissory notes, with different
amounts and maturity dates. It avers that each of the loans, as evidenced by each of the promissory notes,
may properly be the subject of a separate action; thus, each promissory note is an actionable document.
Moreover, the real estate mortgage executed by the spouses secured an obligation only to a fixed amount
of P7,000,000.00 which is covered by Promissory Note Nos. 1 to 31, whereas the loans secured by the
spouses covered by the Promissory Note Nos. 32 to 67 for the total amount of P12,672,000.31 were not
secured by the real estate mortgage. Petitioner insists that it was proper to file the petition for extrajudicial
foreclosure of the real estate mortgage only for respondent's loan account covered by the 36 promissory
notes for the amount of P7,755,733.64. It was not barred from filing a separate action for the collection of
the P12,672,000.31 against respondent in the RTC for the drawdowns as evidenced by Promissory Note Nos.
34 to 67. What should apply, petitioner asserts, is the ruling of this Court in Caltex Philippines, Inc. v.
Intermediate Appellate Court31 and Quiogue v. Bautista,32 and not the ruling of this Court in Bachrach which
involves only one promissory note.

Petitioner insists that, although respondent and her husband had a joint account with it, they had separate
loan obligations as evidenced by the promissory notes; hence, it had separate causes of action for each and
every drawdown evidenced by a promissory note.

For her part, respondent admits having executed the promissory notes. However, as testified to by
Ganuelas, the witness for petitioner, she and her husband only have one loan account with petitioner,
hence, the latter had only one cause of action against her either for the collection of the entire loan account
or for the extrajudicial foreclosure of the real estate mortgage, also for the entire amount of the loan.
Petitioner cannot split her single loan account by filing a simple collection suit and a petition for extrajudicial
foreclosure of the real estate mortgage without violating the rule against splitting a single cause of action.
Respondent asserts that the real estate mortgage executed by respondent and her deceased husband was a
security not only of their loan account in the amount of P7,000,000.00 but for all other loans that may have
been extended to them in excess of that amount.

The petition is unmeritorious.

On the first issue, we agree with petitioner's contention that the general rule is that an order denying a
motion to dismiss or demurrer to evidence is interlocutory and is not appealable. Consequently, defendant
must go to trial and adduce its evidence, and appeal, in due course, from an adverse decision of the trial
court. However, the rule admits of exceptions. Where the denial by the trial court of a motion to dismiss or
demurrer to evidence is tainted with grave abuse of discretion amounting to excess or lack of jurisdiction,
the aggrieved party may assail the order of dismissal on a petition for certiorari under Rule 65 of the Rules
of Court. A wide breadth of discretion is granted in certiorari proceedings in the interest of substantial justice
and to prevent a substantial wrong.33 As the Court held in Preferred Home Specialties, Inc. v. Court of
Appeals:34

It bears stressing that a writ of certiorari is of the highest utility and importance for curbing excessive
jurisdiction and correcting errors and most essential to the safety of the people and the public welfare. Its
scope has been broadened and extended, and is now one of the recognized modes for the correction of
errors by this Court. The cases in which it will lie cannot be defined. To do so would be to destroy its
comprehensiveness and limit its usefulness.

The appropriate function of a certiorari writ is to relieve aggrieved parties from the injustice arising from
errors of law committed in proceedings affecting justiciable rights when no other means for an adequate and
speedy relief is open. It is founded upon a sense of justice, to release against wrongs otherwise
irreconcilable, wrongs which go unredressed because of want of adequate remedy which would be a grave
reproach to any system of jurisprudence.35

The aggrieved party is entitled to a writ of certiorari where the trial court commits a grave abuse of
discretion amounting to excess or lack of jurisdiction in denying a motion to dismiss a complaint on the
ground of litis pendentia. An appeal while available eventually is cumbersome and inadequate for it requires
the parties to undergo a useless and time-consuming and expensive trial. The second case constitutes a
rude if not debilitating imposition on the trial and the docket of the judiciary.36

In the present case, we agree with the ruling of the CA that the RTC acted with grave abuse of discretion
amounting to excess or lack of jurisdiction when it denied the Demurrer to Evidence of respondent and, in
the process, ignored applicable rulings of this Court. Although respondent had the right to appeal the
decision of the trial court against her after trial, however, she, as defendant, need not use up funds and
undergo the tribulations of a trial and thereafter appeal from an adverse decision.

Section 3, Rule 2 of the 1997 Rules of Civil Procedure provides that a party may not institute more than one
suit for a single cause of action and, if two or more suits are instituted on the basis of the same cause of
action, the filing of one on a judgment upon the merits in any one is available as ground for the dismissal of
the other or others.37 A party will not be permitted to split up a single cause of action and make it a basis for
several suits.38 A party seeking to enforce a claim must present to the court by the pleadings or proofs or
both, all the grounds upon which he expects a judgment in his favor. He is not at liberty to split up his
demands and prosecute it by piecemeal, or present only a portion of the grounds upon which special relief is
sought, and leave the rest to be presented in a second suit if the first fails.39The law does not permit the
owner of a single or entire cause of action or an entire or indivisible demand to divide and split the cause or
demand so as to make it the subject of several actions. The whole cause must be determined in one action.

Indeed, in Goldberg v. Eastern Brewing Co.,40 the New York Supreme Court emphasized that:

It was held in the case of Bendernagle v. Cocks, 19 Wend. 207 (32 Am.Dec. 448), that where a party had
several demands or existing causes of action growing out of the same contract or resting in matter of
account, which may be joined and sued for in the same action, they must be joined; and if the demands or
causes of action be split up, and a suit brought for part only, and subsequently a second suit for the residue
is brought, the first action may be pleaded in abatement or in bar of the second action. x x x41
The rule against splitting causes of action is not altogether one of original legal right but is one of
interposition based upon principles of public policy and of equity to prevent the inconvenience and hardship
incident to repeated and unnecessary litigation.42

It is not always easy to determine whether in a particular case under consideration, the cause of action is
single and entire or separate. The question must often be determined, not by the general rules but by
reference to the facts and circumstances of the particular case. Where deeds arising out of contract are
distinct and separate, they give rise to separate cause of action for which separate action may be
maintained; but it is also true that the same contract may give rise to different causes of action either by
reason of successive breaches thereof or by reason of different stipulations or provisions of the
contract.43 The true rule which determines whether a party has only a single and entire cause of action for
all that is due him, and which must be sued for in one action, or has a severable demand for which he may
maintain separate suits, is whether the entire amount arises from one and the same act or contract or the
several parts arise from distinct and different acts or contracts.44

Where there are entirely distinct and separate contracts, they give rise to separate causes of action for
which separate actions may be instituted and presented. When money is payable by installments, a distinct
cause of action assails upon the following due by each installment and they may be recovered in successive
action. On the other hand, where several claims payable at different times arise out of the same
transactions, separate actions may be brought as each liability accounts. But where no action is brought
until more than one is due, all that are due must be included in one action; and that if an action is brought
to recover upon one or more that are due but not upon all that are due, a recovery in such action will be a
bar to a several or other actions brought to recover one or more claims of the other claims that were due at
the time the first action was brought.45

The weight of authority is that in the absence of special controlling circumstances, an open or continuous
running account between the same parties constitutes a single and indivisible demand, the aggregate of all
the items of the account constituting the amount due. But the rule is otherwise where it affirmatively
appears that the parties regarded the different items of the account as separate transactions and not parts
of an ordinary running account. And there may also be, even between the same parties, distinct and
separate actions upon which separate actions may be maintained.46 In fine, what is decisive is that there be
either an express contract, or the circumstances must be such as to raise an implied contract embracing all
the items to make them, when they arise, at different times, a single or entire demand or cause of action.47

Decisive of the principal issue is the ruling of this Court in Bachrach Motor Co., Inc. v. Esteban Icarañgal
and Oriental Commercial Co., Inc.48 in which it ruled that on the nonpayment of a note secured by a
mortgage, the creditor has a single cause of action against the debtor. The single cause of action consists in
the recovery of the credit with execution of the suit. In a mortgage credit transaction, the credit gives rise to
a personal action for collection of the money. The mortgage is the guarantee which gives rise to a mortgage
foreclosure suit to collect from the very property that secured the debt.49

The action of the creditor is anchored on one and the same cause: the nonpayment by the debtor of the
debt to the creditor-mortgagee. Though the debt may be covered by a promissory note or several
promissory notes and is covered by a real estate mortgage, the latter is subsidiary to the former and both
refer to one and the same obligation.

A mortgage creditor may institute two alternative remedies against the mortgage debtor, either a personal
action for the collection of debt, or a real action to foreclose the mortgage, but not both. Each remedy is
complete by itself. As explained by this Court:

We hold, therefore, that, in the absence of express statutory provisions, a mortgage creditor may institute
against the mortgage debtor either a personal action for debt or a real action to foreclose the mortgage. In
other words, he may pursue either of the two remedies, but not both. By such election, his cause of action
can by no means be impaired, for each of the two remedies is complete in itself. Thus, an election to bring a
personal action will leave open to him all the properties of the debtor for attachment and execution, even
including the mortgaged property itself. And, if he waives such personal action and pursues his remedy
against the mortgaged property, an unsatisfied judgment thereon would still give him the right to sue for a
deficiency judgment, in which case, all the properties of the defendant, other than the mortgaged property,
are again open to him for the satisfaction of the deficiency. In either case, his remedy is complete, his cause
of action undiminished, and any advantages attendant to the pursuit of one or the other remedy are purely
accidental and are all under his right of election. On the other hand, a rule that would authorize the plaintiff
to bring a personal action against the debtor and simultaneously or successively another action against the
mortgaged property, would result not only in multiplicity of suits so offensive to justice (Soriano v. Enriques,
24 Phil. 584) and obnoxious to law and equity (Osorio v. San Agustin, 25 Phil. 404), but also in subjecting
the defendant to the vexation of being sued in the place of his residence or of the residence of the plaintiff,
and then again in the place where the property lies.50

If the mortgagee opts to foreclose the real estate mortgage, he thereby waives the action for the collection
of the debt and vice versa.51 If the creditor is allowed to file its separate complaints simultaneously or
successively, one to recover his credit and another to foreclose his mortgage, he will, in effect, be
authorized plural redress for a single breach of contract at so much costs to the court and with so much
vexation and oppressiveness to the debtor.52

In the present case, petitioner opted to file a petition for extrajudicial foreclosure of the real estate
mortgage but only for the principal amount of P4,687,006.08 or in the total amount of P7,755,733.64
covering only 31 of the 67 promissory notes. By resorting to the extrajudicial foreclosure of the real estate
mortgage, petitioner thereby waived its personal action to recover the amount covered not only by said
promissory notes but also of the rest of the promissory notes. This is so because when petitioner filed its
petition before the Ex-Oficio Provincial Sheriff on June 10, 1999, the entirety of the loan account of
respondent under the 67 promissory notes was already due. The obligation of respondent under Promissory
Note Nos. 1 to 33 became due on February 9, 1998 but was extended up to March 11, 1998, whereas, those
covered by Promissory Note Nos. 34 to 67 matured on December 28, 1998. Petitioner should have caused
the extrajudicial foreclosure of the real estate mortgage for the recovery of the entire obligation of
respondent, on all the promissory notes. By limiting the account for which the real estate mortgage was
being foreclosed to the principal amount of P4,687,006.68, exclusive of interest and penalties, petitioner
thereby waived recovery of the rest of respondent's agricultural loan account.

It must be stressed that the parties agreed in the Real Estate Mortgage that in the event that respondent
shall fail to pay the mortgage obligation "or any portion thereof when due, the entire principal, interest,
penalties and other charges then outstanding shall become immediately due, payable and defaulted," thus:

3. The terms and conditions of the Mortgage have been violated when the Mortgagors failed and/or refused
to pay, notwithstanding repeated demands, the installment and/or maturity amount of the Mortgage
obligation which became due and payable on the said date;

4. Under the terms and conditions of the Mortgage Agreement, in the event the Mortgagors fail and/or
refuse to pay the Mortgage obligation or any portion thereof when due, the entire principal, interest,
penalties and other charges then outstanding, shall, without need for demand, notice, or any other act or
deed, become immediately due, payable and defaulted;

5. The Mortgage Agreement provides that upon such breach or violation of the terms and conditions thereof,
the Mortgagee may, at its absolute discretion foreclose the same extrajudicially in accordance with the
procedure prescribed by Act No. 3135, as amended, and for the purpose appointed the Mortgagee as its
attorney-in-fact with full power and authority to enter the premises where the Mortgaged property is located
and to take actual possession and control thereof without need of any order of any Court, nor written
permission from the Mortgagors, and with special power to sell the Mortgaged Property at a public or private
sale at the option of the Mortgagee.53

Petitioner cannot split the loan account of respondent by filing a petition for the extrajudicial foreclosure of
the real estate mortgage for the principal amount of P4,687,006.68 covered by the first set of promissory
notes, and a personal action for the collection of the principal amount of P12,672,000.31 covered by the
second set of promissory notes without violating the proscription against splitting a single cause of action
against respondent.

The contention of petitioner that respondent's loan account that was secured by the real estate mortgage
was limited only to those covered by the Promissory Note Nos. 1 to 33 or for the total amount
of P7,000,000.00 is belied by the real estate mortgage and by its own evidence.
Under the deed, the mortgage was to secure the payment of a credit accommodation already obtained by
respondent, the principal of all of which was fixed at P7,000,000.00, as well as any other obligation that
may be extended to respondent, including interest and expenses, to wit:

That for and in consideration of credit accommodation obtained from the MORTGAGEE, and to secure the
payment of the same and those that may hereafter be obtained, the principal of all of which is hereby fixed
at SEVEN MILLION PESOS ONLY (P7,000,000.00), Philippine Currency, as well as those that the
MORTGAGEE may extend to the MORTGAGOR, including interest and expenses or any other obligation owing
to the MORTGAGEE, whether direct or indirect, principal or secondary, as appears in the accounts, books
and records of the MORTGAGEE, the MORTGAGOR does hereby transfer and convey by way of mortgage
unto the MORTGAGEE, its successors or assigns, the parcels of land which are described in the list inserted
on the back of this document and/or appended herein, together with all the buildings and improvements
now existing or which may hereafter be erected or constructed thereon, of which the MORTGAGOR declares
that he/it is the absolute owner free from all liens and encumbrances. However, if the MORTGAGOR shall
pay to the MORTGAGEE, its successors or assigns, the obligation secured by this mortgage when due,
together with interest, and shall keep and perform all and singular the covenants and agreements herein
contained for the MORTGAGOR to keep and perform, then this mortgage shall be void, otherwise, it shall
remain in full force and effect.54 (Emphasis supplied) c ralawli bra ry

The testimony of Ganuelas in the RTC relative to the real estate mortgage follows:

Q The real estate mortgage states: "That for and in consideration of credit accommodation obtained from
the mortgagee." This simply means, Mr. Witness, that this mortgage is offered to secure loans already
obtained by the mortgagor from the mortgagee Far East Bank and Trust Company. I am referring only to
that phrase, obtained from the mortgagee, is that correct? cralawlib rary

A Yes, Sir.

Q So from this phrase in the real estate mortgage, this mortgage was constituted to secure the credit
accommodation already obtained by the mortgagor, the defendant spouses, as of the time of the execution
of the real estate mortgage, is that correct?cralawlib rary

A Yes, Sir.

Q Now since the loan secured by the defendants are evidenced by promissory notes, will you agree with me,
Mr. Witness, that this real estate mortgage was executed for promissory notes already executed by the
defendant spouses as of the time of the execution of the mortgage on June 13, 1997, is that correct? cralawlibra ry

A Yes, Sir.

ATTY. MIRANO:

For purposes of identification, we respectfully request that this phrase: "that for and in consideration of the
credit accommodation obtained from the mortgagee" be bracketed and mark as Exhibit 6-B. (Acting court
interpreter marking said phrase as Exhibit 6-B.)

Q Now in accordance with the terms of this real estate mortgage, this real estate mortgage was executed by
the defendant spouses not only to secure the loan already obtained by the said spouses as of the time of the
execution of the mortgage on June 13, 1997 but also all other loans that may be extended by Far East Bank
and Trust Company to the defendant spouses after the execution of the mortgage as stated in this portion of
the real estate mortgage which we quote: "to secure the payment as and those that may hereafter be
obtained," is that correct?
cralawlibra ry

A Yes, Sir.

Q So from your statement, Mr. Witness, this real estate mortgage was offered by the defendant spouses as
a security for the loans they already secured as of the time of the execution of the mortgage but also for the
loans that they will secure thereafter, is that correct? cralawlib rary
A Yes, Sir.55 (Emphasis supplied)cralawlibrary

As gleaned from the plain terms of the real estate mortgage, the real estate of respondent served as
continuing security liable for future advancements or obligations beyond the amount of P7,000,000.00. The
mortgage partakes of the nature of contract for future advancements. As explained by this Court in the early
case of Lim Julian v. Lutero:56

The rule, of course, is well settled that an action to foreclose a mortgage must be limited to the amount
mentioned in the mortgage. The exact amount, however, for which the mortgage is given need not always
be specifically named. The amount for which the mortgage is given may be stated in definite or general
terms, as is frequently the case in mortgages to secure future advancements. The amount named in the
mortgage does not limit the amount for which it may stand as security, if, from the four corners of the
document, the intent to secure future indebtedness or future advancements is apparent. Where the plain
terms, of the mortgage, evidence such an intent, they will control as against a contention of the mortgagor
that it was the understanding of the parties that the mortgage was security only for the specific amount
named. (Citizens' Savings Bank v. Kock, 117 Mich. 225). In that case, the amount mentioned in the
mortgage was $7,000. The mortgage, however, contained a provision that "the mortgagors agree to pay
said mortgagee any sum of money which they may now or hereafter owe said mortgagee." At the time the
action of foreclosure was brought, the mortgagors owed the mortgagee the sum of $21,522. The defendants
contended that the amount to be recovered in an action to foreclose should be limited to the amount named
in the mortgage. The court held that the amount named as consideration for the mortgage did not limit the
amount for which the mortgage stood as security, if, from the whole instrument the intent to secure future
indebtedness could be gathered. The court held that a mortgage to cover future advances is valid. (Michigan
Insurance Co. v. Brown, 11 Mich. 265; Jones on Mortgages, 1, sec. 373; Keyes v. Bump's Administrator, 59
Vt. 391; Fisher v. Otis, 3 Pin. 78; Brown v. Kiefer, 71 N.Y. 610; Douglas v. Reynolds, 7 Peters [U.S.] 113;
Shores v. Doherty, 65 Wis. 153)

Literal accuracy in describing the amount due, secured by a mortgage, is not required, but the description of
the debt must be correct and full enough to direct attention to the sources of correct information in regard
to it, and be such as not to mislead or deceive as to the amount of it, by the language used. Reading the
mortgage before us from its four corners, we find that the description of the debt is full enough to give
information concerning the amount due. The mortgage recites that it is given to secure the sum of P12,000,
interest, commissions, damages, and all other amounts which may be found to be due at maturity. The
terms of the contract are sufficiently clear to put all parties who may have occasion to deal with the property
mortgaged upon inquiry. The parties themselves from the very terms of the mortgage could not be in
ignorance at any time of the amount of their obligation and the security held to guarantee the payment.

When a mortgage is given for future advancements and the money is paid to the mortgagor "little by little"
and repayments are made from time to time, the advancements and the repayments must be considered
together for the purpose of ascertaining the amount due upon the mortgage at maturity. Courts of equity
will not permit the consideration of the repayments only for the purpose of determining the balance due
upon the mortgage. (Luengo & Martinez v. Moreno, 26 Phil. 111) The mere fact that, in contract of
advancements, the repayments at any one time exceeds the specific amount mentioned in the mortgage will
not have the effect of discharging the mortgage when the advancements at that particular time are greatly
in excess of the repayments; especially is this true when the contract of advancement or mortgage contains
a specific provision that the mortgage shall cover all "such other amounts as may be then due." Such a
provision is added to the contract of advancements or mortgage for the express purpose of covering
advancements in excess of the amount mentioned in the mortgage. (Luengo & Martinez v. Moreno, supra)

The sum found to be owing by the debtor at the termination of the contract of advancements between him
and the mortgagee, during continuing credit, is still secured by the mortgage on the debtor's property, and
the mortgagee is entitled to bring the proper action for the collection of the amounts still due and to request
the sale of the property covered by the mortgage. (Luengo & Martinez v. Moreno, supra; Russell v. Davey, 7
Grant Ch. 13; Patterson First National Bank v. Byard, 26 N.J. Equity 225)

Under a mortgage to secure the payment of future advancements, the mere fact that the repayments on a
particular day equal the amount of the mortgage will not discharge the mortgage before maturity so long as
advancements may be demanded and are being received. (Luengo & Martinez v. Moreno, supra)57
Moreover, the series of loan advancements herein cannot be likened to the credit line discussed in Caltex
Philippines, Inc. v. Intermediate Appellate Court,58 as petitioner posited in its reply59 filed before this Court.
In Caltex, unlike the instant case, the real estate mortgage executed did not contain a "dragnet"
clause60 that would subsume all past and future debts. The mortgage therein specifically secured only the
loans extended prior to the mortgage. Thus, in the said case, the future debts were deemed as constituting
a separate transaction from the past debts secured by the mortgage.

The ruling of the Court in Quiogue v. Bautista61 is likewise inapplicable. In that case, the Court deemed the
loan transactions as separate, considering that those were two separate loans secured by two separate
mortgages. In this case, however, there is only one mortgage securing all 67 drawdowns made by
respondent.

In fine, for the failure of respondent to pay her loan obligation, petitioner had only one cause of action
arising from such non-payment. This single cause of action consists in the recovery of the credit with
execution of the security.62 Petitioner is proscribed from splitting its single cause of action by filing an
extrajudicial foreclosure proceedings on June 10, 1999 with respect to the amounts in the 31 promissory
notes, and, during the pendency thereof, file a collection case on June 23, 1999, with respect to the
amounts in the remaining 36 promissory notes.

Considering, therefore, that, in the case at bar, petitioner had already instituted extrajudicial foreclosure
proceedings of the mortgaged property, it is now barred from availing itself of a personal action for the
collection of the indebtedness.

IN VIEW OF ALL THE FOREGOING, the instant petition is DISMISSED for lack of merit. Costs against
petitioner.

SO ORDERED.

FIRST DIVISION

[G.R. No. 63145. October 5, 1999]

SULPICIA VENTURA, Petitioner, v. HON. FRANCIS J.

MILITANTE, in His Capacity as Presiding Judge, Regional
Trial Court, 7th Judicial District, Branch XII, Cebu City; and
JOHN UY, Respondents.

DECISION

PUNO, J.:

This is a Petition for Certiorari assailing the Order1 of public

respondent directing her to file an Answer to the Complaint for a
Sum of Money with Damages filed by private respondent after
denying her Motion to Dismiss.2 cräläwvirt ualib räry
There is no dispute as to the following relevant facts:

Private respondent filed a Complaint for a Sum of Money and

Damages against petitioner which reads:

REPUBLIC OF THE PHILIPPINES

COURT OF FIRST INSTANCE OF CEBU

14th Judicial District

BRANCH ____

MR. JOHN UY, Proprietor of Cebu

Textar Auto Supply,

Plaintiff,

- versus - CIVIL CASE NO. R-21968

For: SUM OF MONEY AND DAMAGES

ESTATE OF CARLOS NGO as

represented by surviving

spouse Ms. SULPICIA VENTURA,

Defendant.

Oo - - - - - - - - - - - - - - - - - - - - - - - -///

COMPLAINT

PLAINTIFF, thru counsel, unto this Honorable Court, most

respectfully states that:

1. He is of legal age, Filipino and proprietor of Cebu Textar Auto

Supply whose postal address is at 177 Leon Kilat St., Cebu City,
while the defendant is an estate of Carlos Ngo as represented by
surviving spouse Ms. Sulpicia Ventura with residence and postal
address at-Back [sic] of Chong Hua Hospital, Cebu City where
summons and other processes of the Court could be effected;

2. During the lifetime of Carlos Ngo he was indebted with the

plaintiff in the amount of P48,889.70 as evidenced by the hereto
attached statement marked as Annexes A and A-1 which account
was obtained by him for the benefit of his family;

3. Said obligation is already due and demandable and the defendant

thru Ms. Ventura who is ostensibly taking care of the
properties/estate of deceased Carlos Ngo, refused, failed and
neglected and still continues to refuse, fail and neglect to pay
despite repeated demands;

4. As a consequence of the refusal to pay the plaintiff was

compelled to retain the services of counsel with whom he contracted
to pay P10,000.00 as attorney's fees. Upon institution of this
complaint, he has further incurred initial litigation expenditures in
the sum of P4,000.00.

WHEREFORE, this Honorable Court is most respectfully prayed to

render judgment for the plaintiff by-

1. Ordering the defendant to pay the plaintiff the sum of P48,889.70

plus interest until the obligation is fully paid;

2. Ordering the defendant to pay the plaintiff the amount of

P10,000.00 as attorney's fees plus P4,000.00 as reimbursement of
the initial litigation expenditures.

FURTHER plaintiff prays for such other relief or remedy in

accordance with law, justice and equity.

Cebu City, Philippines, March 29, 1982.

x x x3

Petitioner moved to dismiss the foregoing complaint on the ground

that the estate of Carlos Ngo has no legal personality, the same
being neither a natural nor legal person in contemplation of law4
cräläwvirt uali brä ry
In his Opposition to Motion to Dismiss,5 petitioner insisted that since
the money claim subject of this case actually represents the costs of
automotive spare parts/replacements contracted by deceased Carlos
Ngo during his lifetime for the benefit/business of the family x x x
the conjugal partnership x x x shall be accountable for the payment
thereof.6 Subsequently, private respondent's counsel manifested
that he is poised to amend the complaint in order to state the
correct party defendant that he intends to sue in this case7. The
public respondent gave private respondent fifteen (15) days to
make the amendment.

Petitioner filed a Motion for Reconsideration8 of the order of public

respondent permitting private respondent to amend his complaint.
First, she argued that the action instituted by the private
respondent to recover P48,889.70, representing the unpaid price of
the automotive spare parts purchased by her deceased husband
during his lifetime, is a money claim which, under Section 21, Rule
3 of the Revised Rules of Court, does not survive, the same having
been filed after Carlos Ngo had already died. Second, she claimed
that the public respondent never acquired jurisdiction over the
subject matter of the case which, being an action to recover a sum
of money from a deceased person, may only be heard by a probate
court.

Private respondent opposed the foregoing motion.9 He insisted that

petitioner, being the wife of the deceased Carlos Ngo, is liable to
pay the obligation which benefited their family.

Public respondent issued an Order giving private respondent twenty

four (24) hours to file his amended complaint so that the Court can
determine for itself whether there is really a cause of action against
the defendant who would be substituted to the Estate of Carlos Ngo,
considering that it would seem from the arguments of counsel for
plaintiff x x x that the debt incurred by the deceased Carlong [sic]
Ngo was in behalf of the conjugal partnership so that the wife of
Carlos Ngo might be liable to pay the obligation.10cräläwvirtuali brä ry

Private respondent then filed his Amended Complaint11 with the new
allegations underscored therein as follows:
REPUBLIC OF THE PHILIPPINES

COURT OF FIRST INSTANCE OF CEBU

14th Judicial District

BRANCH XII

MR. JOHN UY, Proprietor of Cebu

Textar Auto Supply,

Plaintiff,

- versus - CIVIL CASE NO. R-21968

For: SUM OF MONEY AND

MS. SULPICIA VENTURA, DAMAGES

Defendant.

Oo - - - - - - - - - - - - - - - - - - - - - - -x

AMENDED COMPLAINT

PLAINTIFF thru counsel, unto this Honorable Court most respectfully

states that:

1. x x x

2. During the lifetime of Carlos Ngo he and his wife, the defendant
herein are indebted with the plaintiff in the amount of P48,889.70
as evidenced by the hereto attached statement marked as Annexes
A and A-1 which account was obtained for the benefit of their
family and is being confirmed by their son Roy Ngo per his signature
marked as Annex A-2;

3. x x x
4. For several times, the defendant had concealed herself in her
house when the plaintiff's representative went to her residence to
collect payment of the said account;

5. x x x

x x x.12

Petitioner filed a Comment to Plaintiff's Amended Complaint.13 She

reiterated that whether the unsecured debt was contracted by her
husband alone or as a charge against the conjugal partnership of
gains, it cannot be denied that her husband was now deceased, the
said debt does not survive him, the conjugal partnership of gains is
terminated upon the death of one of the spouses, and the debts and
charges against the conjugal partnership of gains may only be paid
after an inventory is made in the appropriate testate or intestate
proceeding.

Private respondent filed a Rejoinder to Defendant's Comment.14 He

countered that the defendant in his amended complaint was now
petitioner and that she was not deceased, hence the inapplicability
of the legal rules on the abatement of money claims in case the
defendant dies pending their prosecution.

Public respondent issued the herein assailed order which reads as

follows:

ORDER

This case is called today to deal on the motion for reconsideration of

the order of this Court dated November 16, 1982 denying the
motion of the defendant to dismiss the complaint.

In its order of November 16, 1982, the Court in the interest of

justice advised the plaintiff to make the proper amendment so that
the proper party defendant may be impleaded considering that the
motion to dismiss then was anchored on the ground that the estate
of Carlos Ngo was not a natural nor juridical person, hence it could
not be sued. On December 23, 1982, the plaintiff amended its
complaint and this time the defendant is already Sulpicia Ventura.
The defendant now argues that even the amended complaint would
show that this is really a collection of a debt of the conjugal
partnership of deceased Carlong [sic] Ngo and his wife.

Perusing the amended complaint, the Court finds that in Paragraph

2 the allegation states: During the lifetime of Carlos Ngo, he and his
wife, the defendant, are indebted with the plaintiff in the amount of
P48,689.70, (sic) etc., so that the indebtedness was incurred by
Carlos Ngo and defendant Sulpicia Ventura and since Carlos Ngo is
now dead that will not preclude the plaintiff from filing a case
against the living defendant, Sulpicia Ventura.

WHEREFORE, the motion for reconsideration is hereby DENIED and

the defendant may file her answer within fifteen (15) days from
today.

IT IS SO ORDERED.15

Petitioner scurried to this Court praying that the foregoing order of

the public respondent be set aside and the amended complaint of
private respondent, ordered dismissed.16 cräläwvirtual ibrä ry

We grant the petition.

First. Sec. 1, Rule 3 of the Revised Rules of Court provided that

only natural or judicial persons, or entities authorized by law may
be parties in a civil action. This was the rule in 1982 at the time that
private respondent filed his complaint against petitioner. In 1997,
the rules on civil procedure were revised, but Sec. 1, Rule 3
remained largely unaltered, except for the change of the word,
judicial to juridical.

Parties may be either plaintiffs or defendants. The plaintiff in an

action is the party complaining, and a proper party plaintiff is
essential to confer jurisdiction on the court.17 In order to maintain
an action in a court of justice, the plaintiff must have an actual legal
existence, that is, he, she or it must be a person in law and
possessed of a legal entity as either a natural or an artificial person,
and no suit can be lawfully prosecuted save in the name of such a
person.18cräläwvirtuali brä ry
The rule is no different as regards party defendants. It is incumbent
upon a plaintiff, when he institutes a judicial proceeding, to name
the proper party defendant to his cause of action.19 In a suit or
proceeding in personam of an adversary character, the court can
acquire no jurisdiction for the purpose of trial or judgment until a
party defendant who actually or legally exists and is legally capable
of being sued, is brought before it.20 It has even been held that the
question of the legal personality of a party defendant is a question
of substance going to the jurisdiction of the court and not one of
procedure.21 cräläwvirtual ibrä ry

The original complaint of petitioner named the estate of Carlos Ngo

as represented by surviving spouse Ms. Sulpicia Ventura as the
defendant. Petitioner moved to dismiss the same on the ground that
the defendant as named in the complaint had no legal personality.
We agree.

Neither a dead person nor his estate may be a party plaintiff in a

court action. A deceased person does not have such legal entity as
is necessary to bring action so much so that a motion to substitute
cannot lie and should be denied by the court.22 An action begun by
a decedent's estate cannot be said to have been begun by a legal
person, since an estate is not a legal entity; such an action is a
nullity and a motion to amend the party plaintiff will not likewise lie,
there being nothing before the court to amend.23 Considering that
capacity to be sued is a correlative of the capacity to sue, to the
same extent, a decedent does not have the capacity to be sued and
may not be named a party defendant in a court action.24 cräläwvirtuali brä ry

Second. It is clear that the original complaint of private respondent

against the estate of Carlos Ngo was a suit against Carlos Ngo
himself who was already dead at the time of the filing of said
complaint. At that time, and this, private respondent admitted, no
special proceeding to settle his estate had been filed in court. As
such, the trial court did not acquire jurisdiction over either the
deceased Carlos Ngo or his estate.

To cure this fatal defect, private respondent amended his original

complaint. In his amended complaint, private respondent deleted
the estate of Carlos Ngo and named petitioner as the defendant.
When petitioner, in her comment to the amended complaint,
reasoned that the conjugal partnership of gains between her and
Carlos Ngo was terminated upon the latter's death and that the debt
which he contracted, assuming it was a charge against the conjugal
property, could only be paid after an inventory is made in the
appropriate testate or intestate proceeding, private respondent
simply reiterated his demand that petitioner pay her husband's debt
which, he insisted, redounded to the benefit of everyone in her
family.

It is true that amendments to pleadings are liberally allowed in

furtherance of justice, in order that every case may so far as
possible be determined on its real facts, and in order to speed the
trial of causes or prevent the circuitry of action and unnecessary
expense.25 But amendments cannot be allowed so as to confer
jurisdiction upon a court that never acquired it in the first
place.26 When it is evident that the court has no jurisdiction over the
person and the subject matter and that the pleading is so fatally
defective as not to be susceptible of amendment, or that to permit
such amendment would radically alter the theory and the nature of
the action, then the court should refuse the amendment of the
defective pleading and order the dismissal of the case.27 cräläwvirt ualib rä ry

Moreover, as correctly argued by petitioner, the conjugal

partnership terminates upon the death of either spouse.28 After the
death of one of the spouses, in case it is necessary to sell any
portion of the conjugal property in order to pay outstanding
obligations of the partnership, such sale must be made in the
manner and with the formalities established by the Rules of Court
for the sale of the property of deceased persons.29 Where a
complaint is brought against the surviving spouse for the recovery
of an indebtedness chargeable against said conjugal property, any
judgment obtained thereby is void.30 The proper action should be in
the form of a claim to be filed in the testate or intestate proceedings
of the deceased spouse.31 cräläwvirtuali brä ry

In many cases as in the instant one, even after the death of one of
the spouses, there is no liquidation of the conjugal partnership. This
does not mean, however, that the conjugal partnership
continues.32 And private respondent cannot be said to have no
remedy. Under Sec. 6, Rule 78 of the Revised Rules of Court, he
may apply in court for letters of administration in his capacity as a
principal creditor of the deceased Carlos Ngo if after thirty (30) days
from his death, petitioner failed to apply for administration or
request that administration be granted to some other person.

WHEREFORE, the instant petition for certiorari is GRANTED. The

Amended Complaint filed by private respondent is HEREBY
DISMISSED.

SO ORDERED.

G.R. No. L-58028 April 18, 1989

CHIANG KAI SHEK SCHOOL, petitioner,

vs.
COURT OF APPEALS and FAUSTINA FRANCO OH, respondents.

CRUZ, J.:

An unpleasant surprise awaited Fausta F. Oh when she reported for work at the Chiang Kai Shek
School in Sorsogon on the first week of July, 1968. She was told she had no assignment for the next
semester. Oh was shocked. She had been teaching in the school since 1932 for a continuous period
of almost 33 years. And now, out of the blue, and for no apparent or given reason, this abrupt
dismissal.

Oh sued. She demanded separation pay, social security benefits, salary differentials, maternity
benefits and moral and exemplary damages. 1 The original defendant was the Chiang Kai Shek School but when it filed a
motion to dismiss on the ground that it could not be sued, the complaint was amended. 2 Certain officials of the school were also impleaded
to make them solidarily liable with the school.

The Court of First Instance of Sorsogon dismissed the complaint. 3 On appeal, its decision was set aside by the
respondent court, which held the school suable and liable while absolving the other defendants. 4 The motion for reconsideration having
been denied, 5 the school then came to this Court in this petition for review on certiorari.

The issues raised in the petition are:

1. Whether or not a school that has not been incorporated may be sued by reason alone of its long
continued existence and recognition by the government,

2. Whether or not a complaint filed against persons associated under a common name will justify a
judgment against the association itself and not its individual members.
3. Whether or not the collection of tuition fees and book rentals will make a school profit-making and
not charitable.

4. Whether or not the Termination Pay Law then in force was available to the private respondent
who was employed on a year-to-year basis.

5. Whether or not the awards made by the respondent court were warranted.

We hold against the petitioner on the first question. It is true that Rule 3, Section 1, of the Rules of
Court clearly provides that "only natural or juridical persons may be parties in a civil action." It is also
not denied that the school has not been incorporated. However, this omission should not prejudice
the private respondent in the assertion of her claims against the school.

As a school, the petitioner was governed by Act No. 2706 as amended by C.A. No. 180, which
provided as follows:

Unless exempted for special reasons by the Secretary of Public Instruction, any
private school or college recognized by the government shall be incorporated under
the provisions of Act No. 1459 known as the Corporation Law, within 90 days after
the date of recognition, and shall file with the Secretary of Public Instruction a copy of
its incorporation papers and by-laws.

Having been recognized by the government, it was under obligation to incorporate under the
Corporation Law within 90 days from such recognition. It appears that it had not done so at the time
the complaint was filed notwithstanding that it had been in existence even earlier than 1932. The
petitioner cannot now invoke its own non-compliance with the law to immunize it from the private
respondent's complaint.

There should also be no question that having contracted with the private respondent every year for
thirty two years and thus represented itself as possessed of juridical personality to do so, the
petitioner is now estopped from denying such personality to defeat her claim against it. According to
Article 1431 of the Civil Code, "through estoppel an admission or representation is rendered
conclusive upon the person making it and cannot be denied or disproved as against the person
relying on it."

As the school itself may be sued in its own name, there is no need to apply Rule 3, Section 15,
under which the persons joined in an association without any juridical personality may be sued with
such association. Besides, it has been shown that the individual members of the board of trustees
are not liable, having been appointed only after the private respondent's dismissal. 6

It is clear now that a charitable institution is covered by the labor laws 7 although the question was still unsettled when this case arose in
1968. At any rate, there was no law even then exempting such institutions from the operation of the labor laws (although they were exempted
by the Constitution from ad valorem taxes). Hence, even assuming that the petitioner was a charitable institution as it claims, the private
respondent was nonetheless still entitled to the protection of the Termination Pay Law, which was then in force.

While it may be that the petitioner was engaged in charitable works, it would not necessarily follow
that those in its employ were as generously motivated. Obviously, most of them would not have the
means for such charity. The private respondent herself was only a humble school teacher receiving
a meager salary of Pl80. 00 per month.

At that, it has not been established that the petitioner is a charitable institution, considering
especially that it charges tuition fees and collects book rentals from its students. 8 While this alone may not
indicate that it is profit-making, it does weaken its claim that it is a non-profit entity.
The petitioner says the private respondent had not been illegally dismissed because her teaching
contract was on a yearly basis and the school was not required to rehire her in 1968. The argument
is that her services were terminable at the end of each year at the discretion of the school.
Significantly, no explanation was given by the petitioner, and no advance notice either, of her relief
after teaching year in and year out for all of thirty-two years, the private respondent was simply told
she could not teach any more.

The Court holds, after considering the particular circumstance of Oh's employment, that she had
become a permanent employee of the school and entitled to security of tenure at the time of her
dismissal. Since no cause was shown and established at an appropriate hearing, and the notice then
required by law had not been given, such dismissal was invalid.

The private respondent's position is no different from that of the rank-and-file employees involved
in Gregorio Araneta University Foundation v. NLRC, 9 of whom the Court had the following to say:

Undoubtedly, the private respondents' positions as deans and department heads of

the petitioner university are necessary in its usual business. Moreover, all the private
respondents have been serving the university from 18 to 28 years. All of them rose
from the ranks starting as instructors until they became deans and department heads
of the university. A person who has served the University for 28 years and who
occupies a high administrative position in addition to teaching duties could not
possibly be a temporary employee or a casual.

The applicable law is the Termination Pay Law, which provided:

SECTION 1. In cases of employment, without a definite period, in a commercial,

industrial, or agricultural establishment or enterprise, the employer or the employee
may terminate at any time the employment with just cause; or without just cause in
the case of an employee by serving written notice on the employer at least one
month in advance, or in the case of an employer, by serving such notice to the
employee at least one month in advance or one-half month for every year of service
of the employee, whichever, is longer, a fraction of at least six months being
considered as one whole year.

The employer, upon whom no such notice was served in case of termination of
employment without just cause may hold the employee liable for damages.

The employee, upon whom no such notice was served in case of termination of
employment without just cause shall be entitled to compensation from the date of
termination of his employment in an I amount equivalent to his salaries or wages
correspond to the required period of notice. ... .

The respondent court erred, however, in awarding her one month pay instead of only one-half month
salary for every year of service. The law is quite clear on this matter. Accordingly, the separation pay
should be computed at P90.00 times 32 months, for a total of P2,880.00.

Parenthetically, R.A. No. 4670, otherwise known as the Magna Carta for Public School Teachers,
confers security of tenure on the teacher upon appointment as long as he possesses the required
qualification. 10 And under the present policy of the Department of Education, Culture and Sports, a teacher becomes permanent and
automatically acquires security of tenure upon completion of three years in the service. 11
While admittedly not applicable to the case at bar, these I rules nevertheless reflect the attitude of the government on the protection of the
worker's security of tenure, which is now guaranteed by no less than the Constitution itself. 12

We find that the private respondent was arbitrarily treated by the petitioner, which has shown no cause for her removal nor had it given her
the notice required by the Termination Pay Law. As the respondent court said, the contention that she could not report one week before the
start of classes is a flimsy justification for replacing her. 13 She had been in its employ for all of thirty-two years. Her record was apparently
unblemished. There is no showing of any previous strained relations between her and the petitioner. Oh had every reason to assume, as she
had done in previous years, that she would continue teaching as usual.

It is easy to imagine the astonishment and hurt she felt when she was flatly and without warning told
she was dismissed. There was not even the amenity of a formal notice of her replacement, with
perhaps a graceful expression of thanks for her past services. She was simply informed she was no
longer in the teaching staff. To put it bluntly, she was fired.

For the wrongful act of the petitioner, the private respondent is entitled to moral damages. 14 As a
proximate result of her illegal dismissal, she suffered mental anguish, serious anxiety, wounded feelings and even besmirched reputation as
an experienced teacher for more than three decades. We also find that the respondent court did not err in awarding her exemplary damages
because the petitioner acted in a wanton and oppressive manner when it dismissed her. 15

The Court takes this opportunity to pay a sincere tribute to the grade school teachers, who are always at the forefront in the battle against
illiteracy and ignorance. If only because it is they who open the minds of their pupils to an unexplored world awash with the magic of letters
and numbers, which is an extraordinary feat indeed, these humble mentors deserve all our respect and appreciation.

WHEREFORE, the petition is DENIED. The appealed decision is AFFIRMED except for the award of
separation pay, which is reduced to P2,880.00. All the other awards are approved. Costs against the
petitioner.

This decision is immediately executory.

SO ORDERED.

SECOND DIVISION

[G.R. NO. 172595 : April 10, 2008]

BIENVENIDO EJERCITO and JOSE

MARTINEZ, Petitioners, v. M.R. VARGAS CONSTRUCTION,
BRION, MARCIAL R. VARGAS, Sole Owner, RENATO
AGARAO**, Respondents.

DECISION

TINGA, J.:

This is a Petition for Review on Certiorari under Rule 45 of the 1997

Rules of Civil Procedure, assailing the Court of Appeals'
Decision1 and Resolution2 in CA-G.R. SP No. 89001. The appellate
court's decision dismissed the petition for certiorari, which sought to
set aside the Order3 dated 08 November 2004 issued by Hon. Marie
Christine Jacob, Presiding Judge of the Regional Trial Court (RTC) of
Quezon City, Branch 100. The appellate court's resolution denied
petitioners' motion for reconsideration of the decision.

As culled from the records, the following factual antecedents

appear:

On 5 March 2004, the City Government of Quezon City, represented

by Mayor Feliciano Belmonte, Jr., entered into a construction
contract4 with M.R. Vargas Construction, represented by Marcial
Vargas in his capacity as general manager of the said business
enterprise, for the improvement and concreting of Panay
Avenue.5 Pursuant to the contract, the business enterprise
commenced its clearing operations by removing the structures and
uprooting the trees along the thoroughfare. Its foreman, Renato
Agarao, supervised the clearing operations.6

Claiming that the clearing operations lacked the necessary permit

and prior consultation, petitioners Bienvenido Ejercito and Jose
Martinez, as well as a certain Oscar Baria, brought the matter to the
attention of the barangay authorities, Mayor Belmonte, Senator Ma.
Ana Consuelo A.S. Madrigal, the Department of Environment and
Natural Resources and the Philippine Coconut Authority.7

The efforts of petitioners proved unsuccessful. Hence, on 10

September 2004, they filed a petition for injunction before the
Quezon City RTC. The petition named "M.R. Vargas Construction
Co., represented by herein Marcial R. Vargas and Renato Agarao,"
as respondent.8

The Petition,9 docketed as Civil Case No. Q-04-53687, indicated that

"Respondent M.R. Vargas Construction, is an entity, with office
address at the 4th Floor, President Tower, Timog Avenue corner
Scout Ybardaloza [sic] St., Quezon City, represented herein by its
President Marcial Vargas and its construction foreman Renato
Agarao, where they may be served with summons and other court
processes."10
The petition was accompanied with an application for a temporary
restraining order (TRO) and a writ of preliminary injunction.11 Thus,
the Office of the Clerk of Court forthwith issued summons and
notice of raffle on 10 September 2004.12Upon service of the
processes on the aforementioned address, they were returned
unserved on the ground that respondent enterprise was unknown
thereat.13

The petition was subsequently raffled to the sala of Judge Jacob,

before which petitioners' application for a temporary restraining
order was heard on 15 September 2004.14 On the same day, when
Agarao was also present in court, Judge Jacob issued a TRO
directing respondent enterprise to desist from cutting, damaging or
transferring the trees found along Panay Avenue.15

On 23 September 2004, the Mangoba Tan Agus Law Offices filed a

special appearance on behalf of respondent enterprise and moved
for the dismissal of the petition as well as the quashal of the
temporary restraining order on the ground of lack of jurisdiction
over respondent enterprise. The motion also assailed the raffle of
the case for having been conducted in violation of Section 4, Rule
58 of the Rules of Court; the issuance of the TRO without requiring
the posting of a bond; the failure to implead the Government of
Quezon City despite its being the real party-in-interest; and
petitioners' application for the injunctive writ which was allegedly
grossly defective in form and substance.16

The motion to dismiss the petition and to quash the TRO was heard
on 24 September 2004.17 Before the hearing, a court interpreter
showed to respondent enterprise's counsel a copy of the summons
and of the notice of raffle in which appear a signature at the bottom
of each copy, apparently indicating the receipt of the
summons.18 On the mistaken belief that the summons was received
by respondent enterprise, at the hearing of the motion, its counsel
withdrew two of the grounds stated in the motion, to wit, lack of
jurisdiction and irregularity in the raffle of the case.19

At the hearing of petitioners' application for a writ of preliminary

injunction on 1 October 2004, the counsel for respondent enterprise
manifested that he was adopting the arguments in the motion to
quash the TRO.20 On 6 October 2004, the RTC issued an Order
granting petitioners' application for a writ of preliminary
injunction.21

On 7 October 2004, counsel for respondent enterprise filed a

manifestation with urgent omnibus motion to nullify the proceedings
and to cite petitioners and the process server in contempt of
court.22 He argued that respondent enterprise failed to receive the
summons, alleging that it was herein petitioner Jose Martinez who
signed as recipient thereof as well as of the notice of raffle that was
served on 10 September 2004.23

On 18 October 2004, the writ of preliminary injunction was issued.

Subsequently, petitioners filed a motion for ocular inspection and
another motion praying that respondent enterprise be ordered to

restore the structures damaged by its clearing operations.24

On 8 November 2004, the RTC issued the assailed

Order,25 nullifying the proceedings thus far conducted in the
case.26 Petitioners sought reconsideration, but the motion was
denied in an Order dated 20 December 2004.27

Thus, petitioners filed a petition for certiorari before the Court of

Appeals assailing the 8 November 2004 Order issued by Judge
Jacob.28 This time, aside from Judge Jacob and the enterprise "M.R.
Vargas Construction" itself, the petition also named Marcial R.
Vargas and Renato Agarao, the enterprise's owner and foreman,
respectively, as individual respondents. The separate addresses of
said respondents were also indicated in the initial part of the
petition.

It was argued in the petition that Judge Jacob committed grave

abuse of direction in nullifying the proceedings on the ground of lack
of jurisdiction in view of Agarao's presence at the hearing on
petitioners' application for TRO, in failing to act on petitioners'
pending motions and in directing instead the issuance of new
summons on respondent enterprise.29
On 10 October 2005, the Court of Appeals rendered the assailed
Decision dismissing the petition for certiorari for lack of merit.30 In
its Order dated 28 April 2006, the Court of Appeals denied
petitioners' motion for reconsideration.

Hence, the instant petition attributes the following errors to the

Court of Appeals:

I.

THE COURT OF APPEALS ERRED IN RULING THAT THE REGIONAL

TRIAL COURT DID NOT OBTAIN JURISDICTION OVER THE
RESPONDENTS, DEPSITE THE RECEIPT OF COURT PROCESSES AND
VOLUNTARY APPEARANCE BEFORE THE COURTS.

II.

THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE

WITHDRAWAL BY PRIVATE RESPONDENTS OF THE GROUND OF
ABSENCE OF JURISDICTION OVER ITS PERSON CONSTITUTED A
WAIVER OF SUCH OBJECTION31

The instant petition which similarly impleads the enterprise, M.R.

Vargas Construction, Marcial R. Vargas and Renato Agarao as
respondents'raises two issues, namely: (1) whether the trial court
acquired jurisdiction over respondent enterprise and (2) whether
the defense of lack of jurisdiction had been waived.

Jurisdiction over the defendant is acquired either upon a valid

service of summons or the defendant's voluntary appearance in
court. When the defendant does not voluntarily submit to the
court's jurisdiction or when there is no valid service of summons,
any judgment of the court, which has no jurisdiction over the
person of the defendant is null and void. In an action strictly in
personam, personal service on the defendant is the preferred mode
of service, that is, by handing a copy of the summons to the
defendant in person.32

Citing the jurisdictional implications of the failure of service of

summons, the Court of Appeals concluded that no grave abuse of
discretion was committed by Judge Jacob in nullifying the
proceedings thus far conducted in the case based on the finding that
the summons had not been served on respondent enterprise and
that Agarao, despite being present at the 15 September 2004
hearing, was not authorized to represent respondent enterprise in
said hearing.

Petitioners take exception. They argue that the trial court acquired
jurisdiction over respondent enterprise, an entity without juridical
personality, through the appearance of its foreman, Agarao, at the
15 September 2004 hearing on the TRO application. Petitioners
theorize that the voluntary appearance of Agarao in said hearing
was equivalent to service of summons binding upon respondent
enterprise, following by analogy, Section 8, Rule 1433 which allows
the service of summons on any of the defendants associated to an
entity without juridical personality. Furthermore, they contend that
the receipt by a certain Rona Adol of the court processes was
binding upon respondent enterprise because the latter did not deny
the authority of Adol to receive communications on its behalf.

Petitioners' argument is untenable.

At the outset, it is worthy to note that both the Court of Appeals

and the trial court found that summons was not served on
respondent enterprise. The Officer's Return stated essentially that
the server failed to serve the summons on respondent enterprise
because it could not be found at the address alleged in the petition.
This factual finding, especially when affirmed by the appellate court,
is conclusive upon this Court and should not be disturbed because
this Court is not a trier of facts.

A sole proprietorship does not possess a juridical personality

separate and distinct from the personality of the owner of the
enterprise. The law does not vest a separate legal personality on
the sole proprietorship or empower it to file or defend an action in
court.34 Only natural or juridical persons or entities authorized by
law may be parties to a civil action and every action must be
prosecuted and defended in the name of the real parties-in-
interest.35
The records show that respondent enterprise, M.R. Vargas
Construction Co., is a sole proprietorship and, therefore, an entity
without juridical personality. Clearly, the real party-in-interest is
Marcial R. Vargas who is the owner of the enterprise. Thus, the
petition for injunction should have impleaded him as the party
respondent either simply by mention of his name or by
denominating him as doing business under the name and style of
"M.R. Vargas Construction Co." It was erroneous to refer to him, as
the petition did in both its caption and body, as representing the
enterprise. Petitioners apparently realized this procedural lapse
when in the petition for certiorari filed before the Court of Appeals
and in the instant petition, M.R. Vargas Construction, Marcial R.
Vargas and Renato Agaro were separately named as individual
respondents.

Since respondent enterprise is only a sole proprietorship, an entity

without juridical personality, the suit for injunction may be
instituted only against its owner, Marcial Vargas. Accordingly
summons should have been served on Vargas himself, following
Rule 14, Sections 636 and 737 of the Rules of Court on personal
service and substituted service. In the instant case, no service of
summons, whether personal or substituted, was effected on Vargas.
It is well-established that summons upon a respondent or a
defendant must be served by handing a copy thereof to him in
person or, if he refuses to receive it, by tendering it to him.
Personal service of summons most effectively ensures that the
notice desired under the constitutional requirement of due process
is accomplished. If however efforts to find him personally would
make prompt service impossible, service may be completed by
substituted service, i.e., by leaving copies of the summons at his
dwelling house or residence with some person of suitable age and
discretion then residing therein or by leaving the copies at his office
or regular place of business with some competent person in charge
thereof.38

The modes of service of summons should be strictly followed in

order that the court may acquire jurisdiction over the respondents,
and failure to strictly comply with the requirements of the rules
regarding the order of its publication is a fatal defect in the service
of summons. It cannot be overemphasized that the statutory
requirements on service of summons, whether personally, by
substituted service or by publication, must be followed strictly,
faithfully and fully, and any mode of service other than that
prescribed by the statute is considered ineffective.39

Agarao was not a party respondent in the injunction case before the
trial court. Certainly, he is not a real party-in-interest against whom
the injunction suit may be brought, absent any showing that he is
also an owner or he acts as an agent of respondent enterprise.
Agarao is only a foreman, bereft of any authority to defend the suit
on behalf of respondent enterprise. As earlier mentioned, the suit
against an entity without juridical personality like respondent
enterprise may be instituted only by or against its owner.
Impleading Agarao as a party-respondent in the suit for injunction
would have no legal consequence. In any event, the petition for
injunction described Agarao only as a representative of M.R. Vargas
Construction Co., which is a mere inconsequentiality considering
that only Vargas, as its sole owner, is authorized by the Rules of
Court to defend the suit on behalf of the enterprise.

Despite Agarao's not being a party-respondent, petitioners

nevertheless confuse his presence or attendance at the hearing on
the application for TRO with the notion of voluntary appearance,
which interpretation has a legal nuance as far as jurisdiction is
concerned. While it is true that an appearance in whatever form,
without explicitly objecting to the jurisdiction of the court over the
person, is a submission to the jurisdiction of the court over the
person, the appearance must constitute a positive act on the part of
the litigant manifesting an intention to submit to the court's
jurisdiction.40 Thus, in the instances where the Court upheld the
jurisdiction of the trial court over the person of the defendant, the
parties showed the intention to participate or be bound by the
proceedings through the filing of a motion, a plea or an answer.41

Neither is the service of the notice of hearing on the application for

a TRO on a certain Rona Adol binding on respondent enterprise. The
records show that Rona Adol received the notice of hearing on
behalf of an entity named JCB. More importantly, for purposes of
acquiring jurisdiction over the person of the defendant, the Rules
require the service of summons and not of any other court
processes.

Petitioners also contend that respondent enterprise waived the

defense of lack of jurisdiction when its counsel actively demanded
positive action on the omnibus motion. The argument is implausible.

It should be noted that when the defendant's appearance is made

precisely to object to the jurisdiction of the court over his person, it
cannot be considered as appearance in court.42 Such was the
purpose of the omnibus motion, as counsel for respondent
enterprise precisely manifested therein that he erroneously believed
that Vargas himself had received the summons when in fact it was
petitioner Martinez who signed as recipient of the summons.
Noteworthy is the fact that when the counsel first appeared in court
his appearance was "special" in character and was only for the
purpose of questioning the court's jurisdiction over Vargas,
considering that the latter never received the summons. However,
the counsel was shown a copy of the summons where a signature
appears at the bottom which led him to believe that the summons
was actually received by Vargas when in fact it was petitioner
Martinez himself who affixed his signature as recipient thereof.
When the counsel discovered his mistake, he lost no time pleading
that the proceedings be nullified and that petitioners and the
process server be cited for contempt of court. Both the trial and
appellate courts concluded that the improvident withdrawal of the
defense of lack of jurisdiction was an innocuous error, proceeding
on the undeniable fact that the summons was not properly served
on Vargas. Thus, the Court of Appeals did not commit a reversible
error when it affirmed the trial court's nullification of the
proceedings for lack of jurisdiction.

WHEREFORE, the instant petition for certiorari is DENIED. The

Decision and Resolution of the Court of Appeals in CA-G.R. SP No.
89001 are AFFIRMED in toto. Costs against petitioners.

The temporary restraining order issued in this case is DISSOLVED.

SO ORDERED.
 THIRD DIVISION

G.R. No. 143723. June 28, 2001

LITONJUA GROUP OF COMPANIES, EDDIE LITONJUA and

DANILO LITONJUA, petitioners, vs. TERESITA
VIGAN, respondent.

DECISION

GONZAGA-REYES, J.:

In this petition for review on certiorari, petitioners seek to annul and

set aside the (1) decision 1 of the respondent Court of Appeals
dated March 20, 2000 which reversed and set aside the decision of
the National Labor Relations Commission finding respondent guilty
of abandonment and (2) resolution 2 dated June 19, 2000 denying
petitioners motion for reconsideration.

The factual backdrop as found by the respondent Court of Appeals is

as follows:3cräläwvirtua lib räry

As to the factual milieu, the contending parties have diametrically

opposed versions. Vigan tells it this way; She was hired by the
Litonjua Group of Companies on February 2, 1979 as telex operator.
Later, she was assigned as accounting and payroll clerk under the
supervision of Danilo Litonjua. She had been performing well until
1995, when Danilo Litonjua who was already naturally a (sic) very
ill-tempered, ill-mouthed and violent employer, became more so
due to business problems. In fact, a complaint letter (Annex I, p.
85, rollo) was sent by the Litonjua Employees to the father and his
junior regarding the boorishness of their kin Danilo Litonjua but
apparently the management just glossed over this.

Danilo Litonjua became particularly angry with Vigan and threw a

stapler at her when she refused to give him money upon the
instructions of Eddie Litonjua. From then on, Danilo Litonjua had
been rabid towards her berated and bad-mouthed her, calling her a
mental case psycho, sira ulo, etc. and even threatened to hit her for
some petty matters. Danilo Litonjua even went so far as to lock her
up in the comfort room and preventing others to help her out. Not
contented, Danilo Litonjua would order the security guards to
forcibly eject her or prevent her entry in the office premises
whenever he was angry. This occurred twice in July of 1995, first on
the 5th then on the 7th. The incidents prompted Vigan to write
Danilo Litonjua letters asking why she was treated so and what was
her fault (Annexes F, G & K, pp. 82, 83 & 87, rollo). She suspected
that Danilo Litonjua wanted her out for he would not let her inside
the office such that even while abroad he would order the guards by
phone to bar her. She pleaded for forgiveness or at least for
explanation but it fell on deaf ears.

Later, Danilo Litonjua changed tack and charged that Vigan had
been hysterical, emotional and created scenes at the office. He even
required her to secure psychiatric assistance. (Annexes L to N, pp.
88-90, rollo) But despite proof that she was not suffering from
psychosis or organic brain syndrome as certified to by a Psychiatrist
of Danilo Litonjuas choice (Annex H, p. 84, rollo), still she was
denied by the guards entry to her work upon instructions again of
Danilo Litonjua. Left with no alternative, Vigan filed this case for
illegal dismissal, alleging she was receiving a monthly salary of
P8,000.00 at the time she was unlawfully terminated.

The Litonjuas have a different version. They negate the existence of

the Litonjua Group of Companies and the connection of Eduardo
Litonjua thereto. They contend that Vigan was employed by ACT
Theater, Inc., where Danilo Litonjua is a Director. They dispute the
charge of illegal dismissal for it was Vigan who ceased to report for
work despite notices and likewise contest the P8,000.00 monthly
salary alleged by Vigan, claiming it was merely P6,850.00.

They claim that Vigan was a habitual absentee specially on

Tuesdays that fell within three days before and after the 15th day
and 30th day of every month. Her performance had been
satisfactory, but then starting March 15, 1996 she had become
emotional, hysterical, uncontrollable and created disturbances at
the office with her crying and shouting for no reason at all. The
incident was repeated on April 3, 1996, May 24, 1996 and on June
4, 1996. Thus alarmed, on July 24, 1996 Vigan was required by
management to undergo medical and psychological examination at
the companys expense and naming three doctors to attend to her.
Dr. Baltazar Reyes and Dr. Tony Perlas of the Philippine General
Hospital and Dr. Lourdes Ignacio of the Medical Center Manila. But
they claim that Vigan refused to comply.

On August 2, 1996, Vigan again had another breakdown, hysterical,

shouting and crying as usual for about an hour, and then she just
left the premises without a word. The next day, August 3, 1996,
Saturday, she came to the office and explained she was not feeling
well the day before. After that Vigan went AWOL and did not heed
telegram notices from her employer made on August 26, 1996 and
on September 9, 1996 (Annexes 1 & 2, pp. 108 to 109, rollo). She
instead filed the instant suit for illegal dismissal.

On June 10, 1997, Labor Arbiter Ernesto S. Dinopol rendered his

decision 4 finding Vigan diseased and unfit for work under Article
284 of the Labor Code 55 and awarded the corresponding separation
pay as follows: 6
cräläwvirtuali brä ry

WHEREFORE, judgment is hereby rendered ordering respondents

LITONJUA GROUP OF COMPANIES, EDDIE K. LITONJUA and DANILO
LITONJUA to jointly and severally pay complainant TERESITA Y.
VIGAN, the following amounts:

Separation pay (P4,000 x 18) years.= P72,000.00

Proportionate 13th month pay

(P8,000 x 8 months over 12) = 4,666.66

TOTAL AWARD. P76,666.66

All other causes of action are DISMISSED for lack of merit.

Vigan appealed the decision to the National Labor Relations

Commission which modified 7 the arbiters decision by ruling that
Art. 284 of the Labor Code is inapplicable in the instant case but
affirmed the legality of the termination of the complainant based on
her having effectively abandoned her job; the rest of the decision
was affirmed. Vigan moved for a partial reconsideration which was
denied in a resolution dated August 7, 1998.

Dissatisfied, Vigan filed a petition for certiorari with the respondent

Court of Appeals which rendered its assailed decision dated March
20, 2000 reversing the NLRC Resolution. The dispositive portion of
the decision reads: 8cräläwvirtua lib räry

WHEREFORE, premises considered, the assailed NLRC Decision and

Resolution are hereby REVERSED and SET ASIDE. In its stead
judgment is rendered ordering the respondents LITONJUA GROUP
OF COMPANIES, EDDIE K. LITONJUA and DANILO LITONJUA jointly
and severally to:

(a) Reinstate complainant TERESITA Y. VIGAN if she so desires;

or

(b) pay her separation compensation in the sum of P8,000.00

multiplied by her years of service counted from February 2, 1979 up
to the time this Decision becomes final; and in either case to pay
Vigan;

(c) full back wages from the time she was illegally dismissed up to
the date of the finality of this Decision;

(d) moral damages in the amount of P40,000.00;

(e) exemplary damages in the amount of P15,000.00; and

(f) attorneys fees of P10,000.00.

SO ORDERED.

Litonjuas filed their motion for reconsideration which was denied in

a resolution dated June 19, 2000.

Petitioners Litonjuas filed the instant petition for review on certiorari

alleging the following grounds:
 I

WHETHER OR NOT LITONJUA GROUP OF COMPANIES, WHICH HAS

NO JURIDICAL PERSONALITY, BUT ONLY A GENERIC NAME TO
DESCRIBE THE VARIOUS COMPANIES WHICH THE LITONJUA
FAMILY HAS INTERESTS, CAN BE LEGALLY CONSTRUED AS
RESPONDENTS EMPLOYER.

II

WHETHER OR NOT THE COURT OF APPEALS SERIOUSLY ERRED AS

A MATTER OF LAW IN HOLDING THAT RESPONDENT WAS
ILLEGALLY DISMISSED FROM HER EMPLOYMENT, INSTEAD OF
AFFIRMING THE DECISION OF THE NATIONAL LABOR RELATIONS
COMMISSION THAT SHE HAD ABANDONED HER JOB OR THAT OF
LABOR ARBITER ERNESTO DINOPOL HOLDING THAT SHE SHOULD
BE SEPARATED ON THE GROUND OF DISEASE UNDER ARTICLE 284
OF THE LABOR CODE, CONSIDERING THAT SHE HAS EXHIBITED A
PATTERN OF PSYCHOLOGICAL AND MENTAL DISTURBANCE WHICH
ADMITTEDLY NO LONGER MADE HER PHYSICALLY FIT TO WORK.

III

WHETHER OR NOT THE COURT OF APPEALS SERIOUSLY ERRED AS

A MATTER OF LAW IN DIRECTING RESPONDENTS REINSTATEMENT
AT HER OWN CHOICE OR PAYMENT OF SEPARATION PAY OF ONE
MONTH SALARY FOR EVERY YEAR OF SERVICE AND BACKWAGES.

IV

THE COURT OF APPEALS SERIOUSLY ERRED AS A MATTER OF LAW

IN HOLDING PETITIONERS LIABLE FOR MORAL AND EXEMPLARY
DAMAGES AND ATTORNEYS FEES.

Anent the first assigned error, petitioners allege that the Litonjua
group of companies cannot be a party to this suit for it is not a legal
entity with juridical personality but is merely a generic name used
to describe collectively the various companies in which the Litonjua
family has business interest; that the real employer of respondent
Vigan was the ACT theater Incorporated where Danilo Litonjua is a
member of the Board of Directors while Eddie Litonjua was not
connected in any capacity.

Petitioners argument is meritorious. Only natural or juridical

persons or entities authorized by law may be parties to a civil action
and every action must be prosecuted and defended in the name of
the real parties in interest. 9 Petitioners claim that Litonjua Group of
Companies is not a legal entity with juridical personality hence
cannot be a party to this suit deserves consideration since
respondent failed to prove otherwise. In fact, respondent Vigans
own allegation in her Memorandum supported petitioners claim that
Litonjua group of companies does not exist when she stated therein
that instead of naming each and every corporation of the Litonjua
family where she had rendered accounting and payroll works, she
simply referred to these corporations as the Litonjua group of
companies, thus, respondent merely used such generic name to
describe collectively the various corporations in which the Litonjua
family has business interest. Considering the non-existence of the
Litonjua group of companies as a juridical entity and petitioner
Eddie Litonjuas denial of his connection in any capacity with the ACT
Theater, the supposed company where Vigan was employed,
petitioner Eddie Litonjuas should also be excluded as a party in this
case since respondent Vigan failed to prove Eddie Litonjuas
participation in the instant case. It is respondent Vigan, being the
party asserting a fact, who has the burden of proof as to such
fact 10 which however, she failed to discharge.

Next, petitioners claim that the complaint for illegal dismissal was
prematurely filed since Vigan was not dismissed, actual or
constructive, from her employment as the records show that despite
being absent without official leave since August 5, 1996 and her
receipt of two telegram notices sent to her by petitioners on August
26, and September 9, 1996 for her to report for work, she failed to
do so and yet petitioners had not done any act to dismiss her.
Petitioners deny Vigans claim that she had been physically barred
from entering the work premises.

Petitioners thus contend that since respondent Vigan was not

illegally dismissed from employment, the respondent courts order
reinstating the latter, awarding her separation pay equivalent to one
month salary per year of service as well as backwages, damages
and attorneys fees have no factual and legal basis.

We are not persuaded.

The above arguments relate mainly to the correctness of the factual

findings of the Court of Appeals and the award of damages. This
Court has consistently affirmed that the findings of fact of the Court
of Appeals are as a rule binding upon it, subject to certain
exceptions, one of which is when the factual findings of the Court of
Appeals are contrary to those of the trial court (or administrative
body, as the case may be). 11 However, it bears emphasizing that
mere disagreement between the Court of Appeals and the trial court
as to the facts of a case does not of itself warrant this Court's
review of the same. It has been held that the doctrine that the
findings of fact made by the Court of Appeals, being conclusive in
nature, are binding on this Court, applies even if the Court of
Appeals was in disagreement with the lower court as to the weight
of evidence with a consequent reversal of its findings of fact, so long
as the findings of the Court of Appeals are borne out by the record
or based on substantial evidence.12 cräläwvirtual ibrä ry

We have gone over the records of this case and found no cogent
reason to disagree with the respondent courts findings that
respondent Vigan did not abandon her job but was illegally
dismissed. Petitioners claim that despite two (2) telegram notices
dated August 26 and September 9, 1996 respectively sent to
respondent Vigan to report for work, the latter did not heed the
demands and absented herself since August 5, 1996 was belied by
the respondents evidence, as it was upon instructions of petitioner
Danilo Litonjua to the guards on duty that she could not enter the
premises of her workplace. In fact, in her letter dated August 30,
1996 addressed to petitioner Danilo Litonjua, respondent Vigan had
complained of petitioner Danilos inhumane treatment in barring her
from entering her workplace, to wit:

Sukdulan na po ang pang-aaping dinaranas ko sa inyo, sir. Since

August 5 etc. I was always approached by your guard Batutay and
harassed by your men to vacate my cubicle as per your strict order.
Only this August 7 that you succeeded as you order the door locked
for me only. As per our agreement Aug. 27 at Jollibee (sic) gave me
assurance that I willingly undergo psychiatric test I could freely
report for work without intimidating me, you wont anymore charge
me of insubordination. You wont disturb my family anymore, so why
do you advice to try to go back Aug. 30 but as always to be barred
by guard Batutay? Sir, with my 18 years of loyal service, all I need
is a little respect. Tao ako sir, hindi hayop. Malaki ang nawawala sa
akin."

Notwithstanding the fact the she was refused entrance to her

workplace, respondent Vigan, to show her earnest desire to report
for work, would sneak her way into the premises and punched her
time card but she could not resume work as the guards in the
company gate would prevent her per petitioner Danilo Litonjuas
instructions. It appears also that respondent Vigan wrote petitioner
Danilo a letter dated September 9, 1996 notifying him that per his
instructions, she had made an appointment for a psychiatric test on
September 11, 1996 and requested him to make a check payable to
Dr. Lourdes Ladrido-Ignacio in the amount of P800.00 consultation
fee as they agreed upon. She underwent a psychiatric examination
as a result of which Dr. Ignacio issued a medical certificate as
follows: 13
cräläwvirtual ibrä ry

This is to certify that MISS TERESITA VIGAN has come for

psychiatric evaluation on September 11 and 17, 1996. The
psychiatric interview and mental status examination did not reveal
any symptoms of psychosis or organic brain syndrome. She showed
anxiety but this was deemed a realistic reaction to her present job
difficulties.

Respondents actuations militate against petitioners claim that she

did not heed the notices to return to work and abandoned her job.
She had been going to her workplace to report for work but was
prevented from resuming her work upon the instructions of
petitioner Danilo Litonjua. It would be the height of injustice to
allow an employee to claim as a ground for abandonment a
situation which he himself had brought about. 14cräläwvirtual ibrä ry
We fully agree with the respondent courts ratiocination on the
illegality of Vigans dismissal, to wit: 15
cräläwvirtua lib räry

The basic issue is whether Vigans employment was terminated by

illegal dismissal or by abandonment of work, and We hold that this
was a case of illegal dismissal.

Shopworn is the rule on abandonment that the immediate filing of a

case for illegal dismissal negates the same. Mark that Vigan
promptly filed this suit for illegal dismissal when her attempts to
enter the premises of her workplace became futile and the efforts to
bar and eject her became unmistakable. In the more recent case of
Rizada vs. NLRC (G.R. No. 96982, September 21, 1999), the
Supreme Court reiterated anew the hoary rule that:

To constitute abandonment two elements must concur (1) the

failure to report for work or absence without valid or justifiable
reason, and (2) a clear intention to sever the employer-employee
relationship, with the second element as the more determinative
factor and being manifested by some overt acts. Abandoning ones
job means the deliberate, unjustified refusal of the employee to
resume his employment and the burden of proof is on the employer
to show a clear and deliberate intent on the part of the employee to
discontinue employment.

Abandonment is a matter of intention and cannot be lightly inferred,

much less legally presumed from certain equivocal acts. (Shin
Industrial v. National Labor Relations Commission, 164 SCRA 8).

An employee who forthwith took steps to protest his dismissal

cannot be said to have abandoned his work. (Toogue v. National
Labor Relations Commission, 238 SCRA 241), as where the
employee immediately filed a complaint for illegal dismissal to seek
reinstatement (Tolong Aqua Culture Corp., et al. V. National Labor
Relations Commission, G.R. 122268, November 12, 1996)
(emphasis supplied).

Note that in the instant case Vigan was even pleading to be allowed
to work but she was prevented by the guards thereat upon the
orders of Danilo Litonjua. These are disclosed by her letters
(Annexes F, G, K, Q, R and U, pp. 82, 83, 87, 93, 94 & 97, rollo),
the entries in her time cards (Annexes P, S, W and X, pp. 92, 95, 99
& 100, rollo) and her compliance when required to see a psychiatrist
(Annex H, p. 84, rollo). On the other hand there is complete silence
from the Litonjuas on these matters, including on the collective
manifesto of several employees against Danilo Litonjua and his
highhanded ways (Annex I, p. 85). They chose to ignore material
and telling points. They even alleged that Vigan refused to comply
with their request for her to have medical examination (Comment,
pp. 164-171, rollo and Memorandum for the Respondents, pp. 215-
222, rollo), an unmitigated falsity in the face of clear proofs that she
complied with their directive and was given a clean bill of mental
health by a reputable psychiatrist of their choice.

For emphasis, We shall quote with seeming triteness the dictum laid
down in Mendoza vs. NLRC (supra) regarding the unflinching rule in
illegal dismissal cases:

that the employer bears the burden of proof. To establish a case of

abandonment, the employer must prove the employees deliberate
and unjustified refusal to resume employment without any intention
of returning. . .

mere absence from work, especially where the employee has been
verbally told not to report, cannot by itself constitute abandonment.
To repeat, the employer has the burden of proving overt acts on the
employees part which demonstrate a desire or intention to abandon
her work

The NLRC had erred in shifting the onus probandi to Vigan in the
charge of abandonment against her, while the Litonjuas failed to
discharge their burden. Though they may not have verbally told
Vigan not to report for work but the act of ordering the guards not
to let her in was just as clear a notice. Vigans plight was akin to
that of the truck helper in the case of Masagana Concrete Products,
et al. vs. NLRC (G.R. No. 106916, September 3, 1999) who was
likewise prevented from coming to work.

While there was no formal termination of his services, Marias, was

constructively dismissed when he was accused of tampering the
vale sheet and prevented from returning to work. Constructive
dismissal does not always involve forthright dismissal or diminution
in rank, compensation, benefit and privileges. For an act of clear
discrimination insensibility or disdain by an employer may become
so unbearable on the part of the employee that it could foreclose
any choice by him except to forego his continued employment. In
this case, Marias had to resign from his job because he was
prevented from returning back to work unless he admitted his
mistake in writing and he was not given any opportunity to contest
the charge against him. It is a rule often repeated that
unsubstantiated accusation without anything more are not
synonymous with guilt and unless a clear, valid, just or authorized
ground for dismissing an employee is established by the employer
the dismissal shall be considered unfounded.

Similarly, Vigan was accused of having mental, emotional and

physical disorders (Annex M, p. 89, rollo), but per medical
examination it was proven that hers was pure anxiety as a realistic
reaction to her present job difficulties. She was charged of habitual
absenteeism on Tuesdays that fell within three days before and
after the 15th day and 30th day of every month (Litonjuas Position
Paper, pp. 101-107, rollo). This is preposterous for how many
Tuesdays in a year would fall within three days before and after the
15th day and 30th day of every month? By no extrapolation can this
be habitual absenteeism.

Since respondent Vigan was illegally dismissed from her

employment, she is entitled to: (1) either reinstatement, if viable,
or separation pay if reinstatement is no longer viable, and (2)
backwages. 16 As correctly disposed by the respondent Court: 17 cräläwvirtuali brä ry

Thus finding that Vigan was illegally dismissed, she is entitled to the
following:

1) Either reinstatement, if viable, or separation pay if reinstatement

is no longer viable; and 2) Backwages, Backwages and separation
pay are distinct relief given to alleviate the economic damage by an
illegally dismissed employee. Hence, an award of separation pay in
lieu of reinstatement does not bar an award of backwages,
computed from the time of illegal dismissal up to the date of the
finality of the Decision... without qualification or deduction.
Separation pay, equivalent to one months salary for every year of
service, is awarded as an alternative to reinstatement when the
latter is no longer an option. Separation pay is computed from the
commencement of employment up to the time of termination,
including the imputed service for which the employee is entitled to
backwages, with the salary rate prevailing at the end of the period
of putative service being the basis for computation (Masagana
Concrete Products, et al. vs. NLRC, supra). In case of a fraction of
at least six (6) months in the length of service, the same shall be
considered as one year in computing the separation pay. With
regard to backwages, it meant literal full backwages that is inclusive
of allowances and other benefits or their monetary equivalent
computed from the time her compensation was withheld from her
up to the time of her actual reinstatement, if it is still viable or up to
the time the Decision in her favor becomes final without deducting
from back wages the earning derived elsewhere, if there is any, by
Vigan during the period of her illegal dismissal. (Lopez vs. NLRC,
297 SCRA 508).

In other words, Vigan is entitled to reinstatement, which perhaps is

no longer viable due to the strained relations between the parties,
or separation pay of P8,000.00 for every year of service and
backwages of another P8,000 per month reckoned from the time
she last received salary from the Litonjuas up to the date of the
finality of this Decision. Mark again that We allowed the P8,000.00
claim of Vigan as her last salary received for again the Litonjuas
failed to validly refute the same.

We likewise affirm respondent courts award of moral and exemplary

damages to the respondent. As a rule, moral damages are
recoverable only where the dismissal of the employee was attended
by bad faith or fraud or constituted an act oppressive to labor, or
was done in a manner contrary to morals, good customs or public
policy. We find that bad faith attended respondents dismissal from
her employment. Bad faith involves a state of mind dominated by ill
will or motive. It implies a conscious and intentional design to do a
wrongful act for a dishonest purpose or some moral
obliquity. 18 Petitioner Danilo Litonjua showed ill will in treating
respondent Vigan in a very unfair and cruel manner which made her
suffer anxieties by reason of such job difficulties. The report to work
notices sent by petitioners to respondent Vigan was just part of the
ploy to make it appear that the latter abandoned her work but in
reality, Vigan was barred from entering her work premises. We fully
subscribe to respondents position that petitioners action was for the
purpose of removing her from her employment. Respondent Vigan
is also entitled to exemplary damages as her dismissal was effected
in an oppressive and malevolent manner. 19 cräläwvirtual ib räry

We also find that there is a basis for the award of attorneys fees. It
is settled that in actions for recovery of wages or where an
employee was forced to litigate and incur expenses to protect his
rights and interest, he is entitled to an award of attorneys fees. 20 cräläwvirtua lib räry

WHEREFORE , premises considered, the decision of the respondent

Court of Appeals dated March 20, 2000 is hereby AFFIRMED with
the MODIFICATION that Litonjua Group of Companies and Eddie
Litonjua are dropped as parties in the instant case.

SO ORDERED.

[G.R. No. L-23825. December 24, 1965.]

EMMANUEL PELAEZ, Petitioner, v. THE AUDITOR GENERAL, Respondent.

Zulueta, Gonzales, Paculdo & Associates for Petitioner.

Solicitor General for Respondent.

SYLLABUS

1. ADMINISTRATIVE LAW; POWER OF PRESIDENT TO CREATE MUNICIPALITIES. — Since January 1, 1960,

when Republic Act No. 2370 became effective, barrios may "not be created or their boundaries altered nor
their names changed" except by Act of Congress or of the corresponding provincial board "upon petition of a
majority of the voters in the areas affected" and the "recommendation of the council of the municipality or
municipalities in which the proposed barrio is situated." This statutory denial of the presidential authority to
create a new barrio implies a negation of the bigger power to create municipalities, each of which consists of
several barrios.

2. ID.; ID.; NATURE OF POWER TO CREATE MUNICIPALITIES. — Whereas the power to fix a common
boundary, in order to avoid or settle conflicts of jurisdiction between adjoining municipalities, may partake
of an administrative nature — involving, as it does, the adoption of means and ways to carry into effect the
law creating said municipalities - the authority to create municipal corporations is essentially legislative in
nature.

3. ID.; ID.; ID.; REQUISITES FOR VALID DELEGATION OF POWER. — Although Congress may delegate to
another branch of the Government the power to fill in the details in the execution, enforcement or
administration of a law, it is essential that said law: (a) be complete in itself, setting forth therein the policy
to be executed, carried out or implemented by the delegate; and (b) fix a standard - the limits of which are
sufficiently determinate or determinable to which the delegate must conform in the performance of his
functions.

4. ID.; ID.; ID.; ID.; REQUIREMENTS OF DUE DELEGATION OF POWER NOT MET BY SECTION 68 OF
REVISED ADMINISTRATIVE CODE. — Section 68 of the Revised Administrative Code, insofar as it grants to
the President the power to create municipalities, does not meet the well-settled requirements for a valid
delegation of the power to fix the details in the enforcement of a law. It does not enunciate any policy to be
carried out or implemented by the President.

5. ID.; ID.; ID.; ID.; ID.; ABDICATION OF POWERS OF CONGRESS IN FAVOR OF THE EXECUTIVE. — If the
validity of said delegation of powers, made in Section 68 of the Revised Administrative Code, were upheld,
there would no longer be any legal impediment to a statutory grant of authority to the President to do
anything which, in his opinion, may be required by public welfare or public interest. Such grant of authority
would be a virtual abdication of the powers of Congress in favor of the Executive, and would bring about a
total collapse of the democratic system established by the Constitution.

6. ID.; ID.; ID.; NATURE OF POWERS DEALT WITH IN SECTION 68 OF THE REVISED ADMINISTRATIVE
CODE. — It is true that in Calalang v. Williams (70 Phil., 726) and People v. Rosenthal (68 Phil., 328), this
Court had upheld "public welfare" and "public interest," respectively, as sufficient standards, for a valid
delegation of the authority to execute the law. But the doctrine laid down in these cases must be construed
in relation to the specific facts and issues involved therein, outside of which they do not constitute
precedents and have no binding effect. Both cases involved grants to administrative officers of powers
related to the exercise of their administrative functions, calling for the determination of questions of fact.
Such is not the nature of the powers dealt with in Section 68 of the Revised Administrative Code. The
creation of municipalities being essentially and eminently legislative in character, the question whether or
not "public interest" demands the exercise of such power is not one of fact. It is purely a legislative question
(Carolina- Virginia Coastal Highway v. Coastal Turnpike Authority, 74 S.E. 21., 310-313, 315-318), or a
political question (Udall v. Severn, 79 p. 2d., 347-349).

7. ID.; ID., ID.; ID.; PROOF THAT ISSUANCE OF EXECUTIVE ORDERS IN QUESTION ENTAILS EXERCISE OF
PURELY LEGISLATIVE FUNCTIONS. — The fact that Executive Orders Nos. 93 to 121, 124 and 126 to 129,
creating thirty-three municipalities, were issued after the legislative bills for the creation of the said
municipalities had failed to pass Congress, is the best proof that their issuance entails the exercise of purely
legislative functions.

8. ID.; ID.; ID.; POWER OF CONTROL OVER LOCAL GOVERNMENTS. — The power of control under Section
10(a) of Article X of the Constitution implies the right of the President to interfere in the exercise of such
discretion as may be vested by law in the officers of the executive departments, bureaus or offices of the
national government, as well as to act in lieu of such officers. This power is denied by the Constitution to the
Executive, insofar as local governments are concerned. With respect to the latter, the fundamental law
permits him to wield no more authority than that of checking whether said local governments or the officers
thereof perform their duties as provided by statutory enactments. Hence, the President cannot interfere with
local governments, so long as the same or its officers act within the scope of their authority. He may not, for
instance, suspend an elective official of a regular municipality or take any disciplinary action against him,
except on appeal from a decision of the corresponding provincial board. If, on the other hand, the President
could create a municipality, he could, in effect, remove any of its officials, by creating a new municipality
and including therein the barrio in which the official concerned resides, for his office would thereby become
vacant (Section 2179, Revised Administrative Code). Thus, by merely brandishing the power to create a new
municipality, without actually creating it, he could compel local officials to submit to his dictation, thereby, in
effect, exercising over them the power of control denied to him by the Constitution.

9. ID.; ID.; ID.; ID.; SECTION 68, REVISED ADMINISTRATIVE CODE, REPEALED BY THE CONSTITUTION. —
The power of control of the President over executive departments, bureaus or offices under Section 10 (a) of
Article X of the Constitution implies no more than the authority to assume directly the functions thereof or to
interfere in the exercise of discretion by its officials. Manifestly, such control does not include the authority
either to abolish an executive department or bureau, or to create a new one. As a consequence, the alleged
power of the President to create municipal corporations would necessarily connote the exercise by him of an
authority even greater than that of control which he has over the executive departments, bureaus or offices.
Instead of giving the President less power over local governments than that vested in him over the
executive departments, bureaus or offices, it reverses the process and does the exact opposite, by
conferring upon him more power over municipal corporations than that which he has over executive
departments, bureaus or offices. Even if, therefore, it did not entail an undue delegation of legislative
powers, as it certainly does, said Section 68, as part of the Revised Administrative Code, approved on March
10, 1917, must be deemed repealed by the subsequent adoption of the Constitution in 1935, which is utterly
incompatible and inconsistent with said statutory enactment. (De los Santos v. Mallare, 87 Phil., 289, 298-
299.)

10. ID. ID.; ID.; MUNICIPAL OFFICIALS CONCERNED DULY REPRESENTED IN PRESENT CASE. — It is
contented that not all the proper parties have been impleaded in the present case. Suffice it to say that the
records do not show, and the parties do not claim, that the officers of any of the municipalities concerned
have been appointed or elected and have assumed office. At any rate, the Solicitor-General, who has
appeared on behalf of respondent Auditor General, is the officer authorized by law "to act and represent the
Government of the Philippines, its officers and agents, in any official investigation, proceeding or matter
requiring the services of a lawyer" (Section 1661, Revised Administrative Code), and, in connection with the
creation of the municipalities involved in this case, which involves a political, not proprietary functions, said
local officials, if any, are mere agents or representatives of the national government. Their interest in the
case has accordingly been duly represented. (Mangubat v. Osmeña Jr., G.R. No. L-12837, April 30, 1959;
City of Cebu v. Judge Piccio, G.R. Nos. L-13012 & L-14876, December 31, 1960.)

11. ID.; ID.; ACTION NOT PREMATURE. — The present action cannot be said to be premature simply
because respondent Auditor General has not yet acted on any of the executive orders in question and has
not intimated how he would act in connection therewith. It is a matter of common knowledge that the
President has for many years issued executive orders creating municipal corporations and that the same
have been organized and are in actual operation, thus indicating, without peradventure of doubt, that the
expenditures incidental thereto have been sanctioned, approved or passed in audit by the General Auditing
Office and its officials. There is no reason to believe that respondent would adopt a different policy as
regards the new municipalities involved in this case, in the absence of an allegation to such effect, and none
has been made by him.

DECISION

CONCEPCION, J.:

During the period from September 4 to October 29,1964 the President of the Philippines, purporting to act
pursuant to Section 68 of the Revised Administrative Code, issued Executive Orders Nos. 93 to 121, 124 and
126 to 129, creating thirty-three (33) municipalities enumerated in the margin. 1 Soon after the date last
mentioned, or on November 10, 1964, petitioner Emmanuel Pelaez, as Vice-President of the Philippines and
as taxpayer, instituted the present special civil action, for a writ of prohibition with preliminary injunction,
against the Auditor General, to restrain him, as well as his representatives and agents, from passing in audit
any expenditure of public funds in implementation of said executive orders and/or any disbursement by said
municipalities.

Petitioner alleges that said executive orders are null and void, upon the ground that said Section 68 has
been impliedly repealed by Republic Act 2370 and constitutes an undue delegation of legislative power.
Respondent maintains the contrary view and avers that the present action is premature and that not all
proper parties — referring to the officials of the new political subdivisions in question — have been
impleaded. Subsequently, the mayors of several municipalities adversely affected by the aforementioned
executive orders — because the latter have taken away from the former the barrios composing the new
political subdivision — intervened in the case. Moreover, Attorneys Enrique M. Fernando and Emma
Quisumbing-Fernando were allowed to and did appear as amici curiae.

The third paragraph of Section 3 of Republic Act No. 2370, reads: jgc:chan robles. com.ph
"Barrios shall not be created or their boundaries altered nor their names changed except under the
provisions of this Act or by Act of Congress.

Pursuant to the first two (2) paragraphs of the same Section 3: jgc:chan roble s.com.p h

"All barrios existing at the time of the passage of this Act shall come under the provisions hereof.

"Upon petition of a majority of the voters in the areas affected, a new barrio may be created or the name of
an existing one may be changed by the provincial board of the province, upon recommendation of the
council of the municipality or municipalities in which the proposed barrio is situated. The recommendation of
the municipal council shall be embodied in a resolution approved by at least two-thirds of the entire
membership of the said council: Provided, however, That no new barrio may be created if its population is
less than five hundred persons." cralaw virtua 1aw lib rary

Hence, since January 1, 1960, when Republic Act No. 2370 became effective, barrios may "not be created or
their boundaries altered nor their names changed" except by Act of Congress or of the corresponding
provincial board "upon petition of a majority of the voters in the areas affected" and the "recommendation of
the council of the municipality or municipalities in which the proposed barrio is situated." Petitioner argues,
accordingly: "If the President, under this new law, cannot even create a barrio, can he create a municipality
which is composed of several barrios, since barrios are units of municipalities?"

Respondent answers in the affirmative, upon the theory that a new municipality can be created without
creating new barrios, such as, by placing old barrios under the jurisdiction of the new municipality. This
theory overlooks, however, the main import of the petitioner’s argument, which is that the statutory denial
of the presidential authority to create a new barrio implies a negation of the bigger power to create
municipalities, each of which consists of several barrios. The cogency and force of this argument is too
obvious to be denied or even questioned. Founded upon logic and experience, it cannot be offset except by a
clear manifestation of the intent of Congress to the contrary, and no such manifestation, subsequent to the
passage of Republic Act No. 2370. has been brought to our attention.

Moreover, section 68 of the Revised Administrative Code, upon which the disputed executive orders are
based, provides: jgc:c hanro bles. com.ph

"The (Governor-General) President of the Philippines may by executive order define the boundary, or
boundaries, of any province, sub-province, municipality, [township] municipal district or other political
subdivision, and increase or diminish the territory comprised therein, may divide any province into one or
more subprovinces, separate any political division other than a province, into such portions as may be
required, merge any of such subdivisions or portions with another, name any new subdivision so created,
and may change the seat of government within any subdivision to such place therein as the public welfare
may require: Provided, That the authorization of the (Philippine Legislature) Congress of the Philippines shall
first be obtained whenever the boundary of any province or subprovince is to be defined or any province is
to be divided into one or more subprovinces. When action by the (Governor-General) President of the
Philippines in accordance herewith makes necessary a change of the territory under the jurisdiction of any
administrative officer or any judicial officer, the (Governor-General) President of the Philippines, with the
recommendation and advice of the head of the Department having executive control of such officer, shall
redistrict the territory of the several officers affected and assign such officers to the new districts so formed.

"Upon the changing of the limits of political divisions in pursuance of the foregoing authority, an equitable
distribution of the funds and obligations of the divisions thereby affected shall be made in such manner as
may be recommended by the (Insular Auditor) Auditor General and approved by the (Governor-General)
President of the Philippines." cralaw virtua1aw li bra ry

Respondent alleges that the power of the President to create municipalities under this section does not
amount to an undue delegation of legislative power, relying upon Municipality of Cardona v. Municipality of
Binañgonan (36 Phil. 547), which, he claims, has settled it. Such claim is untenable, for said case involved,
not the creation of a new municipality, but a mere transfer of territory — from an already existing
municipality (Cardona) to another municipality (Binañgonan), likewise, existing at the time of and prior to
said transfer (See Gov’t of the P.I. ex rel. Municipality of Cardona v. Municipality of Binañgonan [34 Phil.
518, 519-520], — in consequence of the fixing and definition, pursuant to Act No. 1748, of the common
boundaries of two municipalities.

It is obvious, however, that, whereas the power to fix such common boundary, in order to avoid or settle
conflicts of jurisdiction between adjoining municipalities, may partake of an administrative nature —
involving, as it does, the adoption of means and ways to carry into effect the law creating said municipalities
— the authority to create municipal corporations is essentially legislative in nature. In the language of other
courts, it is "strictly a legislative function" (State ex rel. Higgins v. Aicklen, 119 S. 425, January 2, 1959) or
"solely and exclusively the exercise of legislative power" (Udall v. Severn, May 29, 1938, 79 P. 2d. 347-
349). As the Supreme Court of Washington has put it (Territory ex rel. Kelly v. Stewart, February 13, 1890,
23 Pac. 405, 409), "municipal corporations are purely the creatures of statutes." cralaw virtua 1aw lib rary

Although 1 Congress may delegate to another branch of the government the power to fill in the details in
the execution, enforcement or administration of a law, it is essential, to forestall a violation of the principle
of separation of powers, that said law: (a) be complete in itself — it must set forth therein the policy to be
executed, carried out or implemented by the delegate 2 — and (b) fix a standard — the limits of which are
sufficiently determinate or determinable — to which the delegate must conform in the performance of his
functions. 2 Indeed, without a statutory declaration of policy, the delegate would, in effect, make or
formulate such policy, which is the essence of every law; and, without the aforementioned standard, there
would be no means to determine, with reasonable certainty, whether the delegate has acted within or
beyond the scope of his authority. 2 Hence, he could thereby arrogate upon himself the power, not only to
make the law, but, also — and this is worse — to unmake it, by adopting measures inconsistent with the end
sought to be attained by the Act of Congress, thus nullifying the principle of separation of powers and the
system of checks and balances, and, consequently undermining the very foundation of our Republican
system.

Section 68 of the Revised Administrative Code does not meet these well settled requirements for a valid
delegation of the power to fix the details in the enforcement of a law. It does not enunciate any policy to be
carried out or implemented by the President. Neither does it give a standard sufficiently precise to avoid the
evil effects above referred to. In this connection, we do not overlook the fact that, under the last clause of
the first sentence of Section 68, the President: jgc:chan roble s.com.p h

". . . may change the seat of the government within any subdivision to such place therein as the public
welfare may require." cralaw vi rtua 1aw lib rary

It is apparent, however, from the language of this clause, that the phrase "as the public welfare may
require" qualifies, not the clauses preceding the one just quoted, but only the place to which the seat of the
government may be transferred. This fact becomes more apparent when we consider that said Section 68
was originally Section 1 of Act No. 1748, 3 which provided, that "whenever in the judgment of the Governor-
General the public welfare requires, he may, by executive order", effect the changes enumerated therein (as
well as in said Section 68), including the change of the seat of the government "to such place . . . as the
public interest requires." The opening statement of said Section 1 of Act No. 1748 — which was not included
in Section 68 of the Revised Administrative Code — governed the time at which, or the conditions under
which, the powers therein conferred could be exercised; whereas the last part of the first sentence of said
section referred exclusively to the place to which the seat of the government was to be transferred.

At any rate, the conclusion would be the same, insofar as the case at bar is concerned, even if we assumed
that the phrase "as the public welfare may require", in said Section 68, qualifies all other clauses thereof. It
is true that in Calalang v. William (70 Phil. 726) and People v. Rosenthal (68 Phil. 328), this Court had
upheld "public welfare" and "public interest", respectively, as sufficient standards for a valid delegation of
the authority to execute the law. But, the doctrine laid down in these cases — as all judicial pronouncements
— must be construed in relation to the specific facts and issues involved therein, outside of which they do
not constitute precedents and have no binding effect. 4 The law construed in the Calalang case conferred
upon the Director of Public Works, with the approval of the Secretary of Public Works and Communications,
the power to issue rules and regulations to promote safe transit upon national roads and streets. Upon the
other hand, the Rosenthal case referred to the authority of the Insular Treasurer, under Act No. 2581, to
issue and cancel certificates or permits for the sale of speculative securities. Both cases involved grants to
administrative officers of powers related to the exercise of their administrative functions, calling for the
determination of questions of fact.

Such is not the nature of the powers dealt with in section 68. As above indicated, the creation of
municipalities, is not an administrative function, but one which is essentially and eminently legislative in
character. The question whether or not "public interest" demands the exercise of such power is not one of
fact. It is "purely a legislative question" (Carolina-Virginia Coastal Highway v. Coastal Turnpike Authority, 74
S.E. 2d., 310-313, 315-318), or a political question (Udall v. Severn, 79 P. 2d. 347-349). As the Supreme
Court of Wisconsin has aptly characterized it, "the question as to whether incorporation is for the best
interest of the community in any case is emphatically a question of public policy and statecraft" (In re
Village of North Milwaukee, 67 N. W. 1033, 1035-1037).

For this reason, courts of justice have annulled, as constituting undue delegation of legislative powers, state
laws granting the judicial department the power to determine whether certain territories should be annexed
to a particular municipality (Udall v. Severn, supra, 358-359); or vesting in a Commission the right to
determine the plan and frame of government of proposed villages and what functions shall be exercised by
the same, although the powers and functions of the village are specifically limited by statute (In re Municipal
Charters, 86 Atl. 307-308); or conferring upon courts the authority to declare a given town or village
incorporated, and designate its meter and bounds, upon petition of a majority of the taxable inhabitants
thereof, setting forth the area desired to be included in such village (Territory ex rel Kelly v. Stewart, 23
Pac. 405-409); or authorizing the territory of a town, containing a given area and population, to be
incorporated as a town, on certain steps being taken by the inhabitants thereof and on certain determination
by a court and subsequent vote of the inhabitants in favor thereof, insofar as the court is allowed to
determine whether the lands embraced in the petition "ought justly" to be included in the village, and
whether the interest of the inhabitants will be promoted by such incorporation, and to enlarge and diminish
the boundaries of the proposed village "as justice may require" (In re Villages of North Milwaukee, 67 N.W.
1035- 1037); or creating a Municipal Board of Control which shall determine whether or not the laying out,
construction or operation of a toll road is in the "public interest" and whether the requirements of the law
had been complied with, in which case the Board shall enter an order creating a municipal corporation and
fixing the name of the same (Carolina-Virginia Coastal Highway v. Coastal Turnpike Authority, 74 S. E. 2d.
310).

Insofar as the validity of a delegation of power by Congress to the President is concerned, the case of
Schechter Poultry Corporation v. U. S. (79 L. ed. 1570) is quite relevant to the one at bar. The Schechter
case involved the constitutionality of Section 3 of the National Industrial Recovery Act authorizing the
President of the United States to approve "codes of fair competition" submitted to him by one or more trade
or industrial associations or corporations which "impose no inequitable restrictions on admission to
membership therein and are truly representative," provided that such codes are not designed "to promote
monopolies or to eliminate or oppress small enterprises and will not operate to discriminate against them,
and will tend to effectuate the policy" of said Act. The Federal Supreme Court held: jgc:ch anroble s.com.p h

"To summarize and conclude upon this point: Sec. 3 of the Recovery Act is without precedent. It supplies no
standards for any trade, industry or activity. It does not undertake to prescribe rules of conduct to be
applied to particular states of fact determined by appropriate administrative procedure. Instead of
prescribing rules of conduct, it authorizes the making of codes to prescribe them. For that legislative
undertaking, Sec. 3 sets up no standards, aside from the statement of the general aims of rehabilitation,
correction and expansion described in Sec. 1. In view of the scope of that broad declaration, and of the
nature of the few restrictions that are imposed, the discretion of the President in approving or prescribing
codes, and thus enacting laws for the government of trade and industry throughout the country, is virtually
unfettered. We think that the code-making authority thus conferred is an unconstitutional delegation of
legislative power." cralaw vi rt ua1aw lib ra ry

If the term "unfair competition" is so broad as to vest in the President a discretion that is "virtually
unfettered", and, consequently, tantamount to a delegation of legislative power, it is obvious that "public
welfare", which has even a broader connotation, leads to the same result. In fact, if the validity of the
delegation of powers made in Section 68 were upheld, there would no longer be any legal impediment to a
statutory grant of authority to the President to do anything which, in his opinion, may be required by public
welfare or public interest. Such grant of authority would be a virtual abdication of the powers of Congress in
favor of the Executive, and would bring about a total collapse of the democratic system established by our
Constitution, which it is the special duty and privilege of this Court to uphold.

It may not be amiss to note that the executive orders in question were issued after the legislative bills for
the creation of the municipalities involved in this case had failed to pass Congress. A better proof of the fact
that the issuance of said executive orders entails the exercise of purely legislative functions can hardly be
given.

Again, Section 10 (1) of Article VII of our fundamental law ordains: jgc:chanro bles. com.ph

"The President shall have control of all executive departments, bureaus or offices, exercise general
supervision over all local governments as may be provided by law, and take care that the laws be faithfully
executed." cralaw virtua1aw li bra ry
The power of control under this provision implies the right of the President to interfere in the exercise of
such discretion as may be vested by law in the officers of the executive departments, bureaus, or offices of
the national government, as well as to act in lieu of such officers. This power is denied by the Constitution to
the Executive, insofar as local governments are concerned. With respect to the latter, the fundamental law
permits him to wield no more authority than that of checking whether said local governments or the officers
thereof perform their duties as provided by statutory enactments. Hence, the President cannot interfere with
local governments, so long as the same or its officers act within the scope of their authority. He may not
enact an ordinance which the municipal council has failed or refused to pass, even if it had thereby violated
a duty imposed thereto by law, although he may see to it that the corresponding provincial officials take
appropriate disciplinary action therefor. Neither may he veto, set aside or annul an ordinance passed by said
council within the scope of its jurisdiction, no matter how patently unwise it may be. He may not even
suspend an elective official of a regular municipality or take any disciplinary action against him, except on
appeal from a decision of the corresponding provincial board. 5

Upon the other hand, if the President could create a municipality, he could, in effect, remove any of its
officials, by creating a new municipality and including therein the barrio in which the official concerned
resides, for his office would thereby become vacant. 6 Thus, by merely brandishing the power to create a
new municipality (if he had it), without actually creating it, he could compel local officials to submit to his
dictation, thereby, in effect, exercising over them the power of control denied to him by the Constitution.

Then, also, the power of control of the President over executive departments, bureaus or offices implies no
more than the authority to assume directly the functions thereof or to interfere in the exercise of discretion
by its officials. Manifestly, such control does not include the authority either to abolish an executive
department or bureaus, or to create a new one. As a consequence, the alleged power of the President to
create municipal corporations would necessarily connote the exercise by him of an authority even greater
than that of control which he has over the executive departments, bureaus or offices. In other words,
Section 68 of the Revised Administrative Code does not merely fail to comply with the constitutional
mandate above quoted. Instead of giving the President less power over local governments than that vested
in him over the executive departments, bureaus or offices, it reverses the process and does the exact
opposite, by conferring upon him more power over municipal corporations than that which he has over said
executive departments, bureaus or offices.

In short, even if it did not entail an undue delegation of legislative powers, as it certainly does, said Section
68, as part of the Revised Administrative Code, approved on March 10, 1917, must be deemed repealed by
the subsequent adoption of the Constitution, in 1935, which is utterly incompatible and inconsistent with
said statutory enactment. 7

There are only two (2) other points left for consideration, namely, respondent’s claim (a) that "not all the
proper parties" — referring to the officers of the newly created municipalities — "have been impleaded in
this case", and (b) that "the present petition is premature." cralaw virtua1aw l ibra ry

As regards the first point, suffice it to say that the records do not show, and the parties do not claim, that
the officers of any of said municipalities have been appointed or elected and assumed office. At any rate, the
Solicitor-General, who has appeared on behalf of respondent Auditor General, is the officer authorized by
law "to act and represent the Government of the Philippines, its offices and agents, in any official
investigation, proceeding or matter requiring the services of a lawyer" (Section 1661, Revised Administrative
Code), and, in connection with the creation of the aforementioned municipalities, which involves a political,
not proprietary, function, said local officials, if any, are mere agents or representatives of the national
government. Their interest in the case at bar has, accordingly, been, in effect, duly represented. 8

With respect to the second point, respondent alleges that he has not as yet acted on any of the executive
order in question and has not intimated how he would act in connection therewith. It is however, a matter of
common, public knowledge, subject to judicial cognizance, that the President has, for many years, issued
executive orders creating municipal corporations and that the same have been organized and in actual
operation, thus indicating, without peradventure of doubt, that the expenditures incidental thereto have
been sanctioned, approved or passed in audit by the General Auditing Office and its officials. There is no
reason to believe, therefore, that respondent would adopt a different policy as regards the new
municipalities involved in this case, in the absence of an allegation to such effect, and none has been made
by him.

WHEREFORE the Executive Orders in question are hereby declared null and void ab initio and the respondent
permanently restrained from passing in audit any expenditure of public funds in implementation of said
Executive Orders or any disbursement by the municipalities above referred to. It is so ordered.

G.R. No. L-41322 September 29, 1988

MUNICIPALITY OF KAPALONG, thru its Mayor, PORFIRIO F. ROYO Vice Mayor, TOMAS D.
MANZANO, Municipal Councilors VALERIANO CLARO, CARIDAD A. DORONIO FELICULO
ESTRADA, GEORGE PEDRO JAIN, LIDO E. MONOY SALVADOR PASPE and AGUEDO
ROTOL petitioners,
vs.
HON. FELIX L. MOYA, Presiding Judge of Court of First Instance of Davao, Branch IX, and the
MUNICIPALITY OF STO. TOMAS, thru its Mayor, ANICETO SOLIS, Vice-Mayor LEOPOLDO
RECTO, Municipal Councilors DOMINGO CAGADAS, WENCESLAO CASTRO, WILDA
ESPIRITU, PASTOR FERNANDEZ, MACROSQUE PIMENTEL, DOMINADOR SOLIS, JOSE
TAGHOY and ALFONSO VALDEZ, and Municipal Treasurer JOSE AVENIDO, respondents.

Martin V. Delgra, Jr. for petitioners.

Simeon N. Millan Jr. for respondent Santo Tomas.

PARAS, J.:

This is a petition for certiorari and prohibition with preliminary injunction seeking: (a) the reversal (annulment) of the February 17, 1975 Order
of the then Court of First Instance of Davao denying the motion to dismiss Civil Case No. 475; and the March 17, 1975 and July 10, 1975
Orders of the same Court denying petitioner's motions for reconsideration; and (b) the issuance of a writ of prohibition directing respondent
Judge to desist from taking cognizance of Civil Case No. 475.

From portions of the Municipality of Kapalong, President Carlos P. Garcia created respondent
Municipality of Santo Tomas, and the latter now asserts jurisdiction over eight (8) barrios of
petitioner. For many years and on several occasions, this conflict of boundaries between the two
municipalities was brought, at the instance of private respondent, to the Provincial Board of Davao
for it to consider and decide. However, it appears that no action was taken on the same. Private
respondent then filed a complaint with the then Court of First Instance of Davao, presided over by
herein public respondent Judge Felix L. Moya against the Municipality of Kapalong, for settlement of
the municipal boundary dispute, recovery of collected taxes and damages, docketed therein as Civil
Case No. 475.

On March 7, 1974, petitioner filed its Answer (Rollo, pp. 1417).

On November 22, 1974, petitioner filed a Motion to Dismiss on the ground of lack of jurisdiction of
the lower court and lack of legal personality of the Municipality of Santo Tomas (Ibid., pp. 18-22),
which was opposed by private respondent (Ibid., pp. 23-26). On December 12, 1974, petitioner filed
its reply to the opposition (Ibid., pp. 27-30), after which respondent Judge, in an Order dated
February 17, 1975, denied the motion to dismiss (Ibid., pp. 34-36).
On March 3, 1975, petitioner filed a Motion for Reconsideration (Ibid., pp. 37-40), but in an Order
dated March 17, 1975, the same was denied by respondent Judge and so was the Second Motion
for Reconsideration (Ibid., pp. 42-43), in an Order dated July 10, 1975 (Ibid., p. 44). Hence, the
instant petition (Ibid., pp. 1-10).

The Second Division of this Court, in a Resolution dated September 10, 1975, resolved to require
the respondents to answer and to issue a temporary restraining order (Ibid., p. 49). In compliance
therewith, private respondent filed its Answer on October 28, 1975 (Ibid., pp. 53-57). In the
Resolution dated November 3, 1975, the parties were required to file their respective memoranda
(Ibid., p. 65). Petitioner filed its Memorandum on December 10, 1975 (Ibid., pp. 68-76), and private
respondent on January 5, 1975 (Ibid., pp. 77-85). Petitioner raised four (4) issues, to wit:

1. WHETHER OR NOT PRIVATE RESPONDENT HAS LEGAL PERSONALITY TO SUE;

2. WHETHER OR NOT THE MATTER OF SETTLEMENT OF BOUNDARY DISPUTE IS A

POLITICAL QUESTION;

3. WHETHER OR NOT PRESIDENTIAL DECREE NO. 242 SUPERSEDED REPUBLIC ACT NO.
6128; AND

4. WHETHER OR NOT THE ACTION HAS ALREADY PRESCRIBED.

The instant petition is impressed with merit.

The pivotal issue in this case is whether or not the Municipality of Santo Tomas legally exists.

Petitioner contends that the ruling of this Court in Pelaez v. Auditor General.
(15 SCRA 569) is clear that the President has no power to create municipalities. Thus, there is no
Municipality of Santo Tomas to speak of It has no right to assert, no cause of action, no corporate
existence at all, and it must perforce remain part and parcel of Kapalong. Based on this premise, it
submits that respondent Judge should have dismissed the case.

On the ground of jurisdiction, petitioner argues that the settlement of boundary disputes is
administrative in nature and should originate in the political or administrative agencies of the
government, and not in the courts whose power is limited to judicial review on appropriate occasions
(Ibid., pp. 73-74).

Rule 3, Section 1 of the Rules of Court expressly provides that only "entities authorized by law may
be patties in a civil action." Now then, as ruled in the Pelaez case supra, the President has no power
to create a municipality. Since private respondent has no legal personality, it can not be a party to
any civil action, and as such, respondent Judge should have dismissed the case, since further
proceedings would be pointless.

PREMISES CONSIDERED, the petition is GRANTED; the Orders of

February 17, 1975, March 17, 1975 and July 10, 1975 of respondent Judge are SET ASIDE; and
Civil Case No. 475 is DISMISSED. The restraining order previously issued by this Court is made
permanent.
 THIRD DIVISION

G.R. No. 200612, April 05, 2017

RAFAEL C. UY (CABANGBANG STORE), Petitioner, v. ESTATE OF VIPA FERNANDEZ, Respondents.

DECISION

REYES, J.:

This is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court seeking to annul and set aside
the Decision2 dated November 26, 2010 and Resolution3 dated January 24, 2012 issued by the Court of
Appeals (CA) in CA-G.R. SP No. 04481.

Facts

Vipa Fernandez Lahaylahay (Vipa) is the registered owner of a parcel of land situated in Lopez Jaena Street,
Jaro, Iloilo City covered by Transfer Certificate of Title No. T-26576 (subject property).4 Vipa and her
husband, Levi Lahaylahay (Levi), have two children – Grace Joy Somosierra (Grace Joy) and Jill Frances
Lahaylahay (Jill Frances).5

Sometime in 1990, a contract of lease was executed between Vipa and Rafael Uy (Rafael) over the subject
property and the improvements thereon, pursuant to which, Rafael bound himself to pay Vipa, as
consideration for the lease of the property, the amount of P3,000.00 per month, with a provision for a 10%
increase every year thereafter.6

On March 5, 1994, Vipa died leaving no will or testament whatsoever. Grace Joy became the de
facto administrator of the estate of Vipa. After Vipa's death, Levi lived in Aklan.7

In June 1998, Rafael stopped paying the monthly rents.8 Consequently, on June 12, 2003, the Estate of
Vipa, through Grace Joy, filed a complaint9 for unlawful detainer with the Municipal Trial Court in Cities
(MTCC) of Iloilo City against Rafael. It was alleged therein that, as of June 1998, Rafael was already bound
to pay rent at the amount of P3,300.00 per month and that his last payment was made in May 1998.
Accordingly, at the time of the filing of the Complaint, Rafael's unpaid rents amounted to P271,150.00.10 The
Estate of Vipa claimed that despite repeated demands, Rafael refused to pay the rents due.11

In his Answer,12 Rafael denied that he refused to pay the rent for the lease of the subject property. He
claimed that sometime in June 1998 Patria Fernandez-Cuenca (Patria), Vipa's sister, demanded for the
payment of the rents, claiming that she is the rightful heir of Vipa.13 Since he had no idea on who is entitled
to receive the rent for the subject property, he deposited the amount of P10,000.00 with the Office of the
Clerk of Court of the Regional Trial Court (RTC) of Iloilo City on November 20, 1998 and that Grace Joy was
informed of such consignation.14 He claimed that a case for the settlement of the Estate of Vipa was
instituted by Patria with the RTC, which was docketed as Special Proceeding No. 6910. He averred that he is
willing to pay the rent on the leased property to the rightful heirs of Vipa and that he made another
consignation with the RTC in the amount of P6,000.00.15

On June 12, 2008, the MTCC rendered a Decision,16 the decretal portion of which reads:

WHEREFORE, in the light of the foregoing ratiocination, judgment is hereby rendered in favor of the [Estate
of Vipa] and against [Rafael], ordering the latter, to wit:

1. to vacate the premises subject of this case and covered by TCT No. T-26576 and to
peacefully turn over the possession of the same to the [Estate of Vipa];
2. to pay the [Estate of Vipa] the amount of Php271,150.00 as payment for the unpaid rentals
with 12% interest per annum from the last demand on May 3, 2003 until the whole amount
is paid;
 3. to pay the [Estate of Vipa] the amount of Php3,000.00 per month with 12% interest per
annum for the use and occupancy of the premises computed from the date of the filing of
this case on June 12, 2003 until fully paid;
4. to pay the [Estate of Vipa] attorney's fees in the amount of Php20,000.00; [and]
5. to pay the costs of suit.

SO ORDERED.17

The MTCC found that after Vipa's death in 1994 until 1998, Rafael was paying the rent for the lease of the
subject property to Grace Joy.18 That the real reason why Patria claimed to be the heir of Vipa is because
she owed Rafael money which she could not pay. Patria then charged the debt she owes to Rafael from the
monthly rent of the subject property, an arrangement that Rafael took advantage to avoid paying Grace Joy
the monthly rents. The MTCC further opined that the consignations made by Rafael in the total amount of
P16,000.00 are not valid since there was no prior tender of payment.19

On appeal, the RTC, in its Decision20 dated April 15, 2009, reversed the MTCC's Decision dated June 12,
2008 and, thus, dismissed the complaint for unlawful detainer filed by the Estate of Vipa. Thus:

WHEREFORE, premises considered, the Decision appealed from is REVERSED and SET ASIDE; and the herein
complaint is hereby DISMISSED for lack of merit; and further DISMISSING [Rafael's] counterclaim for failure
to substantiate the same.

SO ORDERED.21

The RTC opined that Grace Joy was actually the plaintiff in the case and not the Estate of Vipa. It then
pointed out that Grace Joy failed to bring the dispute to the barangay for conciliation prior to filing the
complaint for unlawful detainer.22

The RTC further held that the MTCC erred in including the entire subject property as part of the Estate of
Vipa. The RTC explained that the subject property was acquired by Vipa during the subsistence of her
marriage with Levi and, as such, is part of their conjugal properties. That after Vipa's death, the conjugal
partnership was terminated, entitling Levi to one-half of the property.23 The RTC then pointed out that Levi
sold his share in the subject property to Rafael, as evidenced by a Deed of Sale24 dated December 29,
2005.25 Accordingly, the RTC ruled that Rafael, as co-owner of the subject property, having bought Levi's
one-half share thereof, had the right to possess the same.26

The Estate of Vipa sought a reconsideration27 of the Decision dated April 15, 2009, but it was denied by the
RTC in its Order dated July 28; 2009.28

The Estate of Vipa then filed a Petition for Review29 with the CA. On November 26, 2010, the CA rendered a
Decision,30 which declared:

WHEREFORE, in view of all the foregoing, the instant petition for review is GRANTED and the April 15, 2009
Decision of the court a quo in Civil Case No. 08-29842 is hereby REVERSED and SET ASIDE. Accordingly, the
June 12, 2008 Decision of the Municipal Trial Court, Branch 4, Iloilo City, in Civil Case No. 03-208 is hereby
REINSTATED.

SO ORDERED.31

The CA held that there was no necessity to bring the dispute before the barangay for conciliation since the
Estate of Vipa, being a juridical person, cannot be impleaded to a barangay conciliation proceeding. The CA
likewise pointed out that any allegations against Grace Joy's authority to represent the Estate of Vipa had
been laid to rest when she was appointed as administrator of the Estate of Vipa in Special Proceedings No.
6910 pending before the RTC.32

Further, the CA held that Rafael raised the issue of ownership of the subject property, i.e., Levi's sale of his
one-half share in the subject property to Rafael, only for the first time in his appeal with the RTC.
Accordingly, it was error on the part of the RTC to have resolved the issue of ownership of the subject
property.33 Furthermore, the CA agreed with the MTCC that Rafael's consignation of the rent to the RTC is
ineffective. It ruled that Rafael made the consignation only twice and the amount consigned was patently
insignificant compared to the amount of rent due.34

Rafael's motion for reconsideration35 was denied by the CA in its Resolution36 dated January 24, 2012.

Hence, the instant petition.

Rafael maintains that Grace Joy has no authority to represent the Estate of Vipa and, when she filed the
complaint for unlawful detainer with the MTCC, she did so in her personal capacity. Thus, Rafael claims that
the dispute should have been brought to the barangay for conciliation before the complaint was filed in the
MTCC.37 He further claims that the CA erred in . reversing the RTC's ruling on the issue of ownership of the
subject property. He insists that he already purchased Levi's one-half share in the subject property.38

On the other hand, the Estate of Vipa, in its Comment,39 avers that the supposed lack of authority of Grace
Joy to file the complaint for unlawful detainer and the ownership of the subject property were never raised
in the proceedings before the MTCC and, hence, could not be passed upon by the RTC in the appellate
proceedings. In any case, it pointed out that the RTC's Decision40 dated October 28, 2005 in Special
Proceedings No. 6910, which appointed Grace Joy as the administrator of the intestate estate of Vipa,
recognized that the latter and Jill Frances are legitimate children of Vipa and Levi.

Issue

Essentially, the issue set forth for the Court's resolution is whether the CA erred in reversing the RTC's
Decision dated April 15, 2009.

Ruling of the Court

The petition is partly meritorious.

Rafael's claim that the complaint below should have been dismissed since Grace Joy has no authority to
represent the Estate of Vipa and that there was lack of prior barangay conciliation is untenable. Unlawful
detainer cases are covered by the Rules on Summary Procedure.41 Section 5 of the 1991 Revised Rules on
Summary Procedure provides that affirmative and negative defenses not pleaded in the answer shall be
deemed waived, except lack of jurisdiction over the subject matter.

Rafael failed to plead in the answer he filed with the MTCC that Grace Joy has no authority to represent the
Estate of Vipa. Neither did he raise therein the lack of barangay conciliation between the parties herein prior
to the filing of the complaint for unlawful detainer. Accordingly, the foregoing defenses are already deemed
waived.

In any case, the issue of the supposed lack of authority of Grace Joy to represent the Estate of Vipa had
already been rendered moot with the RTC's appointment of Grace Joy as the administrator of the Estate of
Vipa in Special Proceedings No. 6910.

Also, there was no need to refer the dispute between the parties herein to the barangay for conciliation
pursuant to the Katarungang Pambarangay Law.42 It bears stressing that only individuals may be parties to
barangay conciliation proceedings either as complainants or respondents. Complaints by or against
corporations, partnerships or other juridical entities may not be filed with, received or acted upon by the
barangay for conciliation.43 The Estate of Vipa, which is the complainant below, is a juridical entity that has a
personality, which is separate and distinct from that of Grace Joy.44 Thus, there is no necessity to bring the
dispute to the barangay for conciliation prior to filing of the complaint for unlawful detainer with the MTCC.

The CA, nevertheless, erred in hastily dismissing Rafael's allegation as regards the ownership of the subject
property. In disregarding Rafael's claim that he owns Levi's one-half undivided share in the subject property,
the CA ruled that the said issue was raised for the first time on appeal and should thus not have been
considered by the RTC, viz.:
On the second issue, the records show that [Rafael] raised the issue of ownership only for the first time on
appeal; hence, the [RTC] erred in deciding the appeal before it on the findings that part of the subject
premises is owned by petitioners, allegedly having bought the same from [Levi], the husband of [Vipa].

The Court is not unmindful that in forcible entry and unlawful detainer cases, the MTC may rule on the issue
[of] ownership in order to determine the issue of possession. However, the issue of ownership must be
raised by the defendant on the earliest opportunity; otherwise, it is already deemed waived. Moreover, the
instant case was covered by the Rules on Summary Procedure, which expressly provide that affirmative and
negative defenses not pleaded therein shall be deemed waived, except for lack of jurisdiction over the
subject matter. Thus, the [RTC] erred in resolving the issue of ownership for the first time on
appeal.45 (Citations omitted)

It is true that fair play, justice, and due process dictate that parties should not raise for the first time on
appeal issues that they could have raised but never did during trial. However, before a party may be barred
from raising an issue for the first time on appeal, it is imperative that the issue could have been raised
during the trial.46 What escaped the appellate court's attention is that the sale of the one-half undivided
share in the subject property to Rafael was consummated only on December 29, 2005, more than two years
after Rafael filed with the MTCC his answer to the complaint for unlawful detainer on July 18,
2003.47 Obviously, Rafael could not have raised his acquisition of Levi's share in the subject property as an
affirmative defense in the answer he filed with the MTCC.

Moreover, Rafael's ownership of the one-half undivided share in the subject property would necessarily
affect the property relations between the parties herein. Thus, the CA should have exerted efforts to resolve
the said issue instead of dismissing the same on the flimsy ground that it was not raised during the
proceedings before the MTCC.

Levi and Vipa were married on March 24, 196148 and, in the absence of a marriage settlement, the system
of conjugal partnership of gains governs their property relations.49 It is presumed that the subject property
is part of the conjugal properties of Vipa and Levi considering that the same was acquired during the
subsistence of their marriage and there being no proof to the contrary.50

When Vipa died on March 5, 1994, the conjugal partnership was automatically terminated.51 Under Article
130 of the Family Code, the conjugal partnership property, upon its dissolution due to the death of either
spouse, should be liquidated either in the same proceeding for the settlement of the estate of the deceased
or, in the absence thereof, by the surviving spouse within one year from the death of the deceased spouse.
That absent any liquidation, any disposition or encumbrance of the conjugal partnership property is void.
Thus:

Article 130. Upon the termination of the marriage by death, the conjugal partnership property shall be
liquidated in the same proceeding for the settlement of the estate of the deceased.

If no judicial settlement proceeding is instituted, the surviving spouse shall liquidate the
conjugal partnership property either judicially or extra-judicially within six months from the
death of the deceased spouse. If upon the lapse of the six-month period no liquidation is made,
any disposition or encumbrance involving the conjugal partnership property of the terminated
marriage shall be void.

Should the surviving spouse contract a subsequent marriage without compliance with the foregoing
requirements, a mandatory regime of complete separation of property shall govern the property relations of
the subsequent marriage. (Emphasis ours)

Article 130 of the Family Code is applicable to conjugal partnership of gains already established between the
spouses prior to the effectivity of the Family Code pursuant to Article 105 thereof, viz.:

Article 105. In case the future spouses agree in the marriage settlements that the regime of conjugal
partnership of gains shall govern their property relations during marriage, the provisions in this Chapter
shall be of supplementary application.
The provisions of this Chapter shall also apply to conjugal partnerships of gains already
established between spouses before the effectivity of this Code, without prejudice to vested rights
already acquired in accordance with the Civil Code or other laws as provided in Article 256. (Emphasis ours)

Rafael bought Levi's one-half share in the subject property in consideration of P500,000.00 as evidenced by
the Deed of Sale52 dated December 29, 2005. At that time, the conjugal partnership properties of Levi and
Vipa were not yet liquidated. However, such disposition, notwithstanding the absence of liquidation of the
conjugal partnership properties, is not necessarily void.

It bears stressing that under the regime of conjugal partnership of gains, the husband and wife are co-
owners of all the property of the conjugal partnership.53 Thus, upon the termination of the conjugal
partnership of gains due to the death of either spouse, the surviving spouse has an actual and vested one-
half undivided share of the properties, which does not consist of determinate and segregated properties until
liquidation and partition of the conjugal partnership.54 With respect, however, to the deceased spouse's
share in the conjugal partnership properties, an implied ordinary co-ownership ensues among the surviving
spouse and the other heirs of the deceased.55

Thus, upon Vipa's death, one half of the subject property was automatically reserved in favor of the
surviving spouse, Levi, as his share in the conjugal partnership. The other half, which is Vipa's share, was
transmitted to Vipa's heirs – Grace Joy, Jill Frances, and her husband Levi, who is entitled to the same share
as that of a legitimate child. The ensuing implied co-ownership is governed by Article 493 of the Civil Code,
which provides:

Article 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining
thereto, and he may therefore alienate, assign or mortgage it, and even substitute another person in
its enjoyment, except when personal rights are involved. But the effect of the alienation or the
mortgage, with respect to the co-owners, shall be limited to the portion which may be allotted to
him in the division upon the termination of the co-ownership. (Emphasis ours)

Although Levi became a co-owner of the conjugal partnership properties with Grace Joy and Jill Frances, he
could not yet assert or claim title to any specific portion thereof without an actual partition of the property
being first done either by agreement or by judicial decree. Before the partition of a land or thing held in
common, no individual or co-owner can claim title to any definite portion thereof. All that the co-owner has
is an ideal or abstract quota or proportionate share in the entire land or thing.56

Nevertheless, a co-owner could sell his undivided share; hence, Levi had the right to freely sell and dispose
of his undivided interest. Thus, the sale by Levi of his one-half undivided share in the subject property was
not necessarily void, for his right as a co-owner thereof was effectively transferred, making the buyer,
Rafael, a co-owner of the subject property. It must be stressed that the binding force of a contract must be
recognized as far as it is legally possible to do so (quando res non valet ut ago, valeat quantum valere
potest).57

However, Rafael became a co-owner of the subject property only on December 29, 2005 – the time when
Levi sold his one-half undivided share over the subject property to the former. Thus, from December 29,
2005 Rafael, as a co-owner, has the right to possess the subject property as an incident of ownership.
Otherwise stated, prior to his acquisition of Levi's one-half undivided share, Rafael was a mere lessee of the
subject property and is thus obliged to pay the rent for his possession thereof.

Accordingly, Rafael could no longer be directed to vacate the subject property since he is already a co-owner
thereof. Nevertheless, Rafael is still bound to pay the unpaid rentals from June 1998 until April 2003 in the
amount of P271,150.00. In Nacar v. Gallery Frames, et al.,58 the Court pointed out that pursuant to
Resolution No. 796 of the Bangko Sentral ng Pilipinas Monetary Board, the interest rate of loans or
forbearance of money, in the absence of stipulation shall be six percent (6%) effective only from July 1,
2013. Thus, prior to July 1, 2013, the rate of interest on loans or forbearance of money, in the absence of
stipulation, is still 12%. Accordingly, the amount of P271,150.00, representing the unpaid rentals shall earn
interest at the rates of 12% per annum from the date of the last demand on May 3, 2003 until June 30,
2013 and 6% per annum from July 1, 2013 until fully paid.
Further, Rafael is likewise bound to pay reasonable rent for the use and occupancy of the subject property
from May 2003 until December 28, 2005 at the rate of P3,000.00 per month with interest at the rate of
12% per annum from the date of the last demand, i.e., the filing of the complaint with the MTCC on June
12, 2003, until June 30, 2013 and 6% per annum from July 1, 2013 until fully paid.

The award of attorney's fees of P20,000.00 is likewise proper. Attorney's fees can be awarded in the cases
enumerated in Article 2208 of the Civil Code, specifically:

Article 2208. x x x

xxxx

(2) Where the defendant's act or omission has compelled the plaintiff to litigate with third persons or to
incur expenses to protect his interest[.]

Certainly, because of Rafael's unjustified refusal to pay the rents due on the lease of the subject prope1iy,
the Estate of Vipa was put to unnecessary expense and trouble to protect its interest under paragraph (2),
Article 2208 of the Civil Code. In unlawful detainer cases, where attorney's fees are awarded, the same shall
not exceed P20,000.00.59

WHEREFORE, in view of the foregoing disquisitions, the petition for review on certiorari is PARTIALLY
GRANTED. The Decision dated November 26, 2010 and Resolution dated January 24, 2012 issued by the
Court of Appeals in CA-G.R. SP No. 04481 are hereby REVERSED and SET ASIDE. Petitioner Rafael C. Uy is
hereby directed to pay the Estate of Vipa Fernandez the following:

1. The amount of P271,150.00, representing the unpaid rentals, with interest at the rates of twelve
percent (12%) per annum from the date of the last demand on May 3, 2003 until June 30, 2013,
and six percent (6%) per annum from July 1, 2013 until fully paid;
2. Reasonable rent for the use and occupancy of the subject property from May 2003 until December
28, 2005 at the rate of P3,000.00 per month with interest at the rates of twelve percent (12%) per
annum from the date of the last demand, i.e., the filing of the complaint for unlawful detainer on
June 12, 2003, until June 30, 2013, and six percent (6%) per annum from July 1, 2013 until fully
paid; and
3. The amount of P20,000.00 as attorney's fees.

SO ORDERED.

G.R. No. 160347 November 29, 2006

ARCADIO and MARIA LUISA CARANDANG, Petitioners,

vs.
HEIRS OF QUIRINO A. DE GUZMAN, namely: MILAGROS DE GUZMAN, VICTOR DE GUZMAN,
REYNALDO DE GUZMAN, CYNTHIA G. RAGASA and QUIRINO DE GUZMAN,
JR., Respondents.

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari assailing the Court of Appeals Decision1 and Resolution
affirming the Regional Trial Court (RTC) Decision rendering herein petitioners Arcadio and Luisa
Carandang [hereinafter referred to as spouses Carandang] jointly and severally liable for their loan
to Quirino A. de Guzman.

The Court of Appeals summarized the facts as follows:

[Quirino de Guzman] and [the Spouses Carandang] are stockholders as well as corporate officers of
Mabuhay Broadcasting System (MBS for brevity), with equities at fifty four percent (54%) and forty
six percent (46%) respectively.

On November 26, 1983, the capital stock of MBS was increased, from ₱500,000 to P1.5 million and
₱345,000 of this increase was subscribed by [the spouses Carandang]. Thereafter, on March 3,
1989, MBS again increased its capital stock, from ₱1.5 million to ₱3 million, [the spouses
Carandang] yet again subscribed to the increase. They subscribed to ₱93,750 worth of newly issued
capital stock.

[De Guzman] claims that, part of the payment for these subscriptions were paid by him, ₱293,250 for
the November 26, 1983 capital stock increase and ₱43,125 for the March 3, 1989 Capital Stock
increase or a total of ₱336,375. Thus, on March 31, 1992, [de Guzman] sent a demand letter to [the
spouses Carandang] for the payment of said total amount.

[The spouses Carandang] refused to pay the amount, contending that a pre-incorporation agreement
was executed between [Arcadio Carandang] and [de Guzman], whereby the latter promised to pay
for the stock subscriptions of the former without cost, in consideration for [Arcadio Carandang’s]
technical expertise, his newly purchased equipment, and his skill in repairing and upgrading
radio/communication equipment therefore, there is no indebtedness on their part [sic].

On June 5, 1992, [de Guzman] filed his complaint, seeking to recover the ₱336,375 together with
damages. After trial on the merits, the trial court disposed of the case in this wise:

"WHEREFORE, premises considered, judgment is hereby rendered in favor of [de Guzman].

Accordingly, [the spouses Carandang] are ordered to jointly and severally pay [de Guzman], to wit:

(1) ₱336,375.00 representing [the spouses Carandang’s] loan to de Guzman;

(2) interest on the preceding amount at the rate of twelve percent (12%) per annum from
June 5, 1992 when this complaint was filed until the principal amount shall have been fully
paid;

(3) ₱20,000.00 as attorney’s fees;

(4) Costs of suit.

The spouses Carandang appealed the RTC Decision to the Court of Appeals, which affirmed the
same in the 22 April 2003 assailed Decision:

WHEREFORE, in view of all the foregoing the assailed Decision is hereby AFFIRMED. No costs.2

The Motion for Reconsideration filed by the spouses Carandang was similarly denied by the Court of
Appeals in the 6 October 2003 assailed Resolution:
WHEREFORE, in view thereof, the motion for reconsideration is hereby DENIED and our Decision
of April 22, 2003, which is based on applicable law and jurisprudence on the matter is hereby
AFFIRMED and REITERATED.3

The spouses Carandang then filed before this Court the instant Petition for Review on Certiorari,
bringing forth the following issues:

I.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED MANIFEST ERROR

IN FAILING TO STRICTLY COMPLY WITH SECTION 16, RULE 3 OF THE 1997 RULES OF CIVIL
PROCEDURE.

II.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN ITS

FINDING THAT THERE IS AN ALLEGED LOAN FOR WHICH PETITIONERS ARE LIABLE,
CONTRARY TO EXPRESS PROVISIONS OF BOOK IV, TITLE XI, OF THE NEW CIVIL CODE
PERTAINING TO LOANS.

III.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN FINDING

THAT THE RESPONDENTS WERE ABLE TO DISCHARGE THEIR BURDEN OF PROOF, IN
COMPLETE DISREGARD OF THE REVISED RULES ON EVIDENCE.

IV.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE

ERROR WHEN IT FAILED TO APPLY SECTIONS 2 AND 7, RULE 3 OF THE 1997 RULES OF
CIVIL PROCEDURE.

V.

WHETHER OR NOT THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN FINDING

THAT THE PURPORTED LIABILITY OF PETITIONERS ARE JOINT AND SOLIDARY, IN
VIOLATION OF ARTICLE 1207 OF THE NEW CIVIL CODE.4

Whether or not the RTC Decision is void for failing to comply with Section 16, Rule 3 of the Rules of
Court

The spouses Carandang claims that the Decision of the RTC, having been rendered after the death
of Quirino de Guzman, is void for failing to comply with Section 16, Rule 3 of the Rules of Court,
which provides:

SEC. 16. Death of party; duty of counsel. – Whenever a party to a pending action dies, and the claim
is not thereby extinguished, it shall be the duty of his counsel to inform the court within thirty (30)
days after such death of the fact thereof, and to give the name and address of his legal
representative or representatives. Failure of counsel to comply with this duty shall be a ground for
disciplinary action.
The heirs of the deceased may be allowed to be substituted for the deceased, without requiring the
appointment of an executor or administrator and the court may appoint a guardian ad litem for the
minor heirs.

The court shall forthwith order the legal representative or representatives to appear and be
substituted within a period of thirty (30) days from notice.

If no legal representative is named by the counsel for the deceased party, or if the one so named
shall fail to appear within the specified period, the court may order the opposing party, within a
specified time, to procure the appointment of an executor or administrator for the estate of the
deceased and the latter shall immediately appear for and on behalf of the deceased. The court
charges in procuring such appointment, if defrayed by the opposing party, may be recovered as
costs.

The spouses Carandang posits that such failure to comply with the above rule renders void the
decision of the RTC, in adherence to the following pronouncements in Vda. de Haberer v. Court of
Appeals5 and Ferreria v. Vda. de Gonzales6 :

Thus, it has been held that when a party dies in an action that survives and no order is issued by the
court for the appearance of the legal representative or of the heirs of the deceased in substitution of
the deceased, and as a matter of fact no substitution has ever been effected, the trial held by the
court without such legal representatives or heirs and the judgment rendered after such trial are null
and void because the court acquired no jurisdiction over the persons of the legal representatives or
of the heirs upon whom the trial and judgment would be binding.7

In the present case, there had been no court order for the legal representative of the deceased to
appear, nor had any such legal representative appeared in court to be substituted for the deceased;
neither had the complainant ever procured the appointment of such legal representative of the
deceased, including appellant, ever asked to be substituted for the deceased. As a result, no valid
substitution was effected, consequently, the court never acquired jurisdiction over appellant for the
purpose of making her a party to the case and making the decision binding upon her, either
personally or as a representative of the estate of her deceased mother.8

However, unlike jurisdiction over the subject matter which is conferred by law and is not subject to
the discretion of the parties,9 jurisdiction over the person of the parties to the case may be waived
either expressly or impliedly.10Implied waiver comes in the form of either voluntary appearance or a
failure to object.11

In the cases cited by the spouses Carandang, we held that there had been no valid substitution by
the heirs of the deceased party, and therefore the judgment cannot be made binding upon them. In
the case at bar, not only do the heirs of de Guzman interpose no objection to the jurisdiction of the
court over their persons; they are actually claiming and embracing such jurisdiction. In doing so, their
waiver is not even merely implied (by their participation in the appeal of said Decision), but express
(by their explicit espousal of such view in both the Court of Appeals and in this Court). The heirs of
de Guzman had no objection to being bound by the Decision of the RTC.

Thus, lack of jurisdiction over the person, being subject to waiver, is a personal defense which can
only be asserted by the party who can thereby waive it by silence.

It also pays to look into the spirit behind the general rule requiring a formal substitution of heirs. The
underlying principle therefor is not really because substitution of heirs is a jurisdictional requirement,
but because non-compliance therewith results in the undeniable violation of the right to due process
of those who, though not duly notified of the proceedings, are substantially affected by the decision
rendered therein.12 Such violation of due process can only be asserted by the persons whose rights
are claimed to have been violated, namely the heirs to whom the adverse judgment is sought to be
enforced.

Care should, however, be taken in applying the foregoing conclusions. In People v.

Florendo,13 where we likewise held that the proceedings that took place after the death of the party
are void, we gave another reason for such nullity: "the attorneys for the offended party ceased to be
the attorneys for the deceased upon the death of the latter, the principal x x x." Nevertheless, the
case at bar had already been submitted for decision before the RTC on 4 June 1998, several
months before the passing away of de Guzman on 19 February 1999. Hence, no further proceedings
requiring the appearance of de Guzman’s counsel were conducted before the promulgation of the
RTC Decision. Consequently, de Guzman’s counsel cannot be said to have no authority to appear in
trial, as trial had already ceased upon the death of de Guzman.

In sum, the RTC Decision is valid despite the failure to comply with Section 16, Rule 3 of the Rules
of Court, because of the express waiver of the heirs to the jurisdiction over their persons, and
because there had been, before the promulgation of the RTC Decision, no further proceedings
requiring the appearance of de Guzman’s counsel.

Before proceeding with the substantive aspects of the case, however, there is still one more
procedural issue to tackle, the fourth issue presented by the spouses Carandang on the non-
inclusion in the complaint of an indispensable party.

Whether or not the RTC should have dismissed the case for failure to state a cause of action,
considering that Milagros de Guzman, allegedly an indispensable party, was not included as a party-
plaintiff

The spouses Carandang claim that, since three of the four checks used to pay their stock
subscriptions were issued in the name of Milagros de Guzman, the latter should be considered an
indispensable party. Being such, the spouses Carandang claim, the failure to join Mrs. de Guzman
as a party-plaintiff should cause the dismissal of the action because "(i)f a suit is not brought in the
name of or against the real party in interest, a motion to dismiss may be filed on the ground that the
complaint states no cause of action."14

The Court of Appeals held:

We disagree. The joint account of spouses Quirino A de Guzman and Milagros de Guzman from
which the four (4) checks were drawn is part of their conjugal property and under both the Civil Code
and the Family Code the husband alone may institute an action for the recovery or protection of the
spouses’ conjugal property.

Thus, in Docena v. Lapesura [355 SCRA 658], the Supreme Court held that "x x x Under the New
Civil Code, the husband is the administrator of the conjugal partnership. In fact, he is the sole
administrator, and the wife is not entitled as a matter of right to join him in this endeavor. The
husband may defend the conjugal partnership in a suit or action without being joined by the wife. x x
x Under the Family Code, the administration of the conjugal property belongs to the husband and the
wife jointly. However, unlike an act of alienation or encumbrance where the consent of both spouses
is required, joint management or administration does not require that the husband and wife always
act together. Each spouse may validly exercise full power of management alone, subject to the
intervention of the court in proper cases as provided under Article 124 of the Family Code. x x x."
The Court of Appeals is correct. Petitioners erroneously interchange the terms "real party in interest"
and "indispensable party." A real party in interest is the party who stands to be benefited or injured
by the judgment of the suit, or the party entitled to the avails of the suit.15 On the other hand, an
indispensable party is a party in interest without whom no final determination can be had of an
action,16 in contrast to a necessary party, which is one who is not indispensable but who ought to be
joined as a party if complete relief is to be accorded as to those already parties, or for a complete
determination or settlement of the claim subject of the action.17

The spouses Carandang are indeed correct that "(i)f a suit is not brought in the name of or against
the real party in interest, a motion to dismiss may be filed on the ground that the complaint states no
cause of action."18 However, what dismissal on this ground entails is an examination of whether the
parties presently pleaded are interested in the outcome of the litigation, and not whether all persons
interested in such outcome are actually pleaded. The latter query is relevant in discussions
concerning indispensable and necessary parties, but not in discussions concerning real parties in
interest. Both indispensable and necessary parties are considered as real parties in interest, since
both classes of parties stand to be benefited or injured by the judgment of the suit.

Quirino and Milagros de Guzman were married before the effectivity of the Family Code on 3 August
1988. As they did not execute any marriage settlement, the regime of conjugal partnership of gains
govern their property relations.19

All property acquired during the marriage, whether the acquisition appears to have been made,
contracted or registered in the name of one or both spouses, is presumed to be conjugal unless the
contrary is proved.20 Credits are personal properties,21 acquired during the time the loan or other
credit transaction was executed. Therefore, credits loaned during the time of the marriage are
presumed to be conjugal property.

Consequently, assuming that the four checks created a debt for which the spouses Carandang are
liable, such credits are presumed to be conjugal property. There being no evidence to the contrary,
such presumption subsists. As such, Quirino de Guzman, being a co-owner of specific partnership
property,22 is certainly a real party in interest. Dismissal on the ground of failure to state a cause of
action, by reason that the suit was allegedly not brought by a real party in interest, is therefore
unwarranted.

So now we come to the discussion concerning indispensable and necessary parties. When an
indispensable party is not before the court, the action should likewise be dismissed.23 The absence
of an indispensable party renders all subsequent actuations of the court void, for want of authority to
act, not only as to the absent parties but even as to those present.24 On the other hand, the non-
joinder of necessary parties do not result in the dismissal of the case. Instead, Section 9, Rule 3 of
the Rules of Court provides for the consequences of such non-joinder:

Sec. 9. Non-joinder of necessary parties to be pleaded. – Whenever in any pleading in which a claim
is asserted a necessary party is not joined, the pleader shall set forth his name, if known, and shall
state why he is omitted. Should the court find the reason for the omission unmeritorious, it may order
the inclusion of the omitted necessary party if jurisdiction over his person may be obtained.

The failure to comply with the order for his inclusion, without justifiable cause, shall be deemed a
waiver of the claim against such party.

The non-inclusion of a necessary party does not prevent the court from proceeding in the action, and
the judgment rendered therein shall be without prejudice to the rights of such necessary party.
Non-compliance with the order for the inclusion of a necessary party would not warrant the dismissal
of the complaint. This is an exception to Section 3, Rule 17 which allows the dismissal of the
complaint for failure to comply with an order of the court, as Section 9, Rule 3 specifically provides
for the effect of such non-inclusion: it shall not prevent the court from proceeding in the action, and
the judgment rendered therein shall be without prejudice to the rights of such necessary party.
Section 11, Rule 3 likewise provides that the non-joinder of parties is not a ground for the dismissal
of the action.

Other than the indispensable and necessary parties, there is a third set of parties: the pro-forma
parties, which are those who are required to be joined as co-parties in suits by or against another
party as may be provided by the applicable substantive law or procedural rule.25 An example is
provided by Section 4, Rule 3 of the Rules of Court:

Sec. 4. Spouses as parties. – Husband and wife shall sue or be sued jointly, except as provided by
law.

Pro-forma parties can either be indispensable, necessary or neither indispensable nor necessary.
The third case occurs if, for example, a husband files an action to recover a property which he
claims to be part of his exclusive property. The wife may have no legal interest in such property, but
the rules nevertheless require that she be joined as a party.

In cases of pro-forma parties who are neither indispensable nor necessary, the general rule under
Section 11, Rule 3 must be followed: such non-joinder is not a ground for dismissal. Hence, in a
case concerning an action to recover a sum of money, we held that the failure to join the spouse in
that case was not a jurisdictional defect.26 The non-joinder of a spouse does not warrant dismissal as
it is merely a formal requirement which may be cured by amendment.27

Conversely, in the instances that the pro-forma parties are also indispensable or necessary parties,
the rules concerning indispensable or necessary parties, as the case may be, should be applied.
Thus, dismissal is warranted only if the pro-forma party not joined in the complaint is an
indispensable party.

Milagros de Guzman, being presumed to be a co-owner of the credits allegedly extended to the
spouses Carandang, seems to be either an indispensable or a necessary party. If she is an
indispensable party, dismissal would be proper. If she is merely a necessary party, dismissal is not
warranted, whether or not there was an order for her inclusion in the complaint pursuant to Section
9, Rule 3.

Article 108 of the Family Code provides:

Art. 108. The conjugal partnership shall be governed by the rules on the contract of partnership in all
that is not in conflict with what is expressly determined in this Chapter or by the spouses in their
marriage settlements.

This provision is practically the same as the Civil Code provision it superceded:

Art. 147. The conjugal partnership shall be governed by the rules on the contract of partnership in all
that is not in conflict with what is expressly determined in this Chapter.

In this connection, Article 1811 of the Civil Code provides that "[a] partner is a co-owner with the
other partners of specific partnership property." Taken with the presumption of the conjugal nature of
the funds used to finance the four checks used to pay for petitioners’ stock subscriptions, and with
the presumption that the credits themselves are part of conjugal funds, Article 1811 makes Quirino
and Milagros de Guzman co-owners of the alleged credit.

Being co-owners of the alleged credit, Quirino and Milagros de Guzman may separately bring an
action for the recovery thereof. In the fairly recent cases of Baloloy v. Hular28 and Adlawan v.
Adlawan,29 we held that, in a co-ownership, co-owners may bring actions for the recovery of co-
owned property without the necessity of joining all the other co-owners as co-plaintiffs because the
suit is presumed to have been filed for the benefit of his co-owners. In the latter case and in that
of De Guia v. Court of Appeals,30 we also held that Article 487 of the Civil Code, which provides that
any of the co-owners may bring an action for ejectment, covers all kinds of action for the recovery of
possession.31

In sum, in suits to recover properties, all co-owners are real parties in interest. However, pursuant to
Article 487 of the Civil Code and relevant jurisprudence, any one of them may bring an action, any
kind of action, for the recovery of co-owned properties. Therefore, only one of the co-owners, namely
the co-owner who filed the suit for the recovery of the co-owned property, is an indispensable party
thereto. The other co-owners are not indispensable parties. They are not even necessary parties, for
a complete relief can be accorded in the suit even without their participation, since the suit is
presumed to have been filed for the benefit of all co-owners.32

We therefore hold that Milagros de Guzman is not an indispensable party in the action for the
recovery of the allegedly loaned money to the spouses Carandang. As such, she need not have
been impleaded in said suit, and dismissal of the suit is not warranted by her not being a party
thereto.

Whether or not respondents were able to prove the loan sought to be collected from petitioners

In the second and third issues presented by the spouses Carandang, they claim that the de
Guzmans failed to prove the alleged loan for which the spouses Carandang were held liable. As
previously stated, spouses Quirino and Milagros de Guzman paid for the stock subscriptions of the
spouses Carandang, amounting to ₱336,375.00. The de Guzmans claim that these payments were
in the form of loans and/or advances and it was agreed upon between the late Quirino de Guzman,
Sr. and the spouses Carandang that the latter would repay him. Petitioners, on the other hand,
argue that there was an oral pre-incorporation agreement wherein it was agreed that Arcardio
Carandang would always maintain his 46% equity participation in the corporation even if the capital
structures were increased, and that Quirino de Guzman would personally pay the equity
shares/stock subscriptions of Arcardio Carandang with no cost to the latter.

On this main issue, the Court of Appeals held:

[The spouses Carandang] aver in its ninth assigned error that [the de Guzmans] failed to prove by
preponderance of evidence, either the existence of the purported loan or the non-payment thereof.

Simply put, preponderance of evidence means that the evidence as a whole adduced by one side is
superior to that of the other. The concept of preponderance of evidence refers to evidence that is of
greater weight, or more convincing, than that which is offered in opposition to it; it means probability
of truth.

[The spouses Carandang] admitted that it was indeed [the de Guzmans] who paid their stock
subscriptions and their reason for not reimbursing the latter is the alleged pre-incorporation
agreement, to which they offer no clear proof as to its existence.
It is a basic rule in evidence that each party must prove his affirmative allegation. Thus, the plaintiff
or complainant has to prove his affirmative allegations in the complaints and the defendant or
respondent has to prove the affirmative allegations in his affirmative defenses and counterclaims.33

The spouses Carandang, however, insist that the de Guzmans have not proven the loan itself,
having presented evidence only of the payment in favor of the Carandangs. They claim:

It is an undeniable fact that payment is not equivalent to a loan. For instance, if Mr. "A" decides to
pay for Mr. "B’s" obligation, that payment by Mr. "A" cannot, by any stretch of imagination, possibly
mean that there is now a loan by Mr. "B" to Mr. "A". There is a possibility that such payment by Mr.
"A" is purely out of generosity or that there is a mutual agreement between them. As applied to the
instant case, that mutual agreement is the pre-incorporation agreement (supra) existing between Mr.
de Guzman and the petitioners --- to the effect that the former shall be responsible for paying stock
subscriptions of the latter. Thus, when Mr. de Guzman paid for the stock subscriptions of the
petitioners, there was no loan to speak of, but only a compliance with the pre-incorporation
agreement.34

The spouses Carandang are mistaken. If indeed a Mr. "A" decides to pay for a Mr. "B’s" obligation,
the presumption is that Mr. "B" is indebted to Mr. "A" for such amount that has been paid. This is
pursuant to Articles 1236 and 1237 of the Civil Code, which provide:

Art. 1236. The creditor is not bound to accept payment or performance by a third person who has no
interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.

Whoever pays for another may demand from the debtor what he has paid, except that if he paid
without the knowledge or against the will of the debtor, he can recover only insofar as the payment
has been beneficial to the debtor.

Art. 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the
latter, cannot compel the creditor to subrogate him in his rights, such as those arising from a
mortgage, guarantee, or penalty.

Articles 1236 and 1237 are clear that, even in cases where the debtor has no knowledge of payment
by a third person, and even in cases where the third person paid against the will of the debtor, such
payment would produce a debt in favor of the paying third person. In fact, the only consequences for
the failure to inform or get the consent of the debtor are the following: (1) the third person can
recover only insofar as the payment has been beneficial to the debtor; and (2) the third person is not
subrogated to the rights of the creditor, such as those arising from a mortgage, guarantee or
penalty.35

We say, however, that this is merely a presumption. By virtue of the parties’ freedom to contract, the
parties could stipulate otherwise and thus, as suggested by the spouses Carandang, there is indeed
a possibility that such payment by Mr. "A" was purely out of generosity or that there was a mutual
agreement between them. But such mutual agreement, being an exception to presumed course of
events as laid down by Articles 1236 and 1237, must be adequately proven.

The de Guzmans have successfully proven their payment of the spouses Carandang’s stock
subscriptions. These payments were, in fact, admitted by the spouses Carandang. Consequently, it
is now up to the spouses Carandang to prove the existence of the pre-incorporation agreement that
was their defense to the purported loan.
Unfortunately for the spouses Carandang, the only testimony which touched on the existence and
substance of the pre-incorporation agreement, that of petitioner Arcardio Carandang, was stricken
off the record because he did not submit himself to a cross-examination of the opposing party. On
the other hand, the testimonies of Romeo Saavedra,36 Roberto S. Carandang,37 Gertrudes Z.
Esteban,38 Ceferino Basilio,39 and Ma. Luisa Carandang40touched on matters other than the
existence and substance of the pre-incorporation agreement. So aside from the fact that these
witnesses had no personal knowledge as to the alleged existence of the pre-incorporation
agreement, the testimonies of these witnesses did not even mention the existence of a pre-
incorporation agreement.

Worse, the testimonies of petitioners Arcadio Carandang and Ma. Luisa Carandang even
contradicted the existence of a pre-incorporation agreement because when they were asked by their
counsel regarding the matter of the check payments made by the late Quirino A. de Guzman, Sr. in
their behalf, they said that they had already paid for it thereby negating their own defense that there
was a pre-incorporation agreement excusing themselves from paying Mr. de Guzman the amounts
he advanced or loaned to them. This basic and irrefutable fact can be gleaned from their testimonies
which the private respondents are quoting for easy reference:

a. With respect to the testimony of Ma. Luisa Carandang

Q: Now, can you tell this Honorable Court how do you feel with respect to the Complaint of the
plaintiff in this case charging you that you paid for this year and asking enough to paid (sic) your tax?

A: We have paid already, so, we are not liable for anything payment (sic).41

b. With respect to the testimony of Arcadio Carandang

"Q: How much?

A: ₱40,000.00 to ₱50,000.00 per month.

Q: The plaintiff also claimed thru witness Edgar Ragasa, that there were receipts issued for the
payment of your shares; which receipts were marked as Exhibits "G" to "L" (Plaintiff).

I’m showing to you these receipts so marked by the plaintiff as their exhibits which were issued in
the name of Ma. Luisa Carandang, your wife; and also, Arcadio M. Carandang. Will you please go
over this Official Receipt and state for the records, who made for the payment stated in these
receipts in your name?

A: I paid for those shares."42

There being no testimony or documentary evidence proving the existence of the pre-incorporation
agreement, the spouses Carandang are forced to rely upon an alleged admission by the original
plaintiff of the existence of the pre-incorporation agreement.

Petitioners claim that the late Quirino A. de Guzman, Sr. had admitted the existence of the pre-
incorporation agreement by virtue of paragraphs 13 and 14 of their Answer and paragraph 4 of
private respondents’ Reply.

Paragraphs 13 and 14 of petitioners’ Answer dated 7 July 1992 state in full:

13. Sometime in November, 1973 or thereabout, herein plaintiff invited defendant Arcadio M.
Carandang to a joint venture by pooling together their technical expertise, equipments, financial
resources and franchise. Plaintiff proposed to defendant and mutually agreed on the following:

1. That they would organize a corporation known as Mabuhay Broadcasting Systems, Inc.

2. Considering the technical expertise and talent of defendant Arcadio M. Carandang and his
new equipments he bought, and his skill in repairing and modifying radio/communication
equipments into high proficiency, said defendant would have an equity participation in the
corporation of 46%, and plaintiff 54% because of his financial resources and franchise.

3. That defendant would always maintain his 46% equity participation in the corporation even
if the capital structures are increased, and that plaintiff would personally pay the equity
shares/stock subscriptions of defendant with no cost to the latter.

4. That because of defendant’s expertise in the trade including the marketing aspects, he
would be the President and General Manager, and plaintiff the Chairman of the Board.

5. That considering their past and trustworthy relations, they would maintain such relations in
the joint venture without any mental reservation for their common benefit and success of the
business.

14. Having mutually agreed on the above arrangements, the single proprietorship of plaintiff
was immediately spun-off into a corporation now known as Mabuhay Broadcasting System,
Inc. The incorporators are plaintiff and his family members/nominees controlling jointly 54%
of the stocks and defendant Arcadio M. Carandang controlling singly 46% as previously
agreed.43

Meanwhile, paragraphs 3 and 4 of private respondents’ Reply dated 29 July 1992 state in full:

3. Plaintiffs admits the allegation in paragraph 13.1 of the Answer only insofar the plaintiff and
defendant Arcadio M. Carandang organized a corporation known as Mabuhay Broadcasting
Systems, Inc. Plaintiff specifically denies the other allegations in paragraph 13 of the Answer, the
same being devoid of any legal or factual bases. The truth of the matter is that defendant Arcadio M.
Carandang was not able to pay plaintiff the agreed amount of the lease for a number of months
forcing the plaintiff to terminate lease. Additionally, the records would show that it was the defendant
Arcadio M. Carandang who proposed a joint venture with the plaintiff.

It appears that plaintiff agreed to the formation of the corporation principally because of a directive of
then President Marcos indicating the need to broaden the ownership of radio broadcasting stations.
The plaintiff owned the franchise, the radio transmitter, the antenna tower, the building containing
the radio transmitter and other equipment. Verily, he would be placed in a great disadvantage if he
would still have to personally pay for the shares of defendant Arcadio M. Carandang.

4. Plaintiff admits the allegations in paragraph 14 of the Answer.44

In effect, the spouses Carandang are relying on the fact that Quirino de Guzman stated that he
admitted paragraph 14 of the Answer, which incidentally contained the opening clause "(h)aving
mutually agreed on the above arrangements, x x x."
Admissions, however, should be clear and unambiguous. This purported admission by Quirino de
Guzman reeks of ambiguity, as the clause "(h)aving mutually agreed on the above arrangements,"
seems to be a mere introduction to the statement that the single proprietorship of Quirino de
Guzman had been converted into a corporation. If Quirino de Guzman had meant to admit
paragraph 13.3, he could have easily said so, as he did the other paragraphs he categorically
admitted. Instead, Quirino de Guzman expressly stated the opposite: that "(p)laintiff specifically
denies the other allegations of paragraph 13 of the Answer."45 The Reply furthermore states that the
only portion of paragraph 13 which Quirino de Guzman had admitted is paragraph 13.1, and only
insofar as it said that Quirino de Guzman and Arcardio Carandang organized Mabuhay Broadcasting
Systems, Inc.46

All the foregoing considered, we hold that Quirino de Guzman had not admitted the alleged pre-
incorporation agreement. As there was no admission, and as the testimony of Arcardio Carandang
was stricken off the record, we are constrained to rule that there was no pre-incorporation
agreement rendering Quirino de Guzman liable for the spouses Carandang’s stock subscription. The
payment by the spouses de Guzman of the stock subscriptions of the spouses Carandang are
therefore by way of loan which the spouses Carandang are liable to pay. 1âw phi 1

Whether or not the liability of the spouses Carandang is joint and solidary

Finally, the Court of Appeals also upheld the RTC Decision insofar as it decreed a solidary liability.
According to the Court of Appeals:

With regards (sic) the tenth assigned error, [the spouses Carandang] contend that:

"There is absolutely no evidence, testimonial or documentary, showing that the purported obligation
of [the spouses Carandang] is joint and solidary. x x x

"Furthermore, the purported obligation of [the spouses Carandang] does not at all qualify as one of
the obligations required by law to be solidary x x x."

It is apparent from the facts of the case that [the spouses Carandang] were married way before the
effectivity of the Family Code hence; their property regime is conjugal partnership under the Civil
Code.

It must be noted that for marriages governed by the rules of conjugal partnership of gains, an
obligation entered into by the husband and wife is chargeable against their conjugal partnership and
it is the partnership, which is primarily bound for its repayment. Thus, when the spouses are sued for
the enforcement of the obligation entered into by them, they are being impleaded in their capacity as
representatives of the conjugal partnership and not as independent debtors, such that the concept of
joint and solidary liability, as between them, does not apply.47

The Court of Appeals is correct insofar as it held that when the spouses are sued for the
enforcement of the obligation entered into by them, they are being impleaded in their capacity as
representatives of the conjugal partnership and not as independent debtors. Hence, either of them
may be sued for the whole amount, similar to that of a solidary liability, although the amount is
chargeable against their conjugal partnership property. Thus, in the case cited by the Court of
Appeals, Alipio v. Court of Appeals,48 the two sets of defendant-spouses therein were held liable for
₱25,300.00 each, chargeable to their respective conjugal partnerships.
WHEREFORE, the Decision of the Court of Appeals, affirming the judgment rendered against the
spouses Carandang, is hereby AFFIRMED with the following MODIFICATION: The spouses
Carandang are ORDERED to pay the following amounts from their conjugal partnership properties:

(1) ₱336,375.00 representing the spouses Carandang’s loan to Quirino de Guzman; and

(2) Interest on the preceding amount at the rate of twelve percent (12%) per annum from 5
June 1992 when the complaint was filed until the principal amount can be fully paid; and

(3) ₱20,000.00 as attorney’s fees.

No costs.

SO ORDERED.

FIRST DIVISION

ARNELITO ADLAWAN, G.R. No. 161916

Petitioner,
Present:
Panganiban, C.J. (Chairman),
- versus - Ynares-Santiago,

Austria-Martinez,

Callejo, Sr., and

Chico-Nazario, JJ.

EMETERIO M. ADLAWAN and

NARCISA M. ADLAWAN, Promulgated:

Respondents.

January 20, 2006

x ---------------------------------------------------------------------------------------- x

DECISION
YNARES-SANTIAGO, J.:

Assailed in this petition for review is the September 23, 2003 Decision[1] of the Court
of Appeals in CA-G.R. SP No. 74921 which set aside the September 13, 2002
Decision[2] of the Regional Trial Court (RTC) of Cebu City, Branch 7, in Civil Case No.
CEB-27806, and reinstated the February 12, 2002 Judgment[3] of the Municipal Trial
Court (MTC) of Minglanilla, Metro Cebu, in Civil Case No. 392, dismissing petitioner
Arnelito Adlawan's unlawful detainer suit against respondents Emeterio and Narcisa
Adlawan. Likewise questioned is the January 8, 2004 Resolution[4] of the Court of
Appeals which denied petitioner's motion for reconsideration.

The instant ejectment suit stemmed from the parties' dispute over Lot 7226 and the
house built thereon, covered by Transfer Certificate of Title No. 8842,[5] registered
in the name of the late Dominador Adlawan and located at Barrio Lipata, Municipality
of Minglanilla, Cebu. In his complaint, petitioner claimed that he is an acknowledged
illegitimate child[6] of Dominador who died on May 28, 1987 without any other issue.
Claiming to be the sole heir of Dominador, he executed an affidavit adjudicating to
himself Lot 7226 and the house built thereon.[7] Out of respect and generosity to
respondents who are the siblings of his father, he granted their plea to occupy the
subject property provided they would vacate the same should his need for the
property arise. Sometime in January 1999, he verbally requested respondents to
vacate the house and lot, but they refused and filed instead an action for quieting of
title[8] with the RTC. Finally, upon respondents' refusal to heed the last demand letter
to vacate dated August 2, 2000, petitioner filed the instant case on August 9, 2000.[9]

On the other hand, respondents Narcisa and Emeterio, 70 and 59 years of age,
respectively,[10] denied that they begged petitioner to allow them to stay on the
questioned property and stressed that they have been occupying Lot 7226 and the
house standing thereon since birth. They alleged that Lot 7226 was originally
registered in the name of their deceased father, Ramon Adlawan[11] and the
ancestral house standing thereon was owned by Ramon and their mother, Oligia
Maacap Adlawan. The spouses had nine[12] children including the late Dominador
and herein surviving respondents Emeterio and Narcisa. During the lifetime of their
parents and deceased siblings, all of them lived on the said property. Dominador and
his wife, Graciana Ramas Adlawan, who died without issue, also occupied the
same.[13] Petitioner, on the other hand, is a stranger who never had possession of
Lot 7226.

Sometime in 1961, spouses Ramon and Oligia needed money to finance the
renovation of their house. Since they were not qualified to obtain a loan, they
transferred ownership of Lot 7226 in the name of their son Dominador who was the
only one in the family who had a college education. By virtue of a January 31, 1962
simulated deed of sale,[14] a title was issued to Dominador which enabled him to
secure a loan with Lot 7226 as collateral. Notwithstanding the execution of the
simulated deed, Dominador, then single, never disputed his parents' ownership of
the lot. He and his wife, Graciana, did not disturb respondents' possession of the
property until they died on May 28, 1987 and May 6, 1997, respectively.

Respondents also contended that Dominador's signature at the back of petitioner's

birth certificate was forged, hence, the latter is not an heir of Dominador and has no
right to claim ownership of Lot 7226.[15] They argued that even if petitioner is indeed
Dominador's acknowledged illegitimate son, his right to succeed is doubtful because
Dominador was survived by his wife, Graciana.[16]

On February 12, 2002, the MTC dismissed the complaint holding that the
establishment of petitioner's filiation and the settlement of the estate of Dominador
are conditions precedent to the accrual of petitioner's action for ejectment. It added
that since Dominador was survived by his wife, Graciana, who died 10 years
thereafter, her legal heirs are also entitled to their share in Lot 7226. The dispositive
portion thereof, reads:

In View of the foregoing, for failure to prove by preponderance of

evidence, the plaintiff's cause of action, the above-entitled case is
hereby Ordered DISMISSED.

SO ORDERED.[17]
On appeal by petitioner, the RTC reversed the decision of the MTC holding that the
title of Dominador over Lot 7226 cannot be collaterally attacked. It thus ordered
respondents to turn over possession of the controverted lot to petitioner and to pay
compensation for the use and occupation of the premises. The decretal portion
thereof, provides:

Wherefore, the Judgment, dated February 12, 2002, of the Municipal

Trial Court of Minglanilla, Cebu, in Civil Case No. 392, is reversed.
Defendants-appellees are directed to restore to plaintiff-appellant
possession of Lot 7226 and the house thereon, and to pay plaintiff-
appellant, beginning in August 2000, compensation for their use and
occupation of the property in the amount of P500.00 a month.

So ordered.[18]

Meanwhile, the RTC granted petitioner's motion for execution pending

appeal[19] which was opposed by the alleged nephew and nieces of Graciana in their
motion for leave to intervene and to file an answer in intervention.[20] They
contended that as heirs of Graciana, they have a share in Lot 7226 and that
intervention is necessary to protect their right over the property. In addition, they
declared that as co-owners of the property, they are allowing respondents to stay in
Lot 7226 until a formal partition of the property is made.

The RTC denied the motion for leave to intervene.[21] It, however, recalled the order
granting the execution pending appeal having lost jurisdiction over the case in view
of the petition filed by respondents with the Court of Appeals.[22]

On September 23, 2003, the Court of Appeals set aside the decision of the RTC and
reinstated the judgment of the MTC. It ratiocinated that petitioner and the heirs of
Graciana are co-owners of Lot 7226. As such, petitioner cannot eject respondents
from the property via an unlawful detainer suit filed in his own name and as the sole
owner of the property. Thus '
 WHEEFORE, premises considered, the appealed Decision dated
September 13, 2002 of the Regional Trial Court of Cebu City, Branch 7,
in Civil Case No. CEB-27806 is REVERSED and SET ASIDE, and the
Judgment dated February 12, 2002 of the Municipal Trial Court of
Minglanilla, Metro Cebu, in Civil Case No. 392 is REINSTATED. Costs
against the respondent.

SO ORDERED.[23]

Petitioner's motion for reconsideration was denied. Hence, the instant petition.

The decisive issue to be resolved is whether or not petitioner can validly maintain the
instant case for ejectment.

Petitioner averred that he is an acknowledged illegitimate son and the sole heir of
Dominador. He in fact executed an affidavit adjudicating to himself the controverted
property. In ruling for the petitioner, the RTC held that the questioned January 31,
1962 deed of sale validly transferred title to Dominador and that petitioner is his
acknowledged illegitimate son who inherited ownership of the questioned lot. The
Court notes, however, that the RTC lost sight of the fact that the theory of succession
invoked by petitioner would end up proving that he is not the sole owner of Lot 7226.
This is so because Dominador was survived not only by petitioner but also by his legal
wife, Graciana, who died 10 years after the demise of Dominador on May 28,
1987.[24] By intestate succession, Graciana and petitioner became co-owners of Lot
7226.[25] The death of Graciana on May 6, 1997, did not make petitioner the absolute
owner of Lot 7226 because the share of Graciana passed to her relatives by
consanguinity and not to petitioner with whom she had no blood relations. The Court
of Appeals thus correctly held that petitioner has no authority to institute the instant
action as the sole owner of Lot 7226.

Petitioner contends that even granting that he has co-owners over Lot 7226, he can
on his own file the instant case pursuant to Article 487 of the Civil Code which
provides:
 ART. 487. Any one of the co-owners may bring an action in ejectment.

This article covers all kinds of actions for the recovery of possession. Article
487 includes forcible entry and unlawful detainer (accion interdictal), recovery of
possession (accion publiciana), and recovery of ownership (accion de
reivindicacion).[26] A co-owner may bring such an action without the necessity of
joining all the other co-owners as co-plaintiffs because the suit is presumed to have
been filed to benefit his co-owners. It should be stressed, however, that where the
suit is for the benefit of the plaintiff alone who claims to be the sole owner and entitled
to the possession of the litigated property, the action should be dismissed.[27]

The renowned civilist, Professor Arturo M. Tolentino, explained '

A co-owner may bring such an action, without the necessity of joining

all the other co-owners as co-plaintiffs, because the suit is deemed to
be instituted for the benefit of all. If the action is for the benefit of
the plaintiff alone, such that he claims possession for himself
and not for the co-ownership, the action will not prosper.
(Emphasis added)[28]

In Baloloy v. Hular,[29] respondent filed a complaint for quieting of title claiming

exclusive ownership of the property, but the evidence showed that respondent has
co-owners over the property. In dismissing the complaint for want of respondent's
authority to file the case, the Court held that '
Under Article 487 of the New Civil Code, any of the co-owners may bring
an action in ejectment. This article covers all kinds of actions for the
recovery of possession, including an accion publiciana and a
reinvidicatory action. A co-owner may bring such an action without the
necessity of joining all the other co-owners as co-plaintiffs because the
suit is deemed to be instituted for the benefit of all. Any judgment of
the court in favor of the co-owner will benefit the others but if such
judgment is adverse, the same cannot prejudice the rights of the
unimpleaded co-owners. If the action is for the benefit of the plaintiff
alone who claims to be the sole owner and entitled to the possession
thereof, the action will not prosper unless he impleads the other co-
owners who are indispensable parties.
 In this case, the respondent alone filed the complaint, claiming sole
ownership over the subject property and praying that he be declared
the sole owner thereof. There is no proof that the other co-owners had
waived their rights over the subject property or conveyed the same to
the respondent or such co-owners were aware of the case in the trial
court. The trial court rendered judgment declaring the respondent as
the sole owner of the property and entitled to its possession, to the
prejudice of the latter's siblings. Patently then, the decision of the trial
court is erroneous.

Under Section 7, Rule 3 of the Rules of Court, the respondent was

mandated to implead his siblings, being co-owners of the property, as
parties. The respondent failed to comply with the rule. It must, likewise,
be stressed that the Republic of the Philippines is also an indispensable
party as defendant because the respondent sought the nullification of
OCT No. P-16540 which was issued based on Free Patent No. 384019.
Unless the State is impleaded as party-defendant, any decision of the
Court would not be binding on it. It has been held that the absence of
an indispensable party in a case renders ineffective all the proceedings
subsequent to the filing of the complaint including the judgment. The
absence of the respondent's siblings, as parties, rendered all
proceedings subsequent to the filing thereof, including the judgment of
the court, ineffective for want of authority to act, not only as to the
absent parties but even as to those present.[30]

In the instant case, it is not disputed that petitioner brought the suit for unlawful
detainer in his name alone and for his own benefit to the exclusion of the heirs of
Graciana as he even executed an affidavit of self- adjudication over the disputed
property. It is clear therefore that petitioner cannot validly maintain the instant action
considering that he does not recognize the co-ownership that necessarily flows from
his theory of succession to the property of his father, Dominador.

In the same vein, there is no merit in petitioner's claim that he has the legal
personality to file the present unlawful detainer suit because the ejectment of
respondents would benefit not only him but also his alleged co-owners. However,
petitioner forgets that he filed the instant case to acquire possession of the property
and to recover damages. If granted, he alone will gain possession of the lot and
benefit from the proceeds of the award of damages to the exclusion of the heirs of
Graciana. Hence, petitioner cannot successfully capitalize on the alleged benefit to
his co-owners. Incidentally, it should be pointed out that in default of the said heirs
of Graciana, whom petitioner labeled as 'fictitious heirs, the State will inherit her
share[31] and will thus be petitioner's co-owner entitled to possession and enjoyment
of the property.

The present controversy should be differentiated from the cases where the Court
upheld the right of a co-owner to file a suit pursuant to Article 487 of the Civil Code.
In Resuena v. Court of Appeals,[32] and Sering v. Plazo,[33] the co-owners who filed
the ejectment case did not represent themselves as the exclusive owner of the
property. In Celino v. Heirs of Alejo and Teresa Santiago,[34] the complaint for
quieting of title was brought in behalf of the co-owners precisely to recover lots owned
in common.[35] Similarly in Vencilao v. Camarenta,[36] the amended complaint
specified that the plaintiff is one of the heirs who co-owns the controverted
properties.

In the foregoing cases, the plaintiff never disputed the existence of a co-ownership
nor claimed to be the sole or exclusive owner of the litigated lot. A favorable decision
therein would of course inure to the benefit not only of the plaintiff but to his co-
owners as well. The instant case, however, presents an entirely different backdrop
as petitioner vigorously asserted absolute and sole ownership of the questioned
lot. In his complaint, petitioner made the following allegations, to wit:

3. The plaintiff was the only son (illegitimate) and sole heir of the late
DOMINADOR ADLAWAN who died intestate on 28 May 1987 without any
other descendant nor ascendant x x x.

xxxx

5. Being the only child/descendant and, therefore, sole heir of the

deceased Dominador Adlawan, the plaintiff became the absolute
owner, and automatically took POSSESSION, of the aforementioned
house and lot x x x. (Emphasis added)[37]
Clearly, the said cases find no application here because petitioner's action operates
as a complete repudiation of the existence of co-ownership and not in representation
or recognition thereof. Dismissal of the complaint is therefore proper. As noted by
Former Supreme Court Associate Justice Edgrado L. Paras '[i]t is understood, of
course, that the action [under Article 487 of the Civil Code] is being instituted for all.
Hence, if the co-owner expressly states that he is bringing the case only for himself,
the action should not be allowed to prosper.[38]

Indeed, respondents' not less than four decade actual physical possession of the
questioned ancestral house and lot deserves to be respected especially so that
petitioner failed to show that he has the requisite personality and authority as co-
owner to file the instant case. Justice dictates that respondents who are now in the
twilight years of their life be granted possession of their ancestral property where
their parents and siblings lived during their lifetime, and where they, will probably
spend the remaining days of their life.

WHEREFORE, the petition is DENIED. The September 23, 2003 Decision of the
Court of Appeals in CA-G.R. SP No. 74921 which reinstated the February 12, 2002
Judgment of the Municipal Trial Court of Minglanilla, Metro Cebu, dismissing
petitioner's complaint in Civil Case No. 392, and its January 8, 2004 Resolution,
are AFFIRMED.

SO ORDERED.

G.R. No. 191320, April 25, 2017

JONA BUMATAY, Petitioner, v. LOLITA BUMATAY, Respondents.

DECISION

CAGUIOA, J:

Before this Court is a petition for review on certiorari under Rule 45 of the Rules of Court filed by Petitioner
Jona Bumatay (Jona) against herein Respondent Lolita Bumatay (Lolita), assailing the Court of Appeals':
(1) Decision1 dated August 28, 2009, which denied Petitioner's appeal in the case of People of the Philippines
v. Lolita F. Bumatay, docketed as CA-G.R. CR. No. 31124; and (2) Resolution2 dated February 4, 2010
denying Petitioner's Motion for Reconsideration.
 The Facts

Lolita allegedly married a certain Amado Rosete (Amado) on January 30, 1968, when she was 16 years
old.3 The marriage was solemnized before Judge Delfin D. Rosario, in Malasiqui, Pangasinan.4 Prior to the
declaration of nullity of her marriage with Amado on September 20, 2005,5 Lolita married Jona's foster
father,6 Jose Bumatay (Jose), on November 6, 2003.7

On August 17, 2004, Jona filed a Complaint-affidavit for Bigamy against Lolita,8 summarizing the acts
complained of as follows:

[i.] On January 30, 1968, Ms. Lolita Ferrer contracted marriage with a
certain Amado Rosete before the Hon. Delfin D. Rosario, municipal
judge of Malasiqui Pangasinan;

[ii.] Again, on November 6, 2003, while her husband Amado Rosete was
still alive and her marriage with him was valid and subsisting, Ms.
Lolita Ferrer contracted another marriage with Jose M. Bumatay in
Malasiqui, Pangasinan;

[iii.] When Lolita Ferrer contracted her second marriage with Jose
Bumatay, she knows fully well that her first marriage with her first
husband Mr. Amado Rosete, who is still living up to today, has not
been legally dissolved but existing[.]9

In her Counter-Affidavit, Lolita claims that she learned from her children (with Amado) that Amado had filed
a petition for declaration of nullity of their marriage.10 Subsequently, sometime in 1990, she was informed
by her children that Amado had died in Nueva Vizcaya.11

Subsequently, an Information for Bigamy was filed by Prosecutor Bernardo S. Valdez of the Office of the
Provincial Prosecutor of San Carlos City, with the Regional Trial Court of San Carlos City, Pangasinan, Branch
56 (RTC-San Carlos) on November 8, 2004.12 The Information alleged:

The undersigned Government Prosecutor, hereby accuses LOLITA BUMATAY y FERRER, of the crime of
BIGAMY, committed as follows:

That on or about November 6, 2003, in the municipality of Malasiqui, province of Pangasinan, Philippines,
and within the jurisdiction of this Honorable Court, the above-named accused Lolita F. Bumatay being then
legally married to one Amado Rosete, which marriage is still subsisting not having been legally dissolved, did
then and there, willfully, unlawfully and feloniously contracted a second marriage with Jose Bumatay,
believing that accused has the legal capacity to contract their marriage, to the damage and prejudice of
complainant, Jona S. Bumatay.

Contrary to Article 349 of the Revised Penal Code. San Carlos City, Pangasinan, October 7, 2004.13

The Proceedings before the RTC-Dagupan City on Lolita's Petition

for Declaration of Nullity
Meanwhile, sometime in January 2005 - after the Information for Bigamy against her was filed14 in the RTC-
San Carlos but before her arraignment, Lolita filed with the Regional Trial Court of Dagupan City,
Pangasinan, Branch 4315 (RTC-Dagupan City) a petition for the declaration of nullity of her marriage to
Amado.16

On September 20, 2005, the RTC-Dagupan City issued a Decision17 declaring as null and void the marriage
between Lolita and Amado, viz:

WHEREFORE, in view of all of the above, judgment is hereby rendered by this Honorable Court as follows:

1. Declaring the marriage between the plaintiff Lolita Ferrer and the defendant Amado
Rosete void ab initio;

2. Ordering the Local Civil Registrar of Malasiqui, Pangasinan to make the proper annotations
in the entry of marriage of the parties in their Register of Marriages.

SO ORDERED.18

Based on the evidence submitted, including the testimonies from Lolita herself and her sister Erlinda,19the
RTC-Dagupan City found that no marriage ceremony took place between Lolita and Amado as it was Lolita's
sister who had married Amado and that, in fact, the signature appearing on the marriage certificate was not
Lolita's signature but that of her sister's.20 Thus, to the RTC-Dagupan City, there being no marriage
ceremony that actually took place between Amado and Lolita,21 their marriage was void from the very
beginning.22

The Bigamy Proceedings before the RTC-San Carlos

In the bigamy case in RTC-San Carlos involving Criminal Case No. SCC-4357, Lolita sought a deferment of
the arraignment for bigamy. On November 2, 2005,23 she filed a Motion to Quash24 the Information. Her
motion was hinged on the argument that the first element of the crime of bigamy - that is, that the offender
has been previously legally married - is not present. In support, Lolita attached a copy of the RTC-Dagupan
City Decision25 declaring the marriage between her and Amado void ab initio on the ground that there was
no marriage ceremony between them and what transpired was a marriage by proxy.26

Subsequently, in its Order27 dated March 20, 2006, the RTC-San Carlos granted Lolita's Motion to Quashand
dismissed the complaint for bigamy, relying on Morigo v. People,28 thus:

Due to the significant resemblance of this case to the Morigo case, this Court is constrained to adopt and
apply the ruling and principles laid down in Morigo. As succinctly put by the Supreme Court in the case
aforementioned[:]

"The first element of bigamy as a crime requires that the accused must have been legally married, but in
this case, legally speaking, the petitioner was never married to Lucia Barrete. Thus, there is no first
marriage to speak of. Under the principle of retroactivity of a marriage being declared void ab initio, the two
were never married from the beginning. The contract of marriage is null; it bears no legal effect. Taking this
argument to its logical conclusion, for legal purposes, petitioner was not married to Lucia Barrete at the time
he contracted the marriage with Maria Lumbago. The petitioner, must perforce, be acquitted of the charge.

Since the first marriage has been declared void ab initio, there is no first marriage to begin with in
determining the foremost element of bigamy. Such declaration of nullity retroacts to the date of the first
marriage. The accused in this case was, under the eyes of the law, never married to Amado Rosete at the
time she contracted the marriage with Jose Bumatay. Following this judicial fiat, the defense of good faith
and lack of criminal intent has been rendered moot and academic."29

The RTC-San Carlos concluded that there were "glaring material similarities"30 between Morigo and the case
against Lolita. Thus, in dismissing the bigamy case against Lolita, the RTC-San Carlos held that since the
first marriage has been declared void ab initio, then, pursuant to the ruling in Morigo, there is no first
marriage to begin with in determining the foremost element of bigamy. Such declaration of nullity retroacts
to the date of the first marriage.31 Thus, accused Lolita in this case was, for all intents and purposes, never
married to Amado at the time she contracted the marriage with Jose. Based on the foregoing, the RTC-San
Carlos dismissed the Bigamy charge against Lolita. Aggrieved, Jona appealed the RTC-San Carlos' Order to
the CA.

The CA Decision

In its Decision dated August 28, 2009,32 the CA affirmed the RTC-San Carlos' Order dated March 20, 2006
granting the Motion to Quash and dismissed Jona's appeal. The CA resolved the issue of whether the RTC-
San Carlos erred in ordering the quashal of the Information for Bigamy on the ground that the criminal
liability of the accused had been extinguished when her first marriage was declared null and voidab initio.33

In upholding the RTC-San Carlos' decision, the CA held that:

First, a motion to quash is the mode by which an accused assails, before entering his plea, the validity of the
criminal complaint or information filed against him for insufficiency on its face in point of law, or for a defect
apparent on the face of the Information.34 Under Rule 117, Section 3 of the Rules of Court, in the hearing of
a motion to quash, only such facts as are alleged in the information, and those admitted by the prosecutor,
should be taken into account in the resolution thereof unless the Rules expressly permit the investigation of
the facts alleged in the motion to quash. However, the Supreme Court has held that under Rule 117, Section
2 of the Rules of Court, a motion to quash may be based on factual and legal grounds and that it necessarily
follows that facts outside the Information itself may be introduced to prove such grounds.35

Here, the trial court anchored its acquittal on the Declaration of Nullity issued by the RTC-Dagupan City, on
the ground that no actual marriage ceremony took place.36 The RTC-Dagupan City reasoned that there being
no first marriage to speak of, there was no legal impediment at the time the accused married Jose Bumatay;
and as a consequence, the accused is not guilty of bigamy. Consequently, according to the CA, it is crystal
clear that in granting the motion to quash, the RTC-Dagupan City took into consideration the factual findings
of the RTC-Dagupan City which led to the latter's declaration that the marriage of Lolita and Amado was null
and void ab initio.37

Finally, the CA was not persuaded by Jona's contention that the RTC-San Carlos erred in granting the motion
to quash on the basis of the decision declaring the nullity of the first marriage since it is not among the
grounds for extinction of criminal liability. The CA agreed with the RTC-San Carlos' conclusion that the
extinction of criminal liability presupposes the existence of such liability in the first place, which is later
totally obliterated by virtue of a certain circumstance that eventually happens. In the present case, criminal
liability never existed from the beginning as the first marriage never validly occurred due to the fact that a
marriage ceremony never took place. Hence, there was no criminal liability to extinguish in the first place.38

Jona's Motion for Reconsideration was likewise denied by the CA in its Resolution dated February 4,
2010,39 finding that the arguments raised in the Motion for Reconsideration are substantially a reiteration of
those already passed upon and considered by the CA in its Decision. Jona received a copy of said
CA Resolution on February 17, 2010.40

On April 5, 2010, Jona filed, in her personal capacity, the instant petition. In a Resolution dated April 28,
2010, the Court required Lolita to file her comment.41 Lolita filed her Comment42 on June 11, 2010, while
Jona filed her Reply (with Compliance) on March 9, 2011.43

The Issue

The sole issue brought before this Court is whether the CA committed any reversible error in upholding the
RTC-San Carlos' Order granting Lolita's motion to quash the Information for the crime of Bigamy.

The Court's Ruling

The petition is denied.

Based on the records, it appears undisputed that Petitioner has no legal personality to assail the dismissal of
the criminal case. Rule 110, Section 544 of the Revised Rules of Criminal Procedure,45dictates that all
criminal actions commenced by complaint or by information shall be prosecuted under the direction and
control of a public prosecutor. In appeals of criminal cases before the Supreme Court, the authority to
represent the State is vested solely in the Office of the Solicitor General (OSG).46

This authority is codified in Section 35(1), Chapter 12, Title III, Book IV of the 1987 Administrative Code,
which provides:

SECTION 35. Powers and Functions. — The Office of the Solicitor General shall represent the Government of
the Philippines, its agencies and instrumentalities and its officials and agents in any litigation, proceeding,
investigation or matter requiring the services of a lawyer. When authorized by the President or head of the
office concerned, it shall also represent government-owned or controlled corporations. The Office of the
Solicitor General shall constitute the law office of the Government and, as such, shall discharge duties
requiring the services of a lawyer. It shall have the following specific powers and functions:

(1) Represent the Government in the Supreme Court and the

Court of Appeals in all criminal proceedings; represent the
Government and its officers in the Supreme Court, the Court of
Appeals, and all other courts or tribunals in all civil actions and
special proceedings in which the Government or any officer thereof in
his official capacity is a party. (Emphasis supplied)

Thus, in criminal cases, the People is the real party-in-interest and only the OSG can represent the People in
criminal proceedings before this Court. Inasmuch as the private offended party is but a witness in the
prosecution of offenses,47 the interest of the private offended party is limited only to the aspect of civil
liability.48 It follows therefore that in criminal cases, the dismissal of the case against an accused can only be
appealed by the Solicitor General, acting on behalf of the State.49

In Beams Philippine Export Corp. v. Castillo,50 a similar appeal by a private party of a criminal case, the
Court cogently disposed, thus:

"The purpose of a criminal action, in its purest sense, is to determine the penal liability of the accused for
having outraged the state with his crime and, if he be found guilty, to punish him for it. In this sense, the
parties to the action are the People of the Philippines and the accused. The offended party is regarded
merely as a witness for the state."

Consequently, the sole authority to institute proceedings before the CA or the SC is vested only on the OSG.
Under Presidential Decree No. 478, among the specific powers and functions of the OSG was to "represent
the Government in the [SC] and the [CA] in all criminal proceedings x x x." This provision has been carried
over to the Revised Administrative Code particularly in Book IV, Title III, Chapter 12 thereof. Clearly, the
OSG is the appellate counsel of the People of the Philippines in all criminal cases.

Moreover, in Bautista v. Cuneta-Pangilinan, this Court held that in criminal cases, the acquittal of the
accused or the dismissal of the case against him can only be appealed by the OSG, acting on behalf of the
State. The private complainant or the offended party may question such acquittal or dismissal only insofar
as the civil liability of the accused is concerned.

In the present case, a perusal of the petition for certiorari filed by the petitioner before the CA discloses that
it sought reconsideration of the criminal aspect of the decision of the RTC, not the civil aspect of the case.
xxx

xxxx
Clearly, the petition is bereft of any claim for civil liability. In fact, the petitioner did not even briefly discuss
the alleged civil liability of the respondents. As such, it is apparent that the petitioner's only desire was to
appeal the dismissal of the criminal case against the respondents. Since estafa, however, is a criminal
offense, only the OSG has the power to prosecute the case on appeal. Therefore, the petitioner lacked the
personality or legal standing to question the RTC decision.51

While this Court is mindful of cases52 where the private offended party was allowed to pursue a criminal
action on his or her own behalf — such as when there is a denial of due process - such exceptional
circumstances do not exist in this case. The OSG, in its Manifestation,53 expressly stated that it will not file a
reply to Lolita's comment on the petition for review on certiorari considering that it did not file the present
petition.54

To be sure, Jona's personality to even institute the bigamy case and thereafter to appeal the RTC-San
Carlos' Order55 dismissing the same is nebulous, at best. Settled is the rule that "every action must be
prosecuted or defended in the name of the real party in interest[,]" who, in turn, is one "who stands to be
benefited or injured by the judgment in the suit, or by the party entitled to the avails of the suit."56Within
this context, "interest" means material interest or an interest in issue to be affected by the decree or
judgment of the case, as distinguished from mere interest in the question involved.57 To be clear, real
interest refers to a present substantial interest, and not a mere expectancy, or a future, contingent,
subordinate or consequential interest.58

Here, the record is replete with indications59 that Jona's natural parents are unknown and she was merely
raised as the "foster daughter" of Jose Bumatay, without having undergone the process of legal
adoption.60 It likewise does not escape the Court's attention that in the Petition for the Issuance of Letters of
Administration filed by Rodelio Bumatay (Jose Bumatay's nephew), Jona was described as "claiming to be
the adopted [child] of [Jose] but cannot present legal proof to this effect".61 Finally, even in her
own Reply62 (to the comment to the petition for review), Jona merely denotes herself as "the only child of
the late Jose Bumatay,"63 without, however, presenting or even indicating any document or proof to support
her claim of personality or legal standing.

Based on the foregoing, the Court does not see the need and will not waste its precious time in even delving
into the question of whether or not the CA decision upholding the dismissal of the Bigamy case was
erroneous or not. Indeed, in view of the lack of personality of the party who filed the petition, any such
discourse by the Court would be obiter and correctly characterized as an advisory opinion.

WHEREFORE, premises considered, this Court resolves to DENY the instant petition for lack of merit
and AFFIRM the Court of Appeals' Decision dated August 28, 2009 and Resolution dated February 4, 2010.

SO ORDERED.

G.R. No. 125567 June 27, 2000

ANTONIO (ANTONINO) SAMANIEGO, JOSE DE LA CRUZ, JOHN SAMANIEGO, ERNESTO

SANTOS, MACARIO DE LA CRUZ, ANDRES PASTORIN, BENETRITO DE LA CRUZ, JESUS
BATAC and RODOLFO LAGUISMA, petitioners,
vs.
VIC ALVAREZ AGUILA, JOSEPHINE TAGUINOD and SECRETARY OF THE DEPARTMENT OF
AGRARIAN REFORM, respondents.

MENDOZA, J.

This is a petition for review on certiorari of the decision1 of the Court of Appeals, dated January 25,
1996, denying petitioners' appeal from a decision of the Office of the President.
The sole issue in this case is whether the Office of the President is an indispensable party in an
appeal from its decision and, therefore, must be impleaded pursuant to the Rules of Civil Procedure.
For reasons to be discussed, we hold that it is not; accordingly, we remand the case to the Court of
Appeals for review on the merits.

Petitioners are tenants in a landholding with an aggregate area of 10.4496 hectares, more or less, in
Patul (now Malvar), Santiago, Isabela. The land belongs to Salud Aguila, whose children, Vic
Alvarez Aguila and Josephine Taguinod, are private respondents.

It appears that the land in question was identified by the Department of Agrarian Reform (DAR)-
Region 2 as covered by the Operation Land Transfer Program of the government. In 1976, Aguila, in
behalf of her children, herein private respondents, filed a petition for exemption from the coverage of
P.D. No. 27. Petitioners opposed the application on the ground that Aguila's transfer of the title to the
lands to her children was in violation of the rules and regulations of the DAR. 1âwphi1.nêt

In its August 21, 1991 decision, the Regional Director granted the application for exemption. On
appeal to the DAR, the decision was affirmed in a decision dated September 28, 1992. However, on
motion of petitioners, the DAR reversed its ruling and denied private respondents' application for
exemption and declared petitioners the rightful farmer-beneficiaries of the land.

Private respondents appealed to the Office of the President which, in a decision, dated January 1,
1995, stated:

WHEREFORE, premises considered, the Order, dated January 6, 1993, of the Department
of Agrarian Reform is hereby SET ASIDE. The earlier order of that Department, dated
September 28, 1992, is hereby CONFIRMED and REINSTATED with a modification that
subject landholdings are not covered by the OLT program of the government pursuant to
P.D. No. 27.

Petitioners appealed to the Court of Appeals, but their petition was dismissed. The appellate court
held:

It is very clear from the allegations in the Petition For Review that the questioned decision
and resolution were both issued by the Office of the President. As such, the Office of the
President is an indispensable party to the case. Failure to implead said Office is fatal to the
petitioners' cause and, hence, should be dismissed. (Cf: Sec.2, Rule 3, Revised Rules of
Court.)

Time and again, it has been held that the joinder of indispensable parties is mandatory.
Unless they are impleaded, the action cannot proceed and the omission is fatal to the
plaintiff's cause. (United Paracale Mining Co. vs. Court of Appeals, et. al., 232 SCRA 663,
666.)

Petitioners moved for a reconsideration, contending that under Administrative Circular No. 1-95, the
Office of the President need not be impleaded. However, their motion was denied.

Hence, this petition.

First. At the time petitioners brought their case to the Court of Appeals, the procedure governing
appeals to said court from quasi-judicial agencies was embodied in Revised Administrative Circular
No. 1-95, which provides in relevant parts:
 TO: COURT OF APPEALS, COURT OF TAX APPEALS, THE SOLICITOR
GENERAL, THE GOVERNMENT CORPORATE COUNSEL, ALL MEMBERS OF
THE GOVERNMENT PROSECUTION SERVICE, AND ALL MEMBERS OF THE
INTEGRATED BAR OF THE PHILIPPINES.

SUBJECT: RULES GOVERNING APPEALS TO THE COURT OF APPEALS FROM

JUDGMENTS OR FINAL ORDERS OF THE COURT OF TAX APPEALS
AND QUASI-JUDICIAL AGENCIES.

1. Scope. — These rules shall apply to appeals from judgments or final orders of the Court of
Tax Appeals and from awards, judgments, final orders or resolutions of or authorized by
any quasi-judicial agency in the exercise of its quasi-judicial functions. Among these
agencies are the Civil Service Commission, Central Board of Assessment Appeals,
Securities and Exchange Commission, Land Registration Authority, Social Security
Commission, Office of the President, Civil Aeronautics Board, etc.

xxx xxx xxx

6. Contents of petition. — The petition for review shall (a) state the full names of the parties
to the case,without impleading the court or agencies either as petitioners or respondents . . .
. (Emphasis added).

Thus, it is clear that petitioners' failure to implead the Office of the President does not warrant the
dismissal of the case as it is in accordance with this circular. It is not true that the Office of the
President is not included within the scope of this circular. It is, as can plainly be seen above.

Second. The Court of Appeals held that in appeals from decisions of the Office of the President, the
latter is an indispensable party. This is error. Under Rule 7, §3 of the Rules of Civil Procedure, an
indispensable party is a party in interest without whom no final determination can be had of an action
without that party being impleaded. Indispensable parties are those with such an interest in the
controversy that a final decree would necessarily affect their rights, so that the court cannot proceed
without their presence.2 "Interest", within the meaning of this rule, should be material, directly in issue
and to be affected by the decree, as distinguished from a mere incidental interest in the question
involved.3 On the other hand, a nominal or pro forma party is one who is joined as a plaintiff or
defendant, not because such party has any real interest in the subject matter or because any relief is
demanded, but merely because the technical rules of pleadings require the presence of such party
on the record.4

In the case at bar, even assuming that the Office of the President should have been impleaded by
petitioner, it is clear that the Office of the President is merely a pro forma party, in the same way that
a respondent court is a pro forma party in special civil actions for certiorari.
1avv phi1

The issue in the petition before the Court of Appeals is whether a private land should be exempted
from the coverage of P.D. No 27. Whatever happens to that case and whoever wins would not bring
any prejudice or gain to the government. The only participation of the Office of the President in this
case is its role as the office which entertains appeals from decisions of the DAR. Indeed, the very
reason that the appellate court excused the Office of the Solicitor General from filing a comment is
that it deemed that the case involved "purely private interests."

WHEREFORE, the decision of the Court of Appeals, dated January 25, 1996, and its resolution,
dated July 5, 1996, are hereby REVERSED and the Court of Appeals is ORDERED to decide the
case on the merits with deliberate speed. 1âwphi1.nêt
SO ORDERED.

G.R. No. L-12381 April 4, 1918

SISENANDO PALARCA, plaintiff-appellant,

vs.
CATALINO BAGUISI, ET AL., defendants-appellees.

The appellant in his own behalf.

Marcelino Lontok and Basilio Aromin for appellees.

FISHER, J.:

This is an appeal from a judgment of the Court of First Instance of Tarlac, dismissing plaintiff's
complaint. The suit was filed against certain defendants alleged to be unlawfully in possession of a
part of the property claimed by plaintiff. Affidavits were filed here, after the case was submitted, for
the purpose of showing that the value of the property in dispute is in excess of P10,000.

The record of this case is in such a condition that we are unable to render a final judgment, but are
compelled to return to the trial court for further action.

Plaintiff contends, and the record shows, that the decisions in this case was rendered by a judge
who did not hear the evidence, and that at the time the decision was rendered no transcription had
been made of the stenographic notes of the testimony of several important witnesses. Under these
circumstances, it is evident that the trial judge was not in a position to make complete findings. While
this court has held that it is not necessary that cases should be decided by the judge before whom
the evidence was taken, if he ceases for any reason to exercise judicial authority in the particular
court in which the case was tried before rendering his decision, and must be decided by the
successor of such judge, it is obviously necessary that the judge by whom the decision is rendered
shall have either heard the witnesses or read the transcript of the stenographic record of their
testimony. When the trial judge neither hears the witnesses nor reads their testimony, his findings
and conclusions based upon an examination of only a part of the record cannot be accepted as a
proper disposition of the case. Nor can this defect be remedied by the inclusion of the missing
evidence in the record brought before this court on appeal. We exercise appellatejurisdiction only
over cases tried in the Court of First Instance. To require us to examine evidence which has not
been heard or even read by the trial judge, is to require us to do something which the law does not
authorize. We must, therefore, return the case to the trial court, in order that complete and specific
findings may be made there upon all the issues of fact raised by the pleadings, and that upon such
findings the court below may render judgment in accordance with its opinion as to the law applicable
to the case. It will not be necessary, of course, to retake the evidence.

In cases of this nature, in which an action in ejectment is brought against several defendants, each
claiming individually the ownership of a certain tract of land apparently embraced within the area of
the larger tract claimed by plaintiff, the trial court should make specific findings upon the evidence,
with respect to the property claimed by each defendant, should determine whether or not it is
included within the boundaries of the tract claimed by plaintiff, and if the defense of prescription is
interposed, the length of time which in the opinion of the court the evidence shows that each of the
defendants and their predecessors in interest have been in possession of the land, and the facts
tending to show the character of that possession, as being adverse or not.
While it is not strictly necessary for us to say anything more in disposing of this appeal, we have
deemed it advisable, following the practice adopted in other similar cases, to indicate our opinion
upon a matter of fundamental importance in this litigation. The action being in ejectment, it is
incumbent upon the plaintiff to show title in himself to the land in question — he cannot rely upon the
weakness of the title of the defendants. From an examination of the documents upon which plaintiff
relies, it appears that he contends that the original owner of the land in dispute transmitted his title to
the persons named as grantors in the deed of April 15, 1911 (Exhibit B), who in turn conveyed it to
plaintiff. It appears, however, from an examination of the deed of April 15, 1911, that several of the
persons purporting to have joined in the conveyance to plaintiff were minors. There is nothing to
show that any judicial authorization was obtained by the sale of the interests of these minors. As to
some of them, it appears that an attempt has been made to transfer their interests by having their
grandmother sign "for myself and my grandchildren." As to others a similar attempt to convey their
interests was made by their mother. As to the interests of these minors, if any, in the land in
question, such a conveyance is absolutely void. If those minors had any interest in the land in
question at the time the deed of April 15, 1911, was executed, they still retain those interests. At
best, therefore, this deed could have produced only a community property between plaintiff, as
successor to the interests of the adults, who signed the deed, and the minors. The plaintiff, so far as
the record shows, is not, as he asserts, the sole owner of the land — leaving out of consideration for
the time being the question as to whether any part of it belongs to defendants — but merely a co-
owner with the minors, who appear by the terms of the deed of April 15, 1911, to have been the
owners at the time of an undivided interest in the property. We hold that a co-owner cannot maintain
an action in ejectment without joining all other persons interested. Section 114 of the Code of Civil
Procedure requires that every action must be prosecuted in the name of the real party in interest,
and that any person who has an interest in this subject matter and who is a necessary party to a
complete determination of the questions involved, should be made a party to the proceeding. The
same article provides, in its last paragraph, that if any person having an interest in the subject of the
action, and in obtaining the relief demanded, refuses to join as plaintiff with those having a like
interest, he may be made a defendant, the fact of his interest and refusal to join being stated in the
complaint. Were the courts to permit an action in ejectment to be maintained by a person owning
merely an undivided interest in any given tract of land, a judgment in favor of the defendant would
not be conclusive as against the other co-owners not parties to the suit, and thus the defendant in
possession of the property might be harassed by as many succeeding actions of ejectment, as there
might be co-owners of the title asserted against him. The evident purpose of section 114 is to
prevent the multiplicity of suits by requiring the person asserting a right against the defendant to
include with him, either as co-plaintiffs or as co-defendants, all persons standing in the same
position, so that the whole matter in dispute may be determined once and for all in one litigation.

We desire to call the attention of counsel, furthermore, to the very unsatisfactory condition of the
briefs filed in this case. It is the duty of the attorney to aid the court by making specific reference to
those parts of the record upon which they reply for support in their contentions regarding the facts.
(Rules of the Supreme Court, article 19.) Unless this is done, it is not incumbent upon us to explore
the record for the purpose of discovering evidence upon which to reverse the findings of the trial
judge, merely because the appellant made a motion for the new trial, and excepted to its denial. The
presumption is that the findings of the trial court are correct and the burden rests upon the appellant
to state explicitly wherein the court is believed to have erred and to designate specifically, by
reference to the page of the record, all the evidence upon which her relies to demonstrate his
contention. The statute does not impose upon us the absolute duty of reviewing the evidence in civil
cases coming before us by bill of exceptions when a motion for a new trial upon the statutory
grounds has been made and denied, but merely provides we may do so. (Code of Civil Procedure,
Section 497, paragraph 2.) The pressure of work upon this court is so great that we cannot, in justice
to other litigants, undertake to make an examination of the voluminous transcript of the testimony,
unless the attorneys who desire us to make such examination have themselves taken the trouble to
read the record and brief it in accordance with our rules.
The judgment of the court below is aside, and the case is remanded for further proceedings in
accordance with this opinion. No costs will be allowed on this appeal. So ordered.

Arellano, C.J., Torres, Johnson, Carson, Araullo, Street and Avanceña, JJ., concur.
Malcolm, J., concurs in result.

G.R. No. 194024 April 25, 2012

PHILIP L. GO, PACIFICO Q. LIM and ANDREW Q. LIM Petitioners,

vs.
DISTINCTION PROPERTIES DEVELOPMENT AND CONSTRUCTION, INC. Respondent.

DECISION

MENDOZA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure assailing the March 17, 2010 Decision1 and October 7, 2010 Resolution2 of the Court of
Appeals (CA) in CA-G.R. SP No. 110013 entitled "Distinction Properties Development &
Construction, Inc. v. Housing Land Use Regulatory Board (NCR), Philip L. Go, Pacifico Q. Lim and
Andrew Q. Lim."

Factual and Procedural Antecedents:

Philip L. Go, Pacifico Q. Lim and Andrew Q. Lim (petitioners) are registered individual owners of
condominium units in Phoenix Heights Condominium located at H. Javier/Canley Road, Bo. Bagong
Ilog, Pasig City, Metro Manila.

Respondent Distinction Properties Development and Construction, Inc. (DPDCI) is a corporation

existing under the laws of the Philippines with principal office at No. 1020 Soler Street, Binondo,
Manila. It was incorporated as a real estate developer, engaged in the development of condominium
projects, among which was the Phoenix Heights Condominium.

In February 1996, petitioner Pacifico Lim, one of the incorporators and the then president of DPDCI,
executed a Master Deed and Declaration of Restrictions (MDDR)3 of Phoenix Heights Condominium,
which was filed with the Registry of Deeds. As the developer, DPDCI undertook, among others, the
marketing aspect of the project, the sale of the units and the release of flyers and brochures.

Thereafter, Phoenix Heights Condominium Corporation (PHCC) was formally organized and
incorporated. Sometime in 2000, DPDCI turned over to PHCC the ownership and possession of the
condominium units, except for the two saleable commercial units/spaces:

1. G/F Level BAS covered by Condominium Certificate of Title (CCT) No. 21030 utilized as
the PHCC’s administration office, and
 2. G/F Level 4-A covered by CCT No. PT-27396/C-136-II used as living quarters by the
building administrator.

Although used by PHCC, DPDCI was assessed association dues for these two units.

Meanwhile, in March 1999, petitioner Pacifico Lim, as president of DPDCI, filed an Application for
Alteration of Plan4pertaining to the construction of 22 storage units in the spaces adjunct to the
parking area of the building. The application, however, was disapproved as the proposed alteration
would obstruct light and ventilation.

In August 2004, through its Board,5 PHCC approved a settlement offer from DPDCI for the set-off of
the latter’s association dues arrears with the assignment of title over CCT Nos. 21030 and PT-
27396/C-136-II and their conversion into common areas. Thus, CCT Nos. PT-43400 and PT-43399
were issued by the Registrar of Deeds of Pasig City in favor of PHCC in lieu of the old titles. The
said settlement between the two corporations likewise included the reversion of the 22 storage
spaces into common areas. With the conformity of PHCC, DPDCI’s application for alteration
(conversion of unconstructed 22 storage units and units GF4-A and BAS from saleable to common
areas) was granted by the Housing and Land Use Regulatory Board (HLURB).6

In August 2008, petitioners, as condominium unit-owners, filed a complaint7 before the HLURB
against DPDCI for unsound business practices and violation of the MDDR. The case was docketed
as REM- 080508-13906. They alleged that DPDCI committed misrepresentation in their circulated
flyers and brochures as to the facilities or amenities that would be available in the condominium and
failed to perform its obligation to comply with the MDDR.

In defense, DPDCI denied that it had breached its promises and representations to the public
concerning the facilities in the condominium. It alleged that the brochure attached to the complaint
was "a mere preparatory draft" and not the official one actually distributed to the public, and that the
said brochure contained a disclaimer as to the binding effect of the supposed offers therein. Also,
DPDCI questioned the petitioners’ personality to sue as the action was a derivative suit.

After due hearing, the HLURB rendered its decision8 in favor of petitioners. It held as invalid the
agreement entered into between DPDCI and PHCC, as to the alteration or conversion of the subject
units into common areas, which it previously approved, for the reason that it was not approved by
the majority of the members of PHCC as required under Section 13 of the MDDR. It stated that
DPDCI’s defense, that the brochure was a mere draft, was against human experience and a
convenient excuse to avoid its obligation to provide the facility of the project. The HLURB further
stated that the case was not a derivative suit but one which involved contracts of sale of the
respective units between the complainants and DPDCI, hence, within its jurisdiction pursuant to
Section 1, Presidential Decree (P.D.)No. 957 (The Subdivision and Condominium Buyers’ Protective
Decree), as amended. The decretal portion of the HLURB decision reads:

WHEREFORE, in view of the foregoing, judgment is hereby rendered:

1. Ordering respondent to restore/provide proper gym facilities, to restore the hallway at the
mezzanine floor.

2. Declaring the conversion/alteration of 22 storage units and Units GF4-A and BAS as
illegal, and consequently, and ordering respondent to continue paying the condominium dues
for these units, with interest and surcharge.
 3. Ordering the Respondent to pay the sum of Php998,190.70, plus interests and
surcharges, as condominium dues in arrears and turnover the administration office to PHCC
without any charges pursuant to the representation of the respondent in the brochures it
circulated to the public with a corresponding credit to complainants’ individual shares as
members of PHCC entitled to such refund or reimbursements.

4. Ordering the Respondent to refund to the PHCC the amount of Php1,277,500.00,

representing the cost of the deep well, with interests and surcharges with a corresponding
credit to complainants’ individual shares as members of PHCC entitled to such refund or
reimbursements.

5. Ordering the Respondent to pay the complainants moral and exemplary damages in the
amount of ₱ 10,000.00 and attorney’s fees in the amount of ₱ 10,000.00.

All other claims and counterclaims are hereby dismissed accordingly.

IT IS SO ORDERED.9

Aggrieved, DPDCI filed with the CA its Petition for Certiorari and Prohibition10 dated August 11, 2009,
on the ground that the HLURB decision was a patent nullity constituting an act without or beyond its
jurisdiction and that it had no other plain, speedy and adequate remedy in the course of law.

On March 17, 2010, the CA rendered the assailed decision which disposed of the case in favor of
DPDCI as follows:

WHEREFORE, in view of the foregoing, the petition is GRANTED. Accordingly, the

assailed Decision of the HLURB in Case No. REM-0800508-13906 is ANNULLED and SET ASIDE
and a new one is entered DISMISSING the Complaint a quo.

IT IS SO ORDERED.11

The CA ruled that the HLURB had no jurisdiction over the complaint filed by petitioners as the
controversy did not fall within the scope of the administrative agency’s authority under P.D. No. 957.
The HLURB not only relied heavily on the brochures which, according to the CA, did not set out an
enforceable obligation on the part of DPDCI, but also erroneously cited Section 13 of the MDDR to
support its finding of contractual violation.

The CA held that jurisdiction over PHCC, an indispensable party, was neither acquired nor waived
by estoppel. Citing Carandang v. Heirs of De Guzman,12 it held that, in any event, the action should
be dismissed because the absence of PHCC, an indispensable party, rendered all subsequent
actuations of the court void, for want of authority to act, not only as to the absent parties but even as
to those present.

Finally, the CA held that the rule on exhaustion of administrative remedies could be relaxed. Appeal
was not a speedy and adequate remedy as jurisdictional questions were continuously raised but
ignored by the HLURB. In the present case, however, "[t]he bottom line is that the challenged
decision is one that had been rendered in excess of jurisdiction, if not with grave abuse of discretion
amounting to lack or excess of jurisdiction."13

Petitioners filed a motion for reconsideration14 of the said decision. The motion, however, was denied
by the CA in its Resolution dated October 7, 2010.
Hence, petitioners interpose the present petition before this Court anchored on the following

GROUNDS

(1)

THE COURT OF APPEALS ERRED IN HOLDING THAT THE HLURB HAS NO

JURISDICTION OVER THE INSTANT CASE;

(2)

THE COURT OF APPEALS ALSO ERRED IN FINDING THAT PHCC IS AN

INDISPENSABLE PARTY WHICH WARRANTED THE DISMISSAL OF THE CASE BY
REASON OF IT NOT HAVING BEEN IMPLEADED IN THE CASE;

(3)

THE COURT OF APPEALS HAS LIKEWISE ERRED IN RELAXING THE RULE ON NON-
EXHAUSTION OF ADMINISTRATIVE REMEDIES BY DECLARING THAT THE APPEAL
MAY NOT BE A SPEEDY AND ADEQUATE REMEDY WHEN JURISDICTIONAL
QUESTIONS WERE CONTINUOUSLY RAISED BUT IGNORED BY THE HLURB; and

(4)

THAT FINALLY, THE COURT A QUO ALSO ERRED IN NOT GIVING DUE RESPECT OR
EVEN FINALITY TO THE FINDINGS OF THE HLURB.15

Petitioners contend that the HLURB has jurisdiction over the subject matter of this case. Their
complaint with the HLURB clearly alleged and demanded specific performance upon DPDCI of the
latter’s contractual obligation under their individual contracts to provide a back-up water system as
part of the amenities provided for in the brochure, together with an administration office, proper gym
facilities, restoration of a hallway, among others. They point out that the violation by DPDCI of its
obligations enumerated in the said complaint squarely put their case within the ambit of Section 1,
P.D. No. 957, as amended, enumerating the cases that are within the exclusive jurisdiction of the
HLURB. Likewise, petitioners argue that the case was not a derivative suit as they were not suing for
and in behalf of PHCC. They were suing, in their individual capacities as condominium unit buyers,
their developer for breach of contract. In support of their view that PHCC was not an indispensable
party, petitioners even quoted the dispositive portion of the HLURB decision to show that complete
relief between or among the existing parties may be obtained without the presence of PHCC as a
party to this case. Petitioners further argue that DPDCI’s petition before the CA should have been
dismissed outright for failure to comply with Section 1, Rule XVI of the 2004 Rules of Procedure of
the HLURB providing for an appeal to the Board of Commissioners by a party aggrieved by a
decision of a regional officer.

DPDCI, in its Comment,16 strongly objects to the arguments of petitioners and insists that the CA did
not err in granting its petition. It posits that the HLURB has no jurisdiction over the complaint filed by
petitioners because the controversies raised therein are in the nature of "intra-corporate disputes."
Thus, the case does not fall within the jurisdiction of the HLURB under Section 1, P.D. No. 957 and
P.D. No. 1344. According to DPDCI, petitioners sought to address the invalidation of the corporate
acts duly entered and executed by PHCC as a corporation of which petitioners are admittedly
members of, and not the acts pertaining to their ownership of the units. Such being the case, PHCC
should have been impleaded as a party to the complaint. Its non-inclusion as an indispensable party
warrants the dismissal of the case. DPDCI further avers that the doctrine of exhaustion is
inapplicable inasmuch as the issues raised in the petition with the CA are purely legal; that the
challenged administrative act is patently illegal; and that the procedure of the HLURB does not
provide a plain, speedy and adequate remedy and its application may cause great and irreparable
damage. Finally, it claims that the decision of the HLURB Arbiter has not attained finality, the same
having been issued without jurisdiction.

Essentially, the issues to be resolved are: (1) whether the HLURB has jurisdiction over the complaint
filed by the petitioners; (2) whether PHCC is an indispensable party; and (3) whether the rule on
exhaustion of administrative remedies applies in this case.

The petition fails.

Basic as a hornbook principle is that jurisdiction over the subject matter of a case is conferred by law
and determined by the allegations in the complaint which comprise a concise statement of the
ultimate facts constituting the plaintiff's cause of action. The nature of an action, as well as which
court or body has jurisdiction over it, is determined based on the allegations contained in the
complaint of the plaintiff, irrespective of whether or not the plaintiff is entitled to recover upon all or
some of the claims asserted therein. The averments in the complaint and the character of the relief
sought are the ones to be consulted. Once vested by the allegations in the complaint, jurisdiction
also remains vested irrespective of whether or not the plaintiff is entitled to recover upon all or some
of the claims asserted therein.17 Thus, it was ruled that the jurisdiction of the HLURB to hear and
decide cases is determined by the nature of the cause of action, the subject matter or property
involved and the parties.18

Generally, the extent to which an administrative agency may exercise its powers depends largely, if
not wholly, on the provisions of the statute creating or empowering such agency.19 With respect to the
HLURB, to determine if said agency has jurisdiction over petitioners’ cause of action, an examination
of the laws defining the HLURB’s jurisdiction and authority becomes imperative. P.D. No.
957,20 specifically Section 3, granted the National Housing Authority (NHA) the "exclusive jurisdiction
to regulate the real estate trade and business." Then came P.D. No. 134421 expanding the jurisdiction
of the NHA (now HLURB), as follows:

SECTION 1. In the exercise of its functions to regulate the real estate trade and business and in
addition to its powers provided for in Presidential Decree No. 957, the National Housing Authority
shall have exclusive jurisdiction to hear and decide cases of the following nature:

(a) Unsound real estate business practices;

(b) Claims involving refund and any other claims filed by subdivision lot or condominium unit
buyer against the project owner, developer, dealer, broker or salesman; and

(c) Cases involving specific performance of contractual and statutory obligations filed by
buyers of subdivision lot or condominium unit against the owner, developer, dealer, broker or
salesman.

This provision must be read in light of the law’s preamble, which explains the reasons for enactment
of the law or the contextual basis for its interpretation.22 A statute derives its vitality from the purpose
for which it is enacted, and to construe it in a manner that disregards or defeats such purpose is to
nullify or destroy the law.23 P.D. No. 957, as amended, aims to protect innocent subdivision lot and
condominium unit buyers against fraudulent real estate practices.24
The HLURB is given a wide latitude in characterizing or categorizing acts which may constitute
unsound business practice or breach of contractual obligations in the real estate trade. This grant of
expansive jurisdiction to the HLURB does not mean, however, that all cases involving subdivision
lots or condominium units automatically fall under its jurisdiction. The CA aptly quoted the case
of Christian General Assembly, Inc. v. Ignacio,25 wherein the Court held that:

The mere relationship between the parties, i.e., that of being subdivision owner/developer and
subdivision lot buyer, does not automatically vest jurisdiction in the HLURB. For an action to fall
within the exclusive jurisdiction of the HLURB, the decisive element is the nature of the action as
enumerated in Section 1 of P.D. 1344. On this matter, we have consistently held that the concerned
administrative agency, the National Housing Authority (NHA) before and now the HLURB, has
jurisdiction over complaints aimed at compelling the subdivision developer to comply with its
contractual and statutory obligations.26 [Emphases supplied]

In this case, the complaint filed by petitioners alleged causes of action that apparently are not
cognizable by the HLURB considering the nature of the action and the reliefs sought. A perusal of
the complaint discloses that petitioners are actually seeking to nullify and invalidate the duly
constituted acts of PHCC - the April 29, 2005 Agreement27 entered into by PHCC with DPDCI and its
Board Resolution28 which authorized the acceptance of the proposed offsetting/settlement of DPDCI’s
indebtedness and approval of the conversion of certain units from saleable to common areas. All
these were approved by the HLURB. Specifically, the reliefs sought or prayers are the following:

1. Ordering the respondent to restore the gym to its original location;

2. Ordering the respondent to restore the hallway at the second floor;

3. Declaring the conversion/alteration of 22 storage units and Units GF4-A and BAS as
illegal, and consequently, ordering respondent to continue paying the condominium dues for
these units, with interest and surcharge;

4. Ordering the respondent to pay the sum of PHP998,190.70, plus interest and surcharges,
as condominium dues in arrears and turnover the administration office to PHCC without any
charges pursuant to the representation of the respondent in the brochures it circulated to the
public;

5. Ordering the respondent to refund to the PHCC the amount of PHP1,277,500.00,

representing the cost of the deep well, with interests and surcharges;

6. Ordering the respondent to pay the complainants moral/exemplary damages in the

amount of PHP100,000.00; and

7. Ordering the respondent to pay the complainant attorney’s fees in the amount of
PHP100,000.00, and PHP3,000.00 for every hearing scheduled by the Honorable Office.29

As it is clear that the acts being assailed are those of PHHC, this case cannot prosper for failure to
implead the proper party, PHCC.

An indispensable party is defined as one who has such an interest in the controversy or subject
matter that a final adjudication cannot be made, in his absence, without injuring or affecting that
interest.30 In the recent case of Nagkakaisang Lakas ng Manggagawa sa Keihin (NLMK-OLALIA-
KMU) v. Keihin Philippines Corporation,31 the Court had the occasion to state that:
Under Section 7, Rule 3 of the Rules of Court, "parties in interest without whom no final
determination can be had of an action shall be joined as plaintiffs or defendants." If there is a failure
to implead an indispensable party, any judgment rendered would have no effectiveness. It is
"precisely ‘when an indispensable party is not before the court (that) an action should be dismissed.’
The absence of an indispensable party renders all subsequent actions of the court null and void for
want of authority to act, not only as to the absent parties but even to those present." The purpose of
the rules on joinder of indispensable parties is a complete determination of all issues not only
between the parties themselves, but also as regards other persons who may be affected by the
judgment. A decision valid on its face cannot attain real finality where there is want of indispensable
parties.32 (Underscoring supplied)

Similarly, in the case of Plasabas v. Court of Appeals,33 the Court held that a final decree would
necessarily affect the rights of indispensable parties so that the Court could not proceed without their
presence. In support thereof, the Court in Plasabas cited the following authorities, thus:

"The general rule with reference to the making of parties in a civil action requires the joinder of all
indispensable parties under any and all conditions, their presence being a sine qua non of the
exercise of judicial power. (Borlasa v. Polistico, 47 Phil. 345, 348) For this reason, our Supreme
Court has held that when it appears of record that there are other persons interested in the subject
matter of the litigation, who are not made parties to the action, it is the duty of the court to suspend
the trial until such parties are made either plaintiffs or defendants. (Pobre, et al. v. Blanco, 17 Phil.
156). x x x Where the petition failed to join as party defendant the person interested in sustaining the
proceeding in the court, the same should be dismissed. x x x When an indispensable party is not
before the court, the action should be dismissed. (People, et al. v. Rodriguez, et al., G.R. Nos. L-
14059-62, September 30, 1959) (sic)

"Parties in interest without whom no final determination can be had of an action shall be joined either
as plaintiffs or defendants. (Sec. 7, Rule 3, Rules of Court). The burden of procuring the presence of
all indispensable parties is on the plaintiff. (39 Amjur [sic] 885). The evident purpose of the rule is to
prevent the multiplicity of suits by requiring the person arresting a right against the defendant to
include with him, either as co-plaintiffs or as co-defendants, all persons standing in the same
position, so that the whole matter in dispute may be determined once and for all in one litigation.
(Palarca v. Baginsi, 38 Phil. 177, 178).

From all indications, PHCC is an indispensable party and should have been impleaded, either as a
plaintiff or as a defendant,34 in the complaint filed before the HLURB as it would be directly and
adversely affected by any determination therein. To belabor the point, the causes of action, or the
acts complained of, were the acts of PHCC as a corporate body. Note that in the judgment rendered
by the HLURB, the dispositive portion in particular, DPDCI was ordered (1) to pay ₱ 998,190.70,
plus interests and surcharges, as condominium dues in arrears and turnover the administration
office to PHCC; and (2) to refund to PHCC ₱ 1,277,500.00, representing the cost of the deep well,
with interests and surcharges. Also, the HLURB declared as illegal the agreement regarding the
conversion of the 22 storage units and Units GF4-A and BAS, to which agreement PHCC was a
party.

Evidently, the cause of action rightfully pertains to PHCC. Petitioners cannot exercise the same
except through a derivative suit. In the complaint, however, there was no allegation that the action
was a derivative suit. In fact, in the petition, petitioners claim that their complaint is not a derivative
suit.35 In the cited case of Chua v. Court of Appeals,36 the Court ruled:

For a derivative suit to prosper, it is required that the minority stockholder suing for and on behalf of
the corporation must allege in his complaint that he is suing on a derivative cause of action on behalf
of the corporation and all other stockholders similarly situated who may wish to join him in the suit. It
is a condition sine qua non that the corporation be impleaded as a party because not only is the
corporation an indispensable party, but it is also the present rule that it must be served with process.
The judgment must be made binding upon the corporation in order that the corporation may get the
benefit of the suit and may not bring subsequent suit against the same defendants for the same
cause of action. In other words, the corporation must be joined as party because it is its cause of
action that is being litigated and because judgment must be a res adjudicata against it.
(Underscoring supplied)

Without PHCC as a party, there can be no final adjudication of the HLURB’s judgment. The CA was,
thus, correct in ordering the dismissal of the case for failure to implead an indispensable party.

To justify its finding of contractual violation, the HLURB cited a provision in the MDDR, to wit:

Section 13. Amendment. After the corporation shall have been created, organized and operating,
this MDDR may be amended, in whole or in part, by the affirmative vote of Unit owners constituting
at least fifty one (51%) percent of the Unit shares in the Project at a meeting duly called pursuant to
the Corporation By Laws and subject to the provisions of the Condominium Act.

This citation, however, is misplaced as the above-quoted provision pertains to the amendment of the
MDDR. It should be stressed that petitioners are not asking for any change or modification in the
terms of the MDDR. What they are really praying for is a declaration that the agreement regarding
the alteration/conversion is illegal. Thus, the Court sustains the CA’s finding that:

There was nothing in the records to suggest that DPDCI sought the amendment of a part or the
whole of such MDDR. The cited section is somewhat consistent only with the principle that an
amendment of a corporation’s Articles of Incorporation must be assented to by the stockholders
holding more than 50% of the shares. The MDDR does not contemplate, by such provision, that all
corporate acts ought to be with the concurrence of a majority of the unit owners.37

Moreover, considering that petitioners, who are members of PHCC, are ultimately challenging the
agreement entered into by PHCC with DPDCI, they are assailing, in effect, PHCC’s acts as a body
corporate. This action, therefore, partakes the nature of an "intra-corporate controversy," the
jurisdiction over which used to belong to the Securities and Exchange Commission (SEC), but
transferred to the courts of general jurisdiction or the appropriate Regional Trial
Court (RTC), pursuant to Section 5b of P.D. No. 902-A,38 as amended by Section 5.2 of Republic
Act (R.A.) No. 8799.39

An intra-corporate controversy is one which "pertains to any of the following relationships: (1)
between the corporation, partnership or association and the public; (2) between the corporation,
partnership or association and the State in so far as its franchise, permit or license to operate is
concerned; (3) between the corporation, partnership or association and its stockholders, partners,
members or officers; and (4) among the stockholders, partners or associates themselves."40

Based on the foregoing definition, there is no doubt that the controversy in this case is essentially
intra-corporate in character, for being between a condominium corporation and its members-unit
owners. In the recent case of Chateau De Baie Condominium Corporation v. Sps. Moreno,41 an
action involving the legality of assessment dues against the condominium owner/developer, the
Court held that, the matter being an intra-corporate dispute, the RTC had jurisdiction to hear the
same pursuant to R.A. No. 8799.
As to the alleged failure to comply with the rule on exhaustion of administrative remedies, the Court
again agrees with the position of the CA that the circumstances prevailing in this case warranted a
relaxation of the rule.

The doctrine of exhaustion of administrative remedies is a cornerstone of our judicial system. The 1âwphi1

thrust of the rule is that courts must allow administrative agencies to carry out their functions and
discharge their responsibilities within the specialized areas of their respective competence.42 It has
been held, however, that the doctrine of exhaustion of administrative remedies and the doctrine of
primary jurisdiction are not ironclad rules. In the case of Republic of the Philippines v. Lacap,43 the
Court enumerated the numerous exceptions to these rules, namely: (a) where there is estoppel on
the part of the party invoking the doctrine; (b) where the challenged administrative act is patently
illegal, amounting to lack of jurisdiction; (c) where there is unreasonable delay or official inaction that
will irretrievably prejudice the complainant; (d) where the amount involved is relatively so small as to
make the rule impractical and oppressive; (e) where the question involved is purely legal and will
ultimately have to be decided by the courts of justice; (f) where judicial intervention is urgent; (g)
where the application of the doctrine may cause great and irreparable damage; (h) where the
controverted acts violate due process; (i) where the issue of non-exhaustion of administrative
remedies has been rendered moot; (j) where there is no other plain, speedy and adequate remedy;
(k) where strong public interest is involved; and (l) in quo warranto proceedings.44 [Underscoring
supplied]

The situations (b) and (e) in the foregoing enumeration obtain in this case.

The challenged decision of the HLURB is patently illegal having been rendered in excess of
jurisdiction, if not with grave abuse of discretion amounting to lack or excess of jurisdiction. Also, the
issue on jurisdiction is purely legal which will have to be decided ultimately by a regular court of law.
As the Court wrote in Vigilar v. Aquino:45

It does not involve an examination of the probative value of the evidence presented by the parties.
There is a question of law when the doubt or difference arises as to what the law is on a certain state
of facts, and not as to the truth or the falsehood of alleged facts. Said question at best could be
resolved only tentatively by the administrative authorities. The final decision on the matter rests not
with them but with the courts of justice. Exhaustion of administrative remedies does not apply,
because nothing of an administrative nature is to be or can be done. The issue does not require
technical knowledge and experience but one that would involve the interpretation and application of
law.

Finally, petitioners faulted the CA in not giving respect and even finality to the findings of fact of the
HLURB. Their reliance on the case of Dangan v. NLRC,46 reiterating the well-settled principles
involving decisions of administrative agencies, deserves scant consideration as the decision of the
HLURB in this case is manifestly not supported by law and jurisprudence.

Petitioners, therefore, cannot validly invoke DPDCI’s failure to fulfill its obligation on the basis of a
plain draft leaflet which petitioners were able to obtain, specifically Pacifico Lim, having been a
president of DPDCI. To accord petitioners the right to demand compliance with the commitment
under the said brochure is to allow them to profit by their own act. This, the Court cannot tolerate.

In sum, inasmuch as the HLURB has no jurisdiction over petitioners’ complaint, the Court sustains
the subject decision of the CA that the HLURB decision is null and void ab initio. This disposition,
however, is without prejudice to any action that the parties may rightfully file in the proper forum.

WHEREFORE, the petition is DENIED.

SO ORDERED.

[G.R. No. 131457. August 19, 1999]

HON. CARLOS O. FORTICH, PROVINCIAL GOVERNOR OF

BUKIDNON, HON. REY B. BAULA, MUNICIPAL MAYOR OF
SUMILAO, BUKIDNON, NQSR MANAGEMENT AND
DEVELOPMENT CORPORATION, Petitioners, v. HON. RENATO C.
CORONA, DEPUTY EXECUTIVE SECRETARY, HON. ERNESTO D.
GARILAO, SECRETARY OF THE DEPARTMENT OF AGRARIAN
REFORM, Respondents.

RESOLUTION

YNARES-SANTIAGO, J.:

This resolves the pending incidents before us, namely, respondents

and intervenors separate motions for reconsideration of our
Resolution dated November 17, 1998, as well as their motions to
refer this case to this Court en banc.

Respondents and intervenors jointly argue, in fine, that our

Resolution dated November 17, 1998, wherein we voted two-two on
the separate motions for reconsideration of our earlier Decision of
April 24, 1998, as a result of which the Decision was deemed
affirmed, did not effectively resolve the said motions for
reconsideration inasmuch as the matter should have been referred
to the Court sitting en banc, pursuant to Article VIII, Section 4(3) of
the Constitution. Respondents and intervenors also assail our
Resolution dated January 27, 1999, wherein we noted without
action the intervenors Motion For Reconsideration With Motion To
Refer The Matter To The Court En Banc filed on December 3, 1998,
on the following considerations, to wit:

the movants have no legal personality to further seek redress

before the Court after their motion for leave to intervene in this
case was denied in the April 24, 1998 Decision. Their subsequent
motion for reconsideration of the said decision, with a prayer to
resolve the motion to the Court En Banc, was also denied in the
November 17, 1998 Resolution of the Court. Besides, their aforesaid
motion of December 3, 1998 is in the nature of a second motion for
reconsideration which is a forbidden motion (Section 2, Rule 52 in
relation to Section 4, Rule 56 of the 1997 Rules of Civil Procedure).
The impropriety of movants December 3, 1998 motion becomes all
the more glaring considering that all the respondents in this case
did not anymore join them (movants) in seeking a reconsideration
of the November 17, 1998 Resolution.1

Subsequently, respondents, through the Office of the Solicitor

General, filed their Motion For Reconsideration Of The Resolution
Dated November 17, 1998 And For Referral Of The Case To This
Honorable Court En Banc (With Urgent Prayer For Issuance Of A
Restraining Order) on December 3, 1998, accompanied by a
Manifestation and Motion2 and a copy of the Registered Mail
Bill3 evidencing filing of the said motion for reconsideration to this
Court by registered mail.

In their respective motions for reconsideration, both respondents

and intervenors pray that this case be referred to this Court en
banc. They contend that inasmuch as their earlier motions for
reconsideration (of the Decision dated April 24, 1998) were resolved
by a vote of two-two, the required number to carry a decision, i.e.,
three, was not met. Consequently, the case should be referred to
and be decided by this Court en banc, relying on the following
constitutional provision:

Cases or matters heard by a division shall be decided or resolved

with the concurrence of a majority of the Members who actually
took part in the deliberations on the issues in the case and voted
thereon, and in no case without the concurrence of at least three of
such Members. When the required number is not obtained, the case
shall be decided en banc: Provided, that no doctrine or principle of
law laid down by the Court in a decision rendered en banc or in
division may be modified or reversed except by the Court sitting en
banc.4
A careful reading of the above constitutional provision, however,
reveals the intention of the framers to draw a distinction between
cases, on the one hand, and matters, on the other hand, such
that cases are decided while matters, which include motions, are
resolved. Otherwise put, the word decided must refer to cases;
while the word resolved must refer to matters, applying the rule
of reddendo singula singulis. This is true not only in the
interpretation of the above-quoted Article VIII, Section 4(3), but
also of the other provisions of the Constitution where these words
appear.5cräläwvirtua lib räry

With the aforesaid rule of construction in mind, it is clear that only

cases are referred to the Court en banc for decision whenever the
required number of votes is not obtained. Conversely, the rule does
not apply where, as in this case, the required three votes is not
obtained in the resolution of a motion for reconsideration. Hence,
the second sentence of the aforequoted provision speaks only of
case and not matter. The reason is simple. The above-quoted Article
VIII, Section 4(3) pertains to the disposition of cases by a division.
If there is a tie in the voting, there is no decision. The only way to
dispose of the case then is to refer it to the Court en banc. On the
other hand, if a case has already been decided by the division and
the losing party files a motion for reconsideration, the failure of the
division to resolve the motion because of a tie in the voting does not
leave the case undecided. There is still the decision which must
stand in view of the failure of the members of the division to muster
the necessary vote for its reconsideration. Quite plainly, if the
voting results in a tie, the motion for reconsideration is lost. The
assailed decision is not reconsidered and must therefore be deemed
affirmed. Such was the ruling of this Court in the Resolution of
November 17, 1998.

It is the movants further contention in support of their plea for the

referral of this case to the Court en banc that the issues submitted
in their separate motions are of first impression. In the opinion
penned by Mr. Justice Antonio M. Martinez during the resolution of
the motions for reconsideration on November 17, 1998, the
following was expressed:
Regrettably, the issues presented before us by the movants are
matters of no extraordinary import to merit the attention of the
Court en banc. Specifically, the issue of whether or not the power of
the local government units to reclassify lands is subject to the
approval of the DAR is no longer novel, this having been decided by
this Court in the case of Province of Camarines Sur, et al. vs.
Court of Appeals wherein we held that local government units
need not obtain the approval of the DAR to convert or reclassify
lands from agricultural to non-agricultural use. The dispositive
portion of the Decision in the aforecited case states:

WHEREFORE, the petition is GRANTED and the questioned

decision of the Court of Appeals is set aside insofar as it (a)
nullifies the trial courts order allowing the Province of Camarines
Sur to take possession of private respondents property; (b) orders
the trial court to suspend the expropriation proceedings; and
(c) requires the Province of Camarines Sur to obtain the
approval of the Department of Agrarian Reform to convert or
reclassify private respondents property from agricultural to
non-agricultural use.

xxx xxx xxx (Emphasis supplied)

Moreover, the Decision sought to be reconsidered was arrived at by

a unanimous vote of all five (5) members of the Second Division of
this Court. Stated otherwise, this Second Division is of the opinion
that the matters raised by movants are nothing new and do not
deserve the consideration of the Court en banc. Thus, the
participation of the full Court in the resolution of movants motions
for reconsideration would be inappropriate.6

The contention, therefore, that our Resolution of November 17,

1998 did not dispose of the earlier motions for reconsideration of
the Decision dated April 24, 1998 is flawed. Consequently, the
present motions for reconsideration necessarily partake of the
nature of a second motion for reconsideration which, according to
the clear and unambiguous language of Rule 56, Section 4, in
relation to Rule 52, Section 2, of the 1997 Rules of Civil Procedure,
is prohibited.
True, there are exceptional cases when this Court may entertain a
second motion for reconsideration, such as where there are
extraordinarily persuasive reasons. Even then, we have ruled that
such second motions for reconsideration must be filed with express
leave of court first obtained.7 In this case, not only did movants fail
to ask for prior leave of court, but more importantly, they have
been unable to show that there are exceptional reasons for us to
give due course to their second motions for reconsideration.
Stripped of the arguments for referral of this incident to the
Court en banc, the motions subject of this resolution are nothing
more but rehashes of the motions for reconsideration which have
been denied in the Resolution of November 17, 1998. To be sure,
the allegations contained therein have already been raised before
and passed upon by this Court in the said Resolution.

The crux of the controversy is the validity of the Win-Win Resolution

dated November 7, 1997. We maintain that the same is void and of
no legal effect considering that the March 29, 1996 decision of the
Office of the President had already become final and executory even
prior to the filing of the motion for reconsideration which became
the basis of the said Win-Win Resolution. This ruling, quite
understandably, sparked a litany of protestations on the part of
respondents and intervenors including entreaties for a liberal
interpretation of the rules. The sentiment was that notwithstanding
its importance and far-reaching effects, the case was disposed of on
a technicality. The situation, however, is not as simple as what the
movants purport it to be. While it may be true that on its face the
nullification of the Win-Win Resolution was grounded on a
procedural rule pertaining to the reglementary period to appeal or
move for reconsideration, the underlying consideration therefor was
the protection of the substantive rights of petitioners. The succinct
words of Mr. Justice Artemio V. Panganiban are quoted in the
November 17, 1998 opinion of Mr. Justice Martinez, viz: Just as a
losing party has the right to file an appeal within the prescribed
period, the winning party also has the correlative right to enjoy the
finality of the resolution of his/her case.8
cräläwvirtuali brä ry

In other words, the finality of the March 29, 1996 OP Decision

accordingly vested appurtenant rights to the land in dispute on
petitioners as well as on the people of Bukidnon and other parts of
the country who stand to be benefited by the development of the
property. The issue in this case, therefore, is not a question of
technicality but of substance and merit.9 cräläwvi rtual ib räry

Before finally disposing of these pending matters, we feel it

necessary to rule once and for all on the legal standing of
intervenors in this case. In their present motions, intervenors insist
that they are real parties in interest inasmuch as they have already
been issued certificates of land ownership award, or CLOAs, and
that while they are seasonal farmworkers at the plantation, they
have been identified by the DAR as qualified beneficiaries of the
property. These arguments are, however, nothing new as in fact
they have already been raised in intervenors earlier motion for
reconsideration of our April 24, 1998 Decision. Again as expressed
in the opinion of Mr. Justice Martinez, intervenors, who are
admittedly not regular but seasonal farmworkers, have no legal or
actual and substantive interest over the subject land inasmuch as
they have no right to own the land. Rather, their right is limited only
to a just share of the fruits of the land.10Moreover, the Win-Win
Resolution itself states that the qualified beneficiaries have yet to be
carefully and meticulously determined by the Department of
Agrarian Reform.11 Absent any definitive finding of the Department
of Agrarian Reform, intervenors cannot as yet be deemed vested
with sufficient interest in the controversy as to be qualified to
intervene in this case. Likewise, the issuance of the CLOA's to them
does not grant them the requisite standing in view of the nullity of
the Win-Win Resolution. No legal rights can emanate from a
resolution that is null and void.

WHEREFORE, based on the foregoing, the following incidents,

namely: intervenors Motion For Reconsideration With Motion To
Refer The Matter To The Court En Banc, dated December 3, 1998;
respondents Motion For Reconsideration Of The Resolution Dated
November 17, 1998 And For Referral Of The Case To This Honorable
Court En Banc (With Urgent Prayer For Issuance Of A Restraining
Order), dated December 2, 1998; and intervenors Urgent Omnibus
Motion For The Supreme Court Sitting En Banc To Annul The Second
Divisions Resolution Dated 27 January 1999 And Immediately
Resolve The 28 May 1998 Motion For Reconsideration Filed By The
Intervenors, dated March 2, 1999; are all DENIED with FINALITY.
No further motion, pleading, or paper will be entertained in this
case.

SO ORDERED.

G.R. No. 152430 March 22, 2007

SAMAHANG MAGSASAKA NG 53 HEKTARYA, represented by ELVIRA M.

BALADAD, Petitioner,
vs.
WILFREDO G. MOSQUERA, ROSARIO R. ROMAN, DANILO M. RELUCIO, and EDGARDO V.
GUEVARRA,Respondents.

DECISION

VELASCO, JR., J.:

This is an appeal to the Court under Rule 45 of the December 14, 2001 Decision1 of the Court of
Appeals (CA) in CA-G.R. SP No. 62583, affirming the Resolutions of the Office of the President (OP)
in OP Case No. 96-116582, and exempting respondents’ 53-hectare land from the Comprehensive
Agrarian Reform Program (CARP) coverage. Also challenged is the CA’s February 26, 2002
Resolution2 rejecting petitioner’s plea for reconsideration of the CA Decision now under review.

The Facts

Petitioner Samahang Magsasaka ng 53 Hektarya (Samahan) is an association of farmer-

beneficiaries duly recognized by the Department of Agrarian Reform (DAR). Petitioner alleged that
its members had been cultivating the disputed land of the case for many years prior to the effectivity
of Republic Act No. (R.A.) 6657, otherwise known as the "Comprehensive Agrarian Reform Law"
(CARL).3 Respondents Wilfredo G. Mosquera, Rosario R. Roman, Danilo M. Relucio, and Edgardo
V. Guevarra, on the other hand, are the registered owners of three parcels of land covered by
Transfer Certificate of Title Nos. T-267409, T-267410, and T-267411, which have an aggregate area
of 53.1164 hectares located in Macabud, Rodriguez (formerly Montalban), Rizal.4 The disputed land
was previously owned by Philippine Suburban Development Corporation which planned to develop it
as a residential subdivision. In 1979, it was sold to Vinebel Realties, Inc. through an extrajudicial
foreclosure sale. Petitioner alleged that in 1994, the landholding was sold to respondents without
any DAR clearance, in violation of Section 6-D of CARL.5

On July 7, 1994, the Municipal Agrarian Reform Officer (MARO) of Rodriguez, Rizal issued a Notice
of Coverage to the disputed land. On February 21, 1995, respondents applied for exemption from
the coverage of CARL based on its provision in Sec. 10, that is, the property is above 18% slope and
unfit for cultivation.6 In support of the application, respondents presented the certification from Ruben
A. Cabreira, Deputy Land Inspector, Community Environment and Natural Resources Office,
Antipolo, Rizal, certifying that the land was partly developed, sporadically planted with mangoes,
guava, and other seasonal crops, and with over 18% slope. On March 31 and August 7, 1995,7 the
Regional Director of DAR-Region IV denied respondents’ application and Motion for
Reconsideration, respectively. On August 24, 1995, respondents appealed the two Orders of the
Regional Director to the DAR Secretary. On April 19 and July 9, 1996, Sec. Ernesto D. Garilao
denied the appeal and respondents’ Motion for Reconsideration, respectively.8 In his April 19, 1996
Order, Sec. Garilao stated:

A review of all the ocular inspection / field investigation reports submitted by DAR personnel
concerned (from the municipal to the central office) reveals that the subject properties have been
consistently described as suitable to agriculture. Except for the investigation report (dated December
20, 1995) submitted by the Legal Officer of BALA tasked to inspect the subject properties, all the
ocular inspection teams which inspected/investigated the area recommended for the coverage under
CARP of the subject properties on the ground of the subject properties’ suitability for agriculture and
present agricultural development.

xxxx

As for the apparently conflicting certifications issued by the Community Environment and Natural
Resources office (CENRO) of Antipolo, Rizal, on different dates, it is the view of this Office that there
is actually no conflict between the two certifications. This is so because the certification issued by
Deputy Land Inspector Ruben A. Cabreira on October 21, 1994 refers only to one of the three lots
subject of the instant petition (the lot which used to be covered by TCT No. N-49174 with an area of
16.2204 has.). x x x The certification issued by Geodetic Engineer III Romulo G. Unciano on January
25, 1995 on the other hand pertains to all the lots subject of the instant petition, which were
described to be "partly rolling and agricultural in nature," and "…planted to fruit-bearing trees." These
two certifications, instead of coming into conflict with one another, actually complement each other,
the first one being a part of the other. Even assuming arguendo that they are in conflict, it is
submitted that between the two certifications, the second one should prevail since it is not only the
latest, [but] it is also more complete as it refers to all the lots subject of the instant petition.9

On appeal to the OP, Executive Secretary Ruben D. Torres set aside the DAR Secretary’s Orders
and exempted the property from the CARL coverage through his June 25, 1997
Resolution.10 Petitioner and the DAR subsequently filed a Motion for Reconsideration. In the
meantime, the Department of Agriculture (DA), through the Bureau of Soil and Water Management,
sent two missions to conduct fieldwork and validate the actual development in the disputed land. The
findings of these missions were allegedly contained in a report transmitted by Secretary Salvador
Escudero III (Escudero Report) to Pres. Fidel V. Ramos. In sum, the Escudero Report
recommended that the disputed land be exempted from conversion since the general area of the
land, including areas with 18% slope, was physically occupied and actively used for intensive and
diversified farming.

On August 14, 1998, the OP denied petitioner’s Motion for Reconsideration.11 On September 23,
1998, petitioner, through Elvira M. Baladad, and the DAR jointly filed a second Motion for
Reconsideration which was denied by the OP in its December 22, 2000 Resolution.12

Petitioner appealed the Resolutions of the OP to the CA through Rule 43 of the 1997 Rules of Civil
Procedure. Petitioner identified the OP’s errors, as follows:

1) rejecting the findings of the DAR that the subject landholding was already agriculturally
developed at the time of effectivity of the CARL and suitable for agricultural purposes;
 2) ignoring the findings of the DA contained in the Escudero Report on the ground that this
report was not signed by Sec. Salvador Escudero III himself;

3) holding that the disputed land has more than 18% slope on the basis of a certification
issued by a personnel from the Department of Environment and Natural Resources, who was
neither authorized nor competent to make such determination;

4) disregarding the certification of the MARO of Rodriguez, Rizal that the landholding was
highly agricultural and suitable for cultivation for permanent and seasonal crops; and

5) relying on the certifications of the Municipal Development Coordinator, Housing and Land
Use Regulatory Board, Provincial Irrigation Office, and the Municipal Assessor as bases for
granting the exemption applied for, which are irrelevant for purposes of determining
agricultural development and suitability under Sec. 10 of R.A. 6657.13

The Ruling of the Court of Appeals

The CA ruled that the petitioner was not a real party-in-interest and had no legal standing to sue.
The appellate court held, thus:

Applying the foregoing standards in the case at bar, there is no question petitioner lacks the legal
standing to raise the instant appeal. This conclusion finds support in the later case of Fortich vs.
Corona, 289 SCRA 624 [1998] x x x

xxxx

Having resolved that the petitioner, not being actual grantee of the land but mere qualified
beneficiary, has no legal standing to sue and is not the real party in interest. Neither will it be directly
affected by the assailed resolutions rendered by the Office of the President. Consequently, petitioner
has no personality to file the instant appeal. Besides, petitioner is not a juridical person
and apropos not equipped with legal personality to sue or be sued. As a consequence, the authority
of Elvira M. Baladad in filing this case for the petitioner will likewise be baseless.14

The CA further held that respondents never waived their right to question petitioner’s legal standing,
because, in fact, they raised the issue in the CA; and that they could not be expected to raise the
issue in the OP since they obtained a favorable judgment. On the exemption of the land from CARL,
the CA found that the OP’s Resolution was supported by substantial evidence; hence, the CA did not
substitute the OP’s findings of fact.15

Petitioner’s January 17, 2002 Motion for Reconsideration was then denied by the CA in its February
26, 2002 Resolution.

The Issues

The parties submit the following issues for our resolution:

WHETHER OR NOT PETITIONERS ARE REAL PARTIES-IN-INTEREST IN THIS CASE

WHETHER OR NOT THE SUBJECT LANDHOLDING MAY BE EXEMPTED FROM THE

COVERAGE OF THE COMPREHENSIVE AGRARIAN REFORM
WHETHER OR NOT THE PETITION RAISES ONLY QUESTIONS OF FACT

Petitioner argues that the CA committed serious error in holding that it lacked the legal standing to
file an appeal from the OP. It contends that its members, the Macabud farmers, are entitled to the
distribution of the land based on Sec. 22 of the CARL, to wit:

Sec. 22. Qualified Beneficiaries.—The lands covered by the CARP shall be distributed as much as
possible to landless residents of the same barangay, or in the absence thereof, landless residents of
the same municipality in the following order of priority:

(a) agricultural lessees and share tenants;

(b) regular farm workers;
(c) seasonal farm workers;
(d) other farm workers;
(e) actual tillers or occupants of public lands;
(f) collective or cooperatives of the above beneficiaries; and
(g) others directly working on the land.

Petitioner further argues that Fortich v. Corona, cited by the appellate court, did not rule that
qualified beneficiaries are not real parties-in-interest. Petitioner pointed out that the Court’s
pronouncement regarding legal standing was allegedly mere dictum since the crux of the
controversy was whether the OP can still modify its own decision which had already attained finality;
and that the Court found in Fortich that the farmers were merely recommendee farmer-beneficiaries
in contrast to the Macabud farmers in the present case who are qualified and approved farmer-
beneficiaries of the disputed land––the fact of which is supported by the certification issued by the
MARO. Petitioner believes that being identified as CARP beneficiaries entitles the farmers to
usufructuary rights over the land under DAR rules, to wit:

2. Upon verification and validation based on the Application for Purchase and Farmers Undertakings
(FUs), [the MARO shall] inform the qualified ARBs or the Farmers Cooperative/Association, as the
case may be, that they have been identified to receive the land to give them usufructuary right over
the property (CARP Form No. 19)16

Petitioner argues that the foregoing rule, when read in conjunction with Article 562 of the Civil Code,
gives them a right over the land which can be injured by a judgment of exemption from CARP. It
claims that Certificates of Land Ownership Award (CLOAs) were already generated in the Macabud
farmers’ names by the Provincial Agrarian Reform Officer of Rizal, but were not issued to them in
view of the instant case. Also, petitioner contends that respondents are now estopped from raising
the issue of legal standing in view of their failure to question the same issue at the earliest
opportunity, that is, before the OP.17

Lastly, since petitioner relies on the findings of the DA regarding the suitability of the land for
agriculture for the purpose of the CARP, it then imputes error on the CA for holding that the DA had
no authority to make such a determination.

The Court’s Ruling

The petition should be dismissed.

The peculiar circumstances of this case should be noted. This petition originated from an application
for exemption from CARP which was filed by the respondents before the Regional Director of the
DAR. Petitioner entered the picture when the DAR’s Orders were reversed by the OP. Petitioner’s
lack of capacity to intervene in the case may not have been an issue before the OP since in
administrative cases, technical rules of procedure are not strictly applied. In fact, Sec. 50 of R.A.
6657 expressly allows farmer leaders to "represent themselves, their fellow farmers, or their
organization in any proceedings before the DAR." This right of representation generally continues in
appeals in congruence with the provisions of Rule 3 of the Revised Rules of Court, specifically:

SECTION 1. Who may be parties; plaintiff and defendant.—Only natural or juridical persons, or
entities authorized by law may be parties in a civil action. x x x

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. x x x

R.A. 6657 allows farmer leaders like Elvira Baladad to represent the Macabud farmers or their
Samahan in the proceedings before the DAR. The law, however, should be harmonized with the
provisions of the Rules of Court. Assuming that the Macabud farmers are real parties-in-interest as
defined by Sec. 2 of Rule 3, the appeal may be brought by their representative since such is allowed
by R.A. 6657. The action may then be brought by 1) the organization represented by its authorized
representative (Sec. 1) OR 2) the representative with the beneficiaries identified in the title of the
case (Sec. 3). In the first option, the organization should be duly registered in order to be clothed
with juridical personality (Sec. 1). Admittedly, petitioner Samahan is not registered with the
Securities and Exchange Commission. Thus, it is not a juridical person which can be a party in a
case. The Rules of Court, however, does not prevent the Macabud farmers from filing an appeal
since an action may be instituted in the name of their representative with each farmer-beneficiary
identified in the title of the case in accordance with Sec. 3 of Rule 3. Unfortunately, petitioner also
failed to comply with this simple requirement. The petition was brought by the unregistered Samahan
represented by Elvira Baladad without mentioning the members of it. On this score, the petition can
already be dismissed.

More importantly, petitioner is not a real party-in-interest in this case. According to Sec. 2 of Rule 3
of the Rules of Court, a real party-in-interest is the party who stands to be benefited or injured by the
judgment in the suit or the party entitled to the avails of the suit. We stand by the ruling in Fortich v.
Corona18 that farmer-beneficiaries, who are not approved awardees of CARP, are not real parties-in-
interest. In Fortich, the farmers who intervened in the case were mere recommendees. We stated in
said case that:

The rule in this jurisdiction is that a real party in interest is a party who would be benefited or injured
by the judgment or is the party entitled to the avails of the suit. Real interest means a present
substantial interest, as distinguished from a mere expectancy or a future, contingent, subordinate or
consequential interest. Undoubtedly, movants’ interest over the land in question is a mere
expectancy. Ergo, they are not real parties in interest.19

In the case at bar, members of petitioner Samahan are mere qualified beneficiaries of CARP. The
certification that CLOAs were already generated in their names, but were not issued because of the
present dispute, does not vest any right to the farmers since the fact remains that they have not yet
been approved as awardees, actually awarded lands, or granted CLOAs. Respondents cannot be
considered estopped from questioning petitioner’s legal standing since petitioner appeared before
the OP after the latter decided in respondents’ favor. When the petitioner appealed the case to the
CA, respondents duly questioned the petitioner’s capacity to sue.

It is only unfortunate that petitioner failed to comply with basic procedural requirements. We must
again emphasize that these procedural requisites were promulgated to ensure fairness and orderly
administration of justice. While the Court sometimes disregards the rules of procedure in the interest
of justice, we find that the present case does not merit such leniency. The requirement that a party
must have real interest in the case is essential in the administration of justice. Thus, having resolved
that the respondents have no legal standing to sue and are not the real parties-in-interest, we find no
more necessity to take up the other issues.

WHEREFORE, we AFFIRM IN TOTO the December 14, 2001 Decision and the February 26, 2002
Resolution of the CA, with no costs.

SO ORDERED.

[G.R. No. L-5458. October 5, 1910. ]

BONIFACIO POBRE ET AL., Plaintiffs-Appellees, v. ISMAEL BLANCO, Defendant-Appellant.

Nicolas Segundo, for Appellant.

B. Pobre, for Appellees.

SYLLABUS

1. NECESSARY PARTIES. — When it appears of record that there are other persons interested in the land in
litigation, who are not made the trial until such necessary parties are made either plaintiffs or defendants.

DECISION

JOHNSON, J. :

On the 13th of July, 1908, Bonifacio Pobre commenced an action in the Court of First Instance of the
Province of Ilocos Norte against the defendant, Ismael Blanco, for the purpose of recovering the possession
of three parcels of land described in the first paragraph of the complaint, together with the produce of said
land, until the termination of the action.

To this complaint the defendant filed a general and special answer. In the special answer the defendant
claimed that he, together with others, was the owner of the land in question

On the 5th of January, 1909, the plaintiff, Bonifacio Pobre, filed an amended complaint, in which Tomasa
Blanco, Engracia Blanco, and Teresa Blanco were also made plaintiffs. The amended complaint also
contained parcels of land not described in the original complaint.

After hearing the evidence adduced during the trial of the cause, the lower court rendered a decision in favor
the plaintiff and against the defendant, declaring that the plaintiffs were the owners of the land in question.

After making a motion for a new trial, which was denied and an exception taken to the ruing thereon, the
defendant appealed and made several assignments of error.

From an examination of the record brought to this court, the fact is disclosed that the plaintiffs claim the
land in question by virtue of inheritance from Victor Blanco and Agustina Abrenica, who were husband and
wife, both of whom died some years before the commencement of the present action. During the marriage
of Victor Blanco and Agustina Abrenica, there were born to them four daughters, Tomasa, Engracia, Irene
and Teresa. Irene was married to the plaintiff, Bonifacio Pobre. Bonifacio Pobre and Irene, during their
marriage had three children, called Isidro, Pedro and Prudencia. The record does not show the date of her
death. Bonifacio Pobre, as plaintiff, represented his three children, Isidro, Pedro and Prudencia. There is
nothing in the record which shows by what authority he was representing his minor children. There is
nothing to show that he had been appointed by the court as guardian of the estate of such minor children.
Without such appointment he was without authority to present them in this litigation. (Sec. 553, Code of
Procedure in Civil Actions.) Bonifacio Pobre admitted during the trial of the cause that his intervention was
on behalf of his children.

From the amended answer of the defendant it appears that Antero de los Reyes, Alaide Duque, Estanislao
Duque, Miguel Duque, Juana Quebral, Victor Blanco, Doroteo Blanco, Leoncio Blanco, Bernardino
Sadumiano, Ismael Blanco, and Victor Blanco were interested parties and were alleged to be the owners of a
portion of the land in question. When it appeared of record that there were other persons interested in the
land in question who were not parties to the action, it was the duty of the lower court to suspend the trial
until such persons were made parties, either plaintiff or defendant. All persons having an interest in the
subject of the action and in obtaining the relief demanded shall be joined as parties, either plaintiff or
defendant. If those who are interested with the other plaintiffs shall refuse to join as plaintiffs, then such
persons should be made parties defendant. (See sec. 114, Code of Procedure in Civil Actions.)

Under the facts as they appear of record, it is impossible to determine who is entitled to the land in
question. The judgment of the lower court is, therefore, hereby reversed and the record is hereby ordered to
be returned to the lower court, with direction (if the parties desire to continue the litigation) that all of the
persons interested in the land in question be made parties either as plaintiffs or defendants, and without any
finding as to costs, it is so ordered.

Arellano, C.J., Torres, Moreland, and Trent, JJ., concur.

[G.R. Nos. L-14059-62. September 30, 1959.]

THE PEOPLE OF THE PHILIPPINES, ET AL., Petitioners, v. HON. JOSE S. RODRIGUEZ, ETC., ET
AL., Respondents.

City Fiscal of Cebu, Jose L. Abad and Asst. City Fiscal Dominador J. Abella, for Petitioners.

Municipal Judge Joaquin T. Maambong for Respondents.

SYLLABUS

1. PRELIMINARY INVESTIGATION; PROHIBITION TO CONDUCT INVESTIGATION; FAILURE TO INCLUDE

INDISPENSABLE PARTY. — In a petition for prohibition to prevent the municipal judge from conducting the
preliminary investigation of certain criminal cases, the accused, who had asked for such investigation, is an
ididspensable party. The failure to include him as party defendant in the case is a ground for dismissal of the
petition.

DECISION

BENGZON, J.:
The Fiscal and his assistant of Cebu City seek to prevent the respondent Municipal Judge of the same city
from conducting the preliminary investigation of certain criminal cases.

They allege that after conducting a preliminary investigation in which the accused Florentino C. Rafols duly
assisted by counsel was present and was given the right to cross-examine the witnesses against him and to
present evidence in his favor, they found sufficient cause for prosecution and filed against him four
informations for estafa through falsification of public documents in the court of first instance of Cebu; that
the accused was arrested, but presented bail bonds for his temporary liberty; that subsequently, said
accused submitted in said four cases a motion praying that they be referred to the Municipal Court of Cebu
City for preliminary investigation proper; that the herein petitioner opposed the motion, contending that
under the Cebu City Charter (Commonwealth Act 58) the defendant was not entitled, as of right, to a
preliminary investigation, and that anyway, the City Fiscal’s Office had already conducted it, as herein
previously stated; and that the Cebu court of first instance overruling their opposition, referred the cases to
the municipal court of the city for preliminary investigation.

They further allege that after failing in a motion to reconsider, they tried to persuade the municipal judge to
refrain from conducting "another" preliminary investigation; but the latter declined to be so persuaded and
scheduled the criminal cases for preliminary investigation.

Petitioners ask for prohibition to inhibit the municipal court, and mandamus to compel the return of the
cases to the court of first instance for trial.

Required to answer, the respondent municipal judge set up two lines of defense: (1) he was merely
complying with the order of the court of first instance; and (2) the court of first instance had the power to
order in the interest of justice, another preliminary investigation, and in so doing, it may require the
municipal judge, instead of the fiscal, to perform the work.

The other respondent made no answer.

On November 5, 1958, this petition was called for hearing, nobody appeared, and the matter was submitted
without oral argument or written memoranda.

Upon taking up the record for decision, we find that the petition should be dismissed because the
petitioners, disregarding sec. 5 of Rule 67, failed to join as party defendant the person interested in
sustaining the proceeding in the courts, namely, the accused Florentino C. Rafols. It was he who asked for
such investigation in the municipal court; he was interested in sustaining the actuations of both judges.

Said section reads as follows:chan rob1es v irt ual 1aw li bra ry

SEC. 5. Defendants and costs in certain cases. When the petition filed relates to the acts or omissions of a
court or judge, the petitioner shall join, as parties defendant with such court or judge, the person or persons
interested in sustaining the proceedings in the court; and it shall be the duty of such person or persons to
appear and defend, both in his or their own behalf and in behalf of the court or judge affected by the
proceedings, and costs awarded such proceedings in favor of the petitioner shall be against the person or
persons in interest only, and not against the court or judge."

It is fairly evident that the accused Rafols is indispensable party in this case. In fact, he is the most
interested party. The judges are more or less nominal parties. So much so that one of them did not defend
himself, expecting the said Rafols to sustain the order issued at his own request. Not having been impleaded
and not having had his day in court, Rafols could rightly complain if the cause be decided without his
intervention.

When an indispensable party is not before the court, the action should be dismissed. 1

Supposing that under sec. 11, Rule 3, we have discretion to order Rafols’ inclusion as party, we do not feel
justified to do so because a new delay (answer, oral argument, etc.) would be inconsistent with his right as
accused, to speedy trial, and because, anyway, no irreparable harm accrues to the interest of the People
from the new investigation. 2 Apart from the additional question whether the order being interlocutory in
nature, the prosecution could by special civil action, resort to restraining measures without waiting for the
outcome, which if it performed its duty (investigated properly), it should expect to be favorable.
The petition is dismissed. No costs.

Paras, C.J., Padilla, Montemayor, Bautista Angelo, Labrador, Concepcion, Endencia, Barrera and Guteerrez
David, JJ., concur.

G.R. No. L-22909 January 28, 1925

VICTORIANO BORLASA, ET AL., plaintiffs-appellants,

vs.
VICENTE POLISTICO, ET AL., defendants-appellees.

Sumulong and Lavides for appellants.

Ramon Diokno for appellees.

STREET, J.:

This action was instituted in the Court of First Instance of Laguna on July 25, 1917, by Victoriano
Borlasa and others against Vicente Polistico and others, chiefly for the purpose of securing the
dissolution of a voluntary association named Turuhan Polistico & Co., and to compel the defendants
to account for and surrender the money and property of the association in order that its affairs may
be liquidated and its assets applied according to law. The trial judge having sustained a demurrer for
defect of parties and the plaintiffs electing not to amend, the cause was dismissed, and from this
order an appeal was taken by the plaintiffs to this court.

The material allegations of the complaint, so far as affects the present appeal, are to the following
effect: In the month of April, 1911, the plaintiffs and defendants, together with several hundred other
persons, formed an association under the name of Turuhan Polistico & Co. Vicente Polistico, the
principal defendant herein, was elected president and treasurer of the association, and his house in
Lilio, Laguna, was made its principal place of business. The life of the association was fixed at fifteen
years, and under the by-laws each member obligated himself to pay to Vicente Polistico, as
president-treasurer, before 3 o'clock in the afternoon of every Sunday the sum of 50 centavos,
except that on every fifth Sunday the amount was P1, if the president elected to call this amount, as
he always did. It is alleged that from April, 1911, until April, 1917, the sums of money mentioned
above were paid weekly by all of the members of the society with few irregularities. The inducement
to these weekly contributions was found in provisions of the by-laws to the effect that a lottery should
be conducted weekly among the members of the association and that the successful member should
be paid the amount collected each week, from which, however, the president-treasurer of the society
was to receive the sum of P200, to be held by him as funds of the society.

It is further alleged that by virtue of these weekly lotteries Vicente Polistico, as president-treasurer of
the association, received sums of money amounting to P74,000, more or less, in the period stated,
which he still retains in his power or has applied to the purchase of real property largely in his own
name and partly in the names of others. The defendants in the complaint are the members of the
board of directors of the association, including Vicente Polistico, as president-treasurer, Alfonso
Noble, secretary, Felix Garcia and Vivencio Zulaybar, as promoter (propagandistas), and Afroniano
de la Peña and Tomas Orencia, as members (vocales) of the board.
In an amended answer the defendants raised the question of lack of parties and set out a list of
some hundreds of persons whom they alleged should be brought in as parties defendant on the
ground, among others, that they were in default in the payment of their dues to the association. On
November 28, 1922, the court made an order requiring the plaintiffs to amend their complaint within
a stated period so as to include all of the members of the Turnuhan Polistico & Co. either as plaintiffs
or defendants. The plaintiffs excepted to this order, but acquiesced to the extent of amending their
complaint by adding as additional parties plaintiff some hundreds of persons, residents of Lilio, said
to be members of the association and desirous of being joined as plaintiffs. Some of these new
plaintiffs had not been named in the list submitted by the defendants with their amended answer;
and on the other hand many names in said list were here omitted, it being claimed by the plaintiffs
that the persons omitted were not residents of Lilio but residents of other places and that their
relation to the society, so far as the plaintiffs could discover, was fictitious. The defendants demurred
to the amended complaint on the ground that it showed on its face a lack of necessary parties and
this demurrer was sustained, with the ultimate result of the dismissal of the action, as stated in the
first paragraph of this opinion.

The trial judge appears to have supposed that all the members of the Turnuhan Polistico &
Co. should be brought in either plaintiffs or defendants. This notion is entirely mistaken. The situation
involved is precisely the one contemplated in section 118 of the Code of Civil Procedure, where one
or more may sue for the benefit of all. It is evident from the showing made in the complaint, and from
the proceedings in the court below, that it would be impossible to make all of the persons in interest
parties to the cases and to require all of the members of the association to be joined as parties
would be tantamount to a denial of justice.

The general rule with reference to the making of parties in a civil action requires, of course, the
joinder of all necessary parties wherever possible, and the joinder of all indispensable parties under
any and all conditions, the presence of those latter being a sine qua non of the exercise of judicial
power. The class suit contemplates an exceptional situation where there are numerous persons all in
the same plight and all together constituting a constituency whose presence in the litigation is
absolutely indispensable to the administration of justice. Here the strict application of the rule as to
indispensable parties would require that each and every individual in the class should be present.
But at this point the practice is so far relaxed as to permit the suit to proceed, when the class is
sufficient represented to enable the court to deal properly and justly with that interest and with all
other interest involved in the suit. In the class suit, then, representation of a class interest which will
be affected by the judgment is indispensable; but it is not indispensable to make each member of the
class an actual party.

A common illustration in American procedure of the situation justifying a class suit is that presented
by the creditors' bill, which is filed by one party interested in the estate of an insolvent, to secure the
distribution of the assets distributable among all the creditors. In such cases the common practice is
for one creditor to sue as plaintiff in behalf of himself and other creditors. (Johnson vs. Waters, 111
U.S., 640; 28 Law. ed., 547.) Another illustration is found in the case of Smith vs. Swormstedt (16
How., 288; 14 Law. ed., 942), where a limited number of individuals interested in a trust for the
benefit of superannuated preachers were permitted to maintain an action in their own names and as
representatives of all other persons in the same right.

His Honor, the trial judge, in sustaining this demurrer was possibly influenced to some extent by the
case of Rallonza vs. Evangelista (15 Phil., 531); but we do not consider that case controlling,
inasmuch as that was an action for the recovery of real property and the different parties in interest
had determinable, though undivided interests, in the property there in question. In the present case,
the controversy involves an indivisible right affecting many individuals whose particular interest is of
indeterminate extent and is incapable of separation.
The addition of some hundreds of persons to the number of the plaintiffs, made in the amendment to
the complaint of December 13, 1922, was unnecessary, and as the presence of so many parties is
bound to prove embarrassing to the litigation from death or removal, it is suggested that upon the
return of this record to the lower court for further proceedings, the plaintiff shall again amend their
complaint by dismissing as to unnecessary parties plaintiffs, but retaining a sufficient number of
responsible persons to secure liability for costs and fairly to present all the members of the
association.

There is another feature of the complaint which makes a slight amendment desirable, which is, that
the complaint should be made to show on its face that the action is intended to be litigated as a class
suit. We accordingly recommend that the plaintiffs further amend by adding after the names of the
parties plaintiffs the words, "in their own behalf and in behalf of other members of Turuhan Polistico
& Co."

The order appealed from is reversed, the demurrer of the defendants based upon supposed lack of
parties is overruled, and the defendants are required to answer to the amended complaint within the
time allowed by law and the rules of the court. The costs of this appeal will be paid by the
defendants. So ordered.

Johnson, Malcolm, Villamor, Ostrand, Johns, and Romualdez, JJ., concur.

G.R. No. 161237 January 14, 2009

PERFECTO MACABABBAD, Jr.,* deceased, substituted by his heirs Sophia Macababbad,

Glenn M. Macababbad, Perfecto Vener M. Macababbad III and Mary Grace Macababbad,
and SPS. CHUA SENG LIN AND SAY UN AY, petitioners
vs.
FERNANDO G. MASIRAG, FAUSTINA G. MASIRAG, CORAZON G. MASIRAG,
LEONOR G. MASIRAG, and LEONCIO M. GOYAGOY, respondent

FRANCISCA MASIRAG BACCAY, PURA MASIRAG FERRER-MELAD, AND SANTIAGO

MASIRAG, Intervenors- Respondents.

DECISION

BRION, J.:

Before us is the Petition for Review on Certiorari filed by Perfecto Macababbad, Jr.1 (Macababbad)
and the spouses Chua Seng Lin (Chua) and Say Un Ay (Say) (collectively called the petitioners),
praying that we nullify the Decision2of the Court of Appeals (CA) and the Resolution3 denying the
motion for reconsideration that followed. The assailed decision reversed the dismissal Order4 of the
Regional Trial Court (RTC), Branch 4, Tuguegarao City, Cagayan, remanding the case for further
trial.

BACKGROUND

On April 28, 1999, respondents Fernando Masirag (Fernando), Faustina Masirag (Faustina),
Corazon Masirag (Corazon), Leonor Masirag (Leonor) and Leoncio Masirag Goyagoy (Leoncio)
(collectively called the respondents), filed with the RTC a complaint5 against Macababbad, Chua and
Say.6 On May 10, 1999, they amended their complaint to allege new matters.7 The respondents
alleged that their complaint is an action for:

quieting of title, nullity of titles, reconveyance, damages and attorney’s fees8 against the
defendants [petitioners here] x x x who cabal themselves in mala fides of badges of fraud
dishonesty, deceit, misrepresentations, bad faith, under the guise of purported instrument,
nomenclature “EXTRA-JUDICIAL SETTLEMENT WITH SIMULTANEOUS SALE OF PORTION OF
REGISTERED LAND (Lot 4144)”, dated December 3, 1967, a falsification defined and penalized
under Art. 172 in relation to Art. 171, Revised Penal Code, by “causing it to appear that persons (the
plaintiffs herein [the respondents in this case]) have participated in any act or proceeding when they
(the plaintiffs herein [the respondents in this case]) did not in fact so participate” in the “EXTRA-
JUDICIAL SETTLEMENT WITH SIMULTANEOUS SALE OF PORTION OF REGISTERED LAND
(Lot 4144” – covered by Original Certificate of Title No. 1946) [sic].9

The amended complaint essentially alleged the following:10

The deceased spouses Pedro Masirag (Pedro) and Pantaleona Tulauan (Pantaleona) were the
original registered owners of Lot No. 4144 of the Cadastral Survey of Tuguegarao (Lot No. 4144), as
evidenced by Original Certificate of Title (OCT) No. 1946.11 Lot No. 4144 contained an area of 6,423
square meters.

Pedro and Pantaleona had eight (8) children, namely, Valeriano, Domingo, Pablo, Victoria, Vicenta,
Inicio, Maxima and Maria. Respondents Fernando, Faustina, Corazon and Leonor Masirag are the
children of Valeriano and Alfora Goyagoy, while Leoncio is the son of Vicenta and Braulio Goyagoy.
The respondents allegedly did not know of the demise of their respective parents; they only learned
of the inheritance due from their parents in the first week of March 1999 when their relative, Pilar
Quinto, informed respondent Fernando and his wife Barbara Balisi about it. They immediately hired
a lawyer to investigate the matter.

The investigation disclosed that the petitioners falsified a document entitled “Extra-judicial
Settlement with Simultaneous Sale of Portion of Registered Land (Lot 4144) dated December 3,
1967”12 (hereinafter referred to as the extrajudicial settlement of estate and sale) so that the
respondents were deprived of their shares in Lot No. 4144. The document purportedly bore the
respondents’ signatures, making them appear to have participated in the execution of the document
when they did not; they did not even know the petitioners. The document ostensibly conveyed the
subject property to Macababbad for the sum of P1,800.00.13 Subsequently, OCT No. 1946 was
cancelled and Lot No. 4144 was registered in the names of its new owners under Transfer
Certificate of Title (TCT) No. 13408,14 presumably after the death of Pedro and Pantaleona.
However, despite the supposed sale to Macababbad, his name did not appear on the face of TCT
No. 13408.15 Despite his exclusion from TCT No. 13408, his “Petition for another owner’s duplicate
copy of TCT No. 13408,” filed in the Court of First Instance of Cagayan, was granted on July 27,
1982.16

Subsequently, Macababbad registered portions of Lot No. 4144 in his name and sold other portions
to third parties.17

On May 18, 1972, Chua filed a petition for the cancellation of TCT No. T-13408 and the issuance of
a title evidencing his ownership over a subdivided portion of Lot No. 4144 covering 803.50 square
meters. On May 23, 1972, TCT No. T-18403 was issued in his name.18

Based on these allegations, the respondents asked: (1) that the extrajudicial settlement of estate
and sale be declared null and void ab initio and without force and effect, and that Chua be ordered
and directed to execute the necessary deed of reconveyance of the land; if they refuse, that the
Clerk of Court be required to do so; (2) the issuance of a new TCT in respondents’ name and the
cancellation of Macababbad’s and Chua’s certificates of title; and (3) that the petitioners be ordered
to pay damages and attorney’s fees.

Macababbad filed a motion to dismiss the amended complaint on July 14, 1999, while Chua and Say
filed an “Appearance with Motion to Dismiss” on September 28, 1999.

On December 14, 1999, the RTC granted the motion of Francisca Masirag Baccay, Pura Masirag
Ferrer-Melad, and Santiago Masirag for leave to intervene and to admit their complaint-in-
intervention. The motion alleged that they have common inheritance rights with the respondents over
the disputed property.

THE RTC RULING

The RTC, after initially denying the motion to dismiss, reconsidered its ruling and dismissed the
complaint in its Order19 dated May 29, 2000 on the grounds that: 1) the action, which was filed
32 years after the property was partitioned and after a portion was sold to Macababbad, had
already prescribed; and 2) there was failure to implead indispensable parties, namely, the
other heirs of Pedro and Pantaleona and the persons who have already acquired title to
portions of the subject property in good faith.20

The respondents appealed the RTC’s order dated May 29, 2000 to the CA on the following grounds:

THE COURT A QUO ERRED IN DISMISSING THE CASE

II

THE COURT A QUO ERRED IN INTERPRETING THE NATURE OF APPELLANTS’ CAUSE OF

ACTION AS THAT DESIGNATED IN THE COMPLAINT’S TITLE AND NOT IN (SIC) THE
ALLEGATIONS IN THE COMPLAINT21

The petitioners moved to dismiss the appeal primarily on the ground that the errors the respondents
raised involved pure questions of law that should be brought before the Supreme Court via a petition
for review on certiorari under Rule 45 of the Rules of Court. The respondents insisted that their
appeal involved mixed questions of fact and law and thus fell within the purview of the CA’s
appellate jurisdiction.

THE CA DECISION22

The CA ignored23 the jurisdictional issue raised by the petitioners in their motion to dismiss, took
cognizance of the appeal, and focused on the following issues: 1) whether the complaint stated a
cause of action; and 2) whether the cause of action had been waived, abandoned or
extinguished.

The appellate court reversed and set aside the RTC’s dismissal of the complaint. On
the first issue, it ruled that the complaint “carve(d) out a sufficient and adequate cause of action xxx.
One can read through the verbosity of the initiatory pleading to discern that a fraud was committed
by the defendants on certain heirs of the original owners of the property and that, as a result, the
plaintiffs were deprived of interests that should have gone to them as successors-in-interest of these
parties. A positive deception has been alleged to violate legal rights. This is the ultimate essential
fact that remains after all the clutter is removed from the pleading. Directed against the defendants,
there is enough to support a definitive adjudication.”24

On the second issue, the CA applied the Civil Code provision on implied trust, i.e., that a person who
acquires a piece of property through fraud is considered a trustee of an implied trust for the benefit
of the person from whom the property came. Reconciling this legal provision with Article 1409 (which
defines void contracts) and Article 1410 (which provides that an action to declare a contract null and
void is imprescriptible), the CA ruled that the respondents’ cause of action had not prescribed,
because “in assailing the extrajudicial partition as void, the [respondents] have the right to bring the
action unfettered by a prescriptive period.”25

THE PETITION FOR REVIEW ON CERTIORARI

The Third Division of this Court initially denied26 the petition for review on certiorari for the petitioners’
failure to show any reversible error committed by the CA. However, it subsequently reinstated the
petition. In their motion for reconsideration, the petitioners clarified the grounds for their petition, as
follows:

A. THE HONORABLE COURT OF APPEALS DID NOT HAVE JURISDICTION TO PASS UPON
AND RULE ON THE APPEAL TAKEN BY THE RESPONDENTS IN CA-GR CV NO. 68541.27

In the alternative, ex abundanti cautela, the petitioners alleged other reversible errors summarized
as follows: 28

 The RTC dismissal on the ground that indispensable parties were not impleaded has already
become final and executory because the CA did not pass upon this ground;29
 The respondents' argument that there was no failure to implead indispensable parties since
the other heirs of Pedro and Pantaleona who were not impleaded were not indispensable
parties in light of the respondents' admission that the extra-judicial settlement is valid with
respect to the other heirs who sold their shares to Perfecto Macababbad is erroneous
because innocent purchasers for value of portions of Lot 4144 who are also indispensable
parties were not impleaded; 30
 The CA erred in reconciling Civil Code provisions Article 1456 and Article 1410, in relation to
Article 1409;31
 The CA erred in saying that the Extra-judicial Partition was an inexistent and void contract
because it could not be said that none of the heirs intended to be bound by the contract.32

The respondents argued in their Comment that:33

 The appeal was brought on mixed questions of fact and law involving prescription, laches
and indispensable parties;
 The non-inclusion of indispensable parties is not a ground to dismiss the claim
 The respondents’ action is not for reconveyance. Rather, it is an action to declare the sale of
their respective shares null and void;
 An action for the nullity of an instrument prescribes in four (4) years from discovery of the
fraud. Discovery was made in 1999, while the complaint was also lodged in 1999. Hence, the
action had not yet been barred by prescription;
 Laches had not set in because the action was immediately filed after discovery of the fraud.

OUR RULING
We find the petition devoid of merit.

Questions of Fact v. Questions of Law

A question of law arises when there is doubt as to what the law is on a certain state of facts while
there is a question of fact when the doubt arises as to the truth or falsity of the alleged facts.34 A
question of law may be resolved by the court without reviewing or evaluating the evidence.35 No
examination of the probative value of the evidence would be necessary to resolve a question of
law.36 The opposite is true with respect to questions of fact, which necessitate a calibration of the
evidence.37

The nature of the issues to be raised on appeal can be gleaned from the appellant’s notice of appeal
filed in the trial court and in his or her brief as appellant in the appellate court.38 In their Notice of
Appeal, the respondents manifested their intention to appeal the assailed RTC order on legal
grounds and “on the basis of the environmental facts.”39 Further, in their Brief, the petitioners argued
that the RTC erred in ruling that their cause of action had prescribed and that they had “slept on their
rights.”40 All these indicate that questions of facts were involved, or were at least raised, in the
respondents’ appeal with the CA.

In Crisostomo v. Garcia,41 this Court ruled that prescription may either be a question of law or fact; it
is a question of fact when the doubt or difference arises as to the truth or falsity of an allegation of
fact; it is a question of law when there is doubt or controversy as to what the law is on a given state
of facts. The test of whether a question is one of law or fact is not the appellation given to the
question by the party raising the issue; the test is whether the appellate court can determine the
issue raised without reviewing or evaluating the evidence. Prescription, evidently, is a question of
fact where there is a need to determine the veracity of factual matters such as the date when the
period to bring the action commenced to run.42

Ingjug-Tiro v. Casals,43 instructively tells us too that a summary or outright dismissal of an action is
not proper where there are factual matters in dispute which require presentation and appreciation of
evidence. In this cited case whose fact situation is similar to the present case, albeit with a very
slight and minor variation, we considered the improvident dismissal of a complaint based on
prescription and laches to be improper because the following must still be proven by the complaining
parties:

first, that they were the co-heirs and co-owners of the inherited property; second, that their co-
heirs-co-owners sold their hereditary rights thereto without their knowledge and consent; third, that
forgery, fraud and deceit were committed in the execution of the Deed of Extrajudicial Settlement
and Confirmation of Sale since Francisco Ingjug who allegedly executed the deed in 1967 actually
died in 1963, hence, the thumbprint found in the document could not be his; fourth, that Eufemio
Ingjug who signed the deed of sale is not the son of Mamerto Ingjug, and, therefore, not an heir
entitled to participate in the disposition of the inheritance; fifth, that respondents have not paid the
taxes since the execution of the sale in 1965 until the present date and the land in question is still
declared for taxation purposes in the name of Mamerto Ingjug, the original registered owner, as of
1998; sixth, that respondents had not taken possession of the land subject of the complaint nor
introduced any improvement thereon; and seventh, that respondents are not innocent purchasers
for value.

As in Ingjug-Tiro, the present case involves factual issues that require trial on the merits. This
situation rules out a summary dismissal of the complaint.

Proper Mode of Appeal

Since the appeal raised mixed questions of fact and law, no error can be imputed on the
respondents for invoking the appellate jurisdiction of the CA through an ordinary appeal. Rule 41,
Sec. 2 of the Rules of Court provides:

Modes of appeal.

(a) Ordinary appeal - The appeal to the Court of Appeals in cases decided by the Regional Trial
Court in the exercise of its original jurisdiction shall be taken by filing a notice of appeal with the
court which rendered the judgment or final order appealed from and serving a copy thereof upon the
adverse party.

In Murillo v. Consul,44 this Court had the occasion to clarify the three (3) modes of appeal from
decisions of the RTC, namely: (1) ordinary appeal or appeal by writ of error, where judgment was
rendered in a civil or criminal action by the RTC in the exercise of original jurisdiction, covered by
Rule 41; (2) petition for review, where judgment was rendered by the RTC in the exercise of
appellate jurisdiction, covered by Rule 42; and (3) petition for review to the Supreme Court under
Rule 45 of the Rules of Court. The first mode of appeal is taken to the CA on questions of fact or
mixed questions of fact and law. The second mode of appeal is brought to the CA on questions of
fact, of law, or mixed questions of fact and law. The third mode of appeal is elevated to the Supreme
Court only on questions of law.

Prescription

A ruling on prescription necessarily requires an analysis of the plaintiff’s cause of action based on
the allegations of the complaint and the documents attached as its integral parts. A motion to
dismiss based on prescription hypothetically admits the allegations relevant and material to the
resolution of this issue, but not the other facts of the case.45

Unfortunately, both the respondents’ complaint and amended complaint are poorly worded, verbose,
and prone to misunderstanding. In addition, therefore, to the complaint, we deem it appropriate to
consider the clarifications made in their appeal brief by the petitioners relating to the intent of their
complaint. We deem this step appropriate since there were no matters raised for the first time on
appeal and their restatement was aptly supported by the allegations of the RTC complaint. The
respondents argue in their Appellant’s Brief that:

x x x Although reconveyance was mentioned in the title, reconveyance of which connotes that there
was a mistake in titling the land in question in the name of the registered owner indicated therein, but
in the allegations in the body of the allegations in the body of the instant complaint, it clearly appears
that the nature of the cause of action of appellants, [sic] they wanted to get back their respective
shares in the subject inheritance because they did not sell said shares to appellee Perfecto
Macababbad as the signatures purported to be theirs which appeared in the Extrajudicial Settlement
with Simultaneous Sale of Portion of Registered Land (Lot 4144) were forged.

As appellants represented 2 of the 8 children of the deceased original owners of the land in question
who were Pedro Masirag and Pantaleona Talauan, the sale is perfectly valid with respect to the
other 6 children, and void ab initio with respect to the appellants.46

The respondents likewise argue that their action is one for the annulment of the extrajudicial
settlement of estate and sale bearing their forged signatures. They contend that their action had not
yet prescribed because an action to declare an instrument null and void is imprescriptible. In their
Comment to the petition for review, however, the respondents modified their position and argued
that the sale to the petitioners pursuant to the extrajudicial settlement of estate and sale was void
because it was carried out through fraud; thus, the appropriate prescription period is four (4) years
from the discovery of fraud. Under this argument, respondents posit that their cause of action had
not yet prescribed because they only learned of the extrajudicial settlement of estate and sale in
March 1999; they filed their complaint the following month.

The petitioners, on the other hand, argue that the relevant prescriptive period here is ten (10) years
from the date of the registration of title, this being an action for reconveyance based on an implied or
constructive trust.

We believe and so hold that the respondents’ amended complaint sufficiently pleaded a cause to
declare the nullityof the extrajudicial settlement of estate and sale, as they claimed in their amended
complaint. Without prejudging the issue of the merits of the respondents’ claim and on the
assumption that the petitioners already hypothetically admitted the allegations of the complaint when
they filed a motion to dismiss based on prescription, the transfer may be null and void if indeed it is
established that respondents had not given their consent and that the deed is a forgery or is
absolutely fictitious. As the nullity of the extrajudicial settlement of estate and sale has been raised
and is the primary issue, the action to secure this result will not prescribe pursuant to Article 1410 of
the Civil Code.

Based on this conclusion, the necessary question that next arises is: What then is the effect of the
issuance of TCTs in the name of petitioners? In other words, does the issuance of the certificates of
titles convert the action to one of reconveyance of titled land which, under settled jurisprudence,
prescribes in ten (10) years?

Precedents say it does not; the action remains imprescriptible, the issuance of the certificates of
titles notwithstanding. Ingjug-Tiro is again instructive on this point:

Article 1458 of the New Civil Code provides: "By the contract of sale one of the contracting parties
obligates himself of transfer the ownership of and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent." It is essential that the vendors be the owners of
the property sold otherwise they cannot dispose that which does not belong to them. As the Romans
put it: "Nemo dat quod non habet." No one can give more than what he has. The sale of the
realty to respondents is null and void insofar as it prejudiced petitioners' interests and
participation therein. At best, only the ownership of the shares of Luisa, Maria and Guillerma
in the disputed property could have been transferred to respondents.

Consequently, respondents could not have acquired ownership over the land to the extent of the
shares of petitioners. The issuance of a certificate of title in their favor could not vest upon
them ownership of the entire property; neither could it validate the purchase thereof which is
null and void. Registration does not vest title; it is merely the evidence of such title. Our land
registration laws do not give the holder any better title than what he actually has. Being null
and void, the sale to respondents of the petitioners' shares produced no legal effects
whatsoever.

Similarly, the claim that Francisco Ingjug died in 1963 but appeared to be a party to the Extrajudicial
Settlement and Confirmation of Sale executed in 1967 would be fatal to the validity of the contract, if
proved by clear and convincing evidence. Contracting parties must be juristic entities at the time of
the consummation of the contract. Stated otherwise, to form a valid and legal agreement it is
necessary that there be a party capable of contracting and party capable of being contracted with.
Hence, if any one party to a supposed contract was already dead at the time of its execution, such
contract is undoubtedly simulated and false and therefore null and void by reason of its having been
made after the death of the party who appears as one of the contracting parties therein. The death of
a person terminates contractual capacity.

In actions for reconveyance of the property predicated on the fact that the conveyance
complained of was null and void ab initio, a claim of prescription of action would be
unavailing. "The action or defense for the declaration of the inexistence of a contract does
not prescribe."Neither could laches be invoked in the case at bar. Laches is a doctrine in equity
and our courts are basically courts of law and not courts of equity. Equity, which has been aptly
described as "justice outside legality," should be applied only in the absence of, and never against,
statutory law. Aequetas nunguam contravenit legis. The positive mandate of Art. 1410 of the New
Civil; Code conferring imprescriptibility to actions for declaration of the inexistence of a contract
should preempt and prevail over all abstract arguments based only on equity.
Certainly, laches cannot be set up to resist the enforcement of an imprescriptible legal right, and
petitioners can validly vindicate their inheritance despite the lapse of time.47

We have a similar ruling in Heirs of Rosa Dumaliang v. Serban.48

The respondents’ action is therefore imprescriptible and the CA committed no reversible error in so
ruling.

Laches

Dismissal based on laches cannot also apply in this case, as it has never reached the presentation
of evidence stage and what the RTC had for its consideration were merely the parties’ pleadings.
Laches is evidentiary in nature and cannot be established by mere allegations in the
pleadings.49 Without solid evidentiary basis, laches cannot be a valid ground to dismiss the
respondents’ complaint.

Non-joinder of Indispensable parties is not a

Ground for a Motion to Dismiss

The RTC dismissed the respondents’ amended complaint because indispensable parties were not
impleaded. The respondents argue that since the extrajudicial settlement of estate and sale was
valid with respect to the other heirs who executed it, those heirs are not indispensable parties in this
case. Innocent purchasers for value to whom title has passed from Macababbad and the spouses
Chua and Say are likewise not indispensable parties since the titles sought to be recovered here are
still under the name of the petitioners

We also find the RTC dismissal Order on this ground erroneous.

Rule 3, Section 11 of the Rules of Court provides that neither misjoinder nor nonjoinder of parties is
a ground for the dismissal of an action, thus:

Sec. 11. Misjoinder and non-joinder of parties. Neither misjoinder nor non-joinder of parties is ground
for dismissal of an action. Parties may be dropped or added by order of the court on motion of any
party or on its own initiative at any stage of the action and on such terms as are just. Any claim
against a misjoined party may be severed and proceeded with separately.

In Domingo v. Scheer,50 this Court held that the proper remedy when a party is left out is to implead
the indispensable party at any stage of the action. The court, either motu proprio or upon the motion
of a party, may order the inclusion of the indispensable party or give the plaintiff opportunity to
amend his complaint in order to include indispensable parties. If the plaintiff to whom the order to
include the indispensable party is directed refuses to comply with the order of the court, the
complaint may be dismissed upon motion of the defendant or upon the court's own motion.51 Only
upon unjustified failure or refusal to obey the order to include or to amend is the action dismissed.52

Rule 3, Sec. 7 of the Rules of Court defines indispensable parties as those who are parties in
interest without whom no final determination can be had of an action.53 They are those parties who
possess such an interest in the controversy that a final decree would necessarily affect their rights
so that the courts cannot proceed without their presence.54 A party is indispensable if his interest in
the subject matter of the suit and in the relief sought is inextricably intertwined with the other parties’
interest.55

In an action for reconveyance, all the owners of the property sought to be recovered are
indispensable parties. Thus, if reconveyance were the only relief prayed for, impleading petitioners
Macababbad and the spouses Chua and Say would suffice. On the other hand, under the claim that
the action is for the declaration of the nullity of extrajudicial settlement of estate and sale, all of the
parties who executed the same should be impleaded for a complete resolution of the case. This
case, however, is not without its twist on the issue of impleading indispensable parties as the RTC
never issued an order directing their inclusion. Under this legal situation, particularly in light of Rule
3, Section 11 of the Rules of Court, there can be no basis for the immediate dismissal of the action.

In relation with this conclusion, we see no merit too in the petitioners’ argument that the RTC ruling
dismissing the complaint on respondents’ failure to implead indispensable parties had become final
and executory for the CA’s failure to rule on the issue. This argument lacks legal basis as nothing in
the Rules of Court states that the failure of an appellate court to rule on an issue raised in an appeal
renders the appealed order or judgment final and executory with respect to the undiscussed issue. A
court need not rule on each and every issue raised,56particularly if the issue will not vary the tenor of
the Court’s ultimate ruling. In the present case, the CA ruling that overshadows all the issues raised
is what is stated in the dispositive portion of its decision, i.e., “the order of the lower court dismissing
the case is SET ASIDE and the case is remanded for further proceeding.”

In sum, the CA correctly reversed the RTC dismissal of the respondents’ complaint.

WHEREFORE, premises considered, we DENY the petition for review for lack of merit.

SO ORDERED.

G.R. No. 154745 January 29, 2004

COMMISSIONER ANDREA D. DOMINGO, BUREAU OF IMMIGRATION, Petitioner,

vs.
HERBERT MARKUS EMIL SCHEER, Respondent.

DECISION

CALLEJO, SR., J.:

This is a petition for review under Rule 45 of the Rules of Court, as amended, of the Decision1 of the
Court of Appeals in CA-G.R. SP No. 71094 granting the respondent’s petition for certiorari and
prohibition annulling the order of arrest issued by the petitioner, and permanently enjoining her from
deporting the respondent from the Philippines. Through its decision, the CA virtually reversed the
Summary Deportation Order2 of the Board of Commissioners (BOC) and its Omnibus
Resolution3 denying the respondent’s Urgent Motion for Reconsideration of said Order, and enjoining
the petitioner from deporting the respondent.

The facts as culled from the records are as follows:

Respondent Herbert Markus Emil Scheer, a native of Ochsenfurt, Germany, was a frequent visitor of
the Philippines. On July 18, 1986, his application for permanent resident status was granted.4 The
Bureau of Immigration and Deportation (BID) issued in favor of the respondent Alien Certificate of
Registration No. B-396907 dated September 16, 19875 and Immigration Certificate of Residence No.
256789 dated February 24, 1988.6 The Commissioner stated that the granting of the petition would
redound to the benefit of the Filipino people.7 During his sojourn in the Philippines, the respondent
married widowed Edith delos Reyes8 with whom he had two daughters. They had a son, Herbert
Scheer, Jr., but he passed away on November 13, 1995.9 They resided in Puerto Princesa City,
Palawan, where the respondent established and managed the Bavaria Restaurant. On May 21,
1991, he was appointed Confidential Agent by then NBI Director Alfredo S. Lim.10

In a Letter dated June 29, 1995, Vice Consul Jutta Hippelein informed the Philippine Ambassador to
Bonn, Germany, that the respondent had police records and financial liabilities in Germany.11

The Department of Foreign Affairs received from the German Embassy in Manila Note Verbale No.
369/95 dated July 26, 1995, informing it that the respondent was wanted by the German Federal
Police; that a warrant of arrest had been issued against him; and that the respondent will be served
with an official document requesting him to turn over his German passport to the Embassy which
was invalidated on July 2, 1995.12 The Embassy requested the Department of Foreign Affairs to
inform the competent Philippine authorities of the matter. The BOC thereafter issued a Summary
Deportation Order dated September 27, 1997. The penultimate paragraph of the Order reads:

WHEREFORE, the foregoing considered, the Board of Commissioners hereby orders the following:

1. Cancellation of respondent’s permanent residence visa;

2. Respondent’s summary deportation and permanent exclusion from the Philippines; and

3. Inclusion of his name on the Bureau’s Blacklist.

PROVIDED, however that said summary deportation should be held in abeyance in case said alien
has a pending final and executory criminal conviction where the imposed penalty is imprisonment, in
which case, he has to serve first such imposed penalty, and/or has a pending criminal, civil or
administrative action and a Hold Departure Order has been issued or that his presence in said action
is indispensable. In such instances, the alien should remain in the custody of the Bureau until his
turnover to the proper authorities in case he has to serve imprisonment or in case of pendency of
civil or criminal administrative action, he shall remain in the custody of the Bureau until such time
that his pending cases shall have been decided, terminated or settled, as the case may be, unless
circumstances demand the immediate implementation of this summary deportation.

...
SO ORDERED.13

In issuing the said order, the BOC relied on the correspondence from the German Vice Consul on its
speculation that it was unlikely that the German Embassy will issue a new passport to the
respondent; on the warrant of arrest issued by the District Court of Germany against the respondent
for insurance fraud; and on the alleged illegal activities of the respondent in Palawan.14 The BOC
concluded that the respondent was not only an undocumented but an undesirable alien as well.

When the respondent was apprised of the deportation order, he forthwith aired his side to then BID
Commissioner Leandro T. Verceles. The Commissioner allowed the respondent to remain in the
Philippines, giving the latter time to secure a clearance and a new passport from the German
Embassy.15 Then Presidential Assistant Teodorico K. Imperial wrote a Testimonial dated November
24, 1995, in behalf of the respondent addressed to Commissioner Verceles. Nonetheless, the
respondent, through counsel, filed on December 5, 1995 an Urgent Motion for Reconsideration of
the Summary Deportation Order of the BOC.16 In his motion, the respondent alleged, inter alia, that:

1. The elementary rules of due process require notice and opportunity to be heard before a
person can be lawfully deprived of his right (Ute Paterok vs. Bureau of Customs, 193 SCRA
132). In the instant case, although it is acknowledged that the Honorable Office may conduct
summary deportation proceedings, respondent was not given notice and opportunity to be
heard before said Summary Deportation Order was issued. Respondent’s right to procedural
due process was therefore violated. Consequently, the Summary Deportation Order is
invalid.

2. In issuing, the Summary Deportation Order, this Honorable Office relied on Note Verbal
No. 369/95 issued by the Embassy of the Federal Republic of Germany, Manila, notifying the
Department of Foreign Affairs and this Honorable Office about the warrant of arrest against
respondent for alleged illegal insurance fraud and illegal activities. However, a close scrutiny
of said note verbal shows that nowhere therein does it state that respondent was involved in
insurance fraud or in any kind of illegal activities in Germany or anywhere else in the world,
such as in Palawan. Therefore, the main basis of the Summary Deportation Order is
incompetent as evidence against respondent who is, like every Filipino, presumed to be
innocent until his guilt is proven beyond reasonable doubt.

3. The power to deport alien is a police power measure necessary against undesirable alien
whose presence in the country is injurious to the public good and domestic tranquility of the
country (Board of Commissioner Commission on Immigration vs. De la Rosa, 197 SCRA
853). It is respectfully submitted that respondent is not an undesirable alien. He has stayed
in the Philippines for more or less than (10) years. He has married a Filipina and has three
(3) minor children. He has established his business in Palawan and he has no police record
whatsoever. Respondent has considered the Philippines his second home and he has
nowhere else to go back to in Germany. Under the circumstances and for humanitarian
considerations, respondent is not an undesirable alien whose deportation is warranted.
Likewise, the mere fact that his passport was not renewed by the German Embassy does not
also automatically justify the deportation of respondent.17

However, the BOC did not resolve the respondent’s motion. The respondent was neither arrested
nor deported.

Meanwhile, on February 15, 1996, the District Court of Straubing rendered a Decision dismissing the
criminal case against the respondent for physical injuries.18 The German Embassy in Manila,
thereafter, issued a temporary passport to the respondent.
In a Letter dated March 1, 1996, the respondent informed Commissioner Verceles that his passport
had been renewed following the dismissal of the said criminal case. He reiterated his request for the
cancellation of the Summary Deportation Order dated September 27, 1995 and the restoration of his
permanent resident status.19Subsequently, on March 12, 1996, the German Embassy issued to the
respondent a regular passport, to expire on March 11, 2006.

The BOC still failed to resolve the respondent’s Urgent Motion for Reconsideration. Commissioner
Verceles did not respond to the respondent’s March 1, 1996 Letter. The respondent remained in the
Philippines and maintained his business in Palawan. On March 20, 1997, the Department of Labor
and Employment approved his application for Alien Employment Registration Certificate as manager
of the Bavaria Restaurant in Puerto Princesa City.

In the meantime, petitioner Immigration Commissioner Andrea T. Domingo assumed office. She
wrote the German Embassy and inquired if the respondent was wanted by the German police. On
April 12, 2002, the German Embassy replied that the respondent was not so wanted.20 At about
midnight on June 6, 2002, Marine operatives and BID agents apprehended the respondent in his
residence on orders of the petitioner. He was whisked to the BID Manila Office and there held in
custody while awaiting his deportation. Despite entreaties from the respondent’s wife21 and his
employees, the petitioner refused to release the respondent.22

Shocked at the sudden turn of events, the respondent promptly communicated with his lawyer. The
latter filed with the BID a motion for bail to secure the respondent’s temporary liberty. On June 11,
2002, the respondent’s counsel filed with the Court of Appeals a petition for certiorari, prohibition and
mandamus with a prayer for temporary restraining order and writ of preliminary injunction, to enjoin
the petitioner from proceeding with the respondent’s deportation.23 The respondent (petitioner therein)
alleged, inter alia, that his arrest and detention were premature, unjust, wrongful, illegal and
unconstitutional, effected without sufficient cause and without jurisdiction or with grave abuse of
discretion. He asserted that there was no speedy remedy open to him in the ordinary course of
law24 and that his Urgent Motion for Reconsideration of the Summary Deportation Order of the BOC
had not yet been resolved despite the lapse of more than six years. The respondent averred that he
was a fully documented alien, a permanent resident and a law-abiding citizen. He, thus, prayed as
follows:

PRAYER

WHEREFORE, it is most respectfully prayed of this Honorable Court that:

1. Upon the filing of this Petition, this Honorable Court issue a Temporary Restraining Order
to enjoin respondent Commissioner from enforcing any order to deport petitioner;

2. After due hearing, a writ of preliminary and mandatory injunction be correspondingly

issued to maintain the status quo pending resolution of the Petition on the merits.

3. After hearing, judgment be rendered:

a) Directing and mandating respondent Commissioner and the body she heads to
resolve the Motion for Reconsideration filed in 1995, in his favor, and nullifying or
suspending the implementation of any order, oral or written, she may have issued or
issue to deport petitioner; and

b) Making the injunction in petitioner’s favor permanent.

Petitioner likewise prays for such other and further relief as may be deemed just and equitable in the
premises, such as directing respondent, if Herbert Scheer is deported before the matter is heard on
notice, to authorize his return.25

The BOC ruled that its September 27, 1995 Order had become final and executory after the lapse of
one year, citing our rulings in Sy vs. Vivo,26 and Lou vs. Vivo.27 The BOC also held that it was not
competent to reverse the September 27, 1995 Order, citing our ruling in Immigration Commissioner
vs. Fernandez.28 It declared that the respondent may seek the waiver of his exclusion via deportation
proceedings through the exceptions provided by Commonwealth Act No. 613,29 Section 29 (a)(15),
but that his application for the waiver presupposes his prior removal from the Philippines.

In a parallel development, the respondent procured a letter from the National Bureau of Investigation
(NBI) in Puerto Princesa City certifying that he had no pending criminal record.30 The Puerto Princesa
City Philippine National Police (PNP) also issued a certification that the respondent had no pending
criminal or derogatory records in the said office.31

Meanwhile, on June 26, 2002, the Court of Appeals issued a status quo order restraining the
petitioner from deporting the respondent on a bond of ₱100,000.00.32 On July 18, 2002, the BOC
issued an Omnibus Resolution dated June 14, 2002, pendente lite denying the respondent’s Urgent
Motion for Reconsideration, Motion for Bail/Recognizance, and the Letter dated June 11, 2002. The
decretal portion of the resolution reads:

Wherefore, in view of the foregoing circumstances, we deny the prayers of the Urgent Motion for
Reconsideration of 5 December 1995, the Motion for Bail/Recognizance dated 7 June 2002 and the
Letter of 11 June 2002. Further, we hereby order the following:

1. Subject to the submission of appropriate clearances, the summary deportation order the
respondent Herbert Scheer, German, under BI Office Memorandum Order No. 34 (series of
1989) and the BOC Summary Deportation Order of 27 September 1995;

2. Permanent exclusion of Herbert Scheer from the Philippines under C.A. No. 613, Section
40 (a)(15).

3. Inclusion of the name of Herbert Scheer in the Immigration Black List; and

4. Forfeiture of the bail bond, if any, of Herbert Scheer under C.A. No. 613, Section 40
(a)(15).

...

IT IS SO ORDERED.33

During the hearing of the respondent’s plea for a writ of preliminary mandatory injunction before the
CA on July 22, 2002, the Office of the Solicitor General (OSG) manifested that the State had no
opposition to the respondent’s re-entry and stay in the Philippines, provided that he leave the
country first and re-apply for admission and residency status with the assurance that he would be re-
admitted.34 The respondent’s counsel manifested to the appellate court that he had just been
informed by the OSG of the Omnibus Resolution of the BOC dated June 14, 2002.

In her Comment on the Petition, the petitioner (the respondent therein) alleged, inter alia, the
following:
 1) that the BOC was an indispensable party to the petition;

2) the petitioner’s failure to implead the BOC warranted the denial of the petition;

3) the allowance by then Immigration Commissioner Leandro Verceles for the petitioner
therein to renew his passport and secure clearances, even if proved, was not binding on the
BOC;

4) the September 27, 1995 Order of the BOC was already executory when the respondent
filed her petition in the CA;

5) the German Embassy’s issuance of a new passport did not legalize the respondent’s stay
in this country, which became illegal on July 2, 1995 when his passport expired;

6) the respondent therein did not act with abuse of discretion in causing the arrest and
detention of the respondent based on the BOC’s Summary Deportation Order; and

7) the BOC did not act with grave abuse of discretion in issuing its Summary Deportation
Order and Omnibus Resolution and such order and resolution were not mooted by the
German Embassy’s issuance of a new passport in favor of the respondent.

In view of the Omnibus Resolution of the BOC, the respondent (petitioner therein) in his
Memorandum prayed for the nullification of the BOC’s Order, as well as its Omnibus Resolution
denying his Urgent Motion for Reconsideration considering that with the issuance of a new passport,
there was no more basis for his deportation, thus:

RELIEF

WHEREFORE, it is most respectfully prayed of this Honorable Court that:

1. Upon the filing of this Memorandum, this Honorable Court forthwith direct and authorize
the immediate release of petitioner, even on undersigned’s recognizance, until further orders
from this Honorable Court;

2. The Summary Deportation Order of September 27, 19[9]5, affirmed by respondent

allegedly on June 14, 2002 and made known only yesterday, be nullified to the extent that it
directs the deportation of petitioner, who has removed the very basis of said Order of not
having a valid passport, and that the Resolution of June 14, 2002 be nullified in toto; and,

3. The Temporary Restraining Order of June 26, 2002 be converted into a permanent
injunction or writ of prohibition.

Petitioner likewise prays for such other and further relief as may be deemed just and equitable in the
premises.35

Surprisingly, the respondent’s counsel received on July 24, 2003 a Letter from the petitioner dated
July 16, 2002 stating that, "the BOC was in the course of reviewing the deportation case against Mr.
Scheer, and that its findings would be given in due time."36
On August 20, 2002, the Court of Appeals rendered a Decision in favor of the respondent granting
his petition for certiorari and prohibition and permanently enjoining the petitioner from deporting the
respondent. The decretal portion of the Decision reads:

WHEREFORE, premises considered, the petitions for certiorari and prohibition are hereby
GRANTED. Accordingly, any order, oral or written, issued by respondent Commissioner Domingo
against petitioner, in relation to his deportation, is hereby ANNULLED, and respondent
Commissioner Domingo is hereby permanently enjoined/prohibited from deporting petitioner, in so
far as this case is concerned.

It is likewise ordered that petitioner be released from his confinement/detention in the Bureau of
Immigration UNLESS there is/are fresh new grounds/cases that will warrant his continued detention.

SO ORDERED.37

The Court of Appeals ruled that the German Embassy’s subsequent issuance of passport to the
respondent before the BOC’s issuance of its Omnibus Resolution had mooted the September 27,
1995 Summary Deportation Order, as well as the arrest and detention of the respondent. According
to the court, it made no sense to require the respondent to leave the country and thereafter re-apply
for admission with the BOC. Furthermore, since the grounds cited by the BOC in its Summary
Deportation Order no longer existed, there was no factual and legal basis to disqualify the
respondent from staying in the country.

On the issue of whether the members of the BOC were indispensable parties, the CA ruled as
follows:

a) There are quite a number of cases in relevant jurisprudence wherein only the Immigration
Commissioner was impleaded to decide whether an alien may stay or be deported, such as
in the case of Vivo vs. Arca (19 SCRA 878) and Vivo vs. Cloribel (22 SCRA 159).

b) In the case of Caruncho III vs. COMELEC (315 SCRA 693), it was pronounced that:
"Ordinarily, the nonjoinder of an indispensable party or the real party interest is not by itself a
ground for the dismissal of the petition. The court before which the petition is filed must first
require the joinder of such party. It is the noncompliance with said order that would be a
ground for the dismissal of the petition."

thus, c) respondent may be estopped for not raising such issue earlier.38

Aggrieved, the respondent therein, now the petitioner, through the Office of the Solicitor General,
appealed to us for relief. The petitioner contends that the Court of Appeals erred on a question of
law in granting the respondent’s petition in CA-G.R. SP No. 71094.39

In support of his contention, the Solicitor General has submitted the following arguments:

I. THE WRIT OF MANDAMUS DOES NOT LIE AGAINST THE COMMISSIONER OF THE
BUREAU OF IMMIGRATION TO RESOLVE RESPONDENT’S URGENT MOTION FOR
RECONSIDERATION OF THE SUMMARY DEPORTATION ORDER, CONSIDERING THAT
IT IS THE BOARD OF COMMISSIONERS, AND NOT THE COMMISSIONER ALONE,
WHICH HAS AUTHORITY TO MAKE SAID RESOLUTION.
 II. THE WRIT OF CERTIORARI DOES NOT LIE AGAINST THE COMMISSIONER OF THE
BUREAU OF IMMIGRATION, CONSIDERING THAT IT IS THE BOARD OF
COMMISSIONERS, AND NOT THE COMMISSIONER ALONE, WHICH ISSUED THE
SUMMARY DEPORTATION ORDER AND THE OMNIBUS RESOLUTION.

III. THE WRIT OF PROHIBITION DOES NOT LIE AGAINST THE COMMISSIONER OF THE
BUREAU OF IMMIGRATION, PROHIBITING THE IMPLEMENTATION OF THE SUMMARY
DEPORTATION ORDER AND THE OMNIBUS RESOLUTION, CONSIDERING THAT THE
BOARD OF COMMISSIONERS WAS NOT IMPLEADED AS PARTY-RESPONDENT IN
THE PETITION IN CA-G.R. SP NO. 71094.

IV. ASSUMING BUT WITHOUT ADMITTING THAT THE BOARD OF COMMISSIONERS

WAS PROPERLY IMPLEADED AS PARTY-RESPONDENT IN THE PETITION IN CA-G.R.
SP NO. 71094, NEVERTHELESS, THE SUMMARY DEPORTATION ORDER AND THE
OMNIBUS RESOLUTION WERE NOT ISSUED WITHOUT OR IN EXCESS OF
JURISDICTION OR WITH GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OF
(SIC) EXCESS OF JURISDICTION.

V. FURTHER ASSUMING BUT WITHOUT ADMITTING THAT THE BOARD OF

COMMISSIONERS WAS PROPERLY IMPLEADED AS PARTY-RESPONDENT IN THE
PETITION IN CA-G.R. SP NO. 71094, THE COMMISSIONER OF THE BUREAU OF
IMMIGRATION DID NOT ACT WITHOUT OR IN EXCESS OF JURISDICTION OR WITH
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN IMPLEMENTING THE SUMMARY DEPORTATION ORDER AND THE
OMNIBUS RESOLUTION.40

Elucidating on his first three arguments, the petitioner maintains that the respondent’s petition for
certiorari, prohibition and mandamus before the Court of Appeals should have been dismissed
because he failed to implead the real party-in-interest as mandated by Rule 3, Section 7 of the Rules
of Court, as amended; in this case, the BOC. According to the Solicitor General, this was a fatal
procedural error. The inclusion of the BOC as respondent in the case was necessary in order that its
actions could be directly attacked and for the court to acquire jurisdiction over it. The fact that
Immigration Commissioner Andrea T. Domingo was impleaded as the sole respondent was not
enough, as she is only one of the four Commissioners. Furthermore, the assailed Orders were
issued by the Board, and not by the Immigration Commissioner alone.

The respondent counters that the petitioner is already estopped from raising this issue. He argues
that -

In quite a number of jurisprudence, only the Immigration Commissioner is impleaded to decide

whether an alien may stay here or not. The bottom line is petitioner, head of the Bureau of
Immigration, was more than fully heard on its institutional position, a Bureau which speaks with a
single voice in this case. She is in estoppel for not raising the issue earlier, either in a timely
Comment or during the oral argument…41

In Caruncho III v. Comelec, it was held that-

[O]rdinarily, the nonjoinder of an indispensable party or real party in interest is not by itself a ground
for the dismissal of the petition. The court before which the petition is filed must first require the
joinder of such party. It is the noncompliance with said order that would be a ground for the dismissal
of the petition.
But even as the Court of Appeals did not require respondent of such joinder of parties, the
respondent, in fact, begged leave, ad cautelam, in its Reply Memorandum dated July 31, 2002 to
implead the Board which speaks with a single voice anyway in this case, and therefore, no claim can
be made that a valid point of view has not been heard…42

Moreover, according to the respondent, the petitioner is clearly the BID’s chosen instrumentality for
the relevant purpose. What the respondent ultimately questioned are the acts or orders of the
petitioner for the arrest and immediate deportation of the respondent by way of implementing the
BOC’s Summary Deportation Order.

By way of reply, the Office of the Solicitor General asserted that the Summary Deportation Order
and Omnibus Resolution were collegial actions of the BOC and not of the petitioner alone. Although
its Chairperson, the petitioner, is merely a member thereof, her decisions and actions are still subject
to the collective will of the majority.43

The Ruling of the Court

The BOC is an
Indispensable
Party

We agree with the petitioner’s contention that the BOC was an indispensable party to the
respondent’s petition for certiorari, prohibition and mandamus in the Court of Appeals. The
respondent was arrested and detained on the basis of the Summary Deportation Order of the BOC.
The petitioner caused the arrest of the respondent in obedience to the said Deportation Order. The
respondent, in his Memorandum, prayed that the CA annul not only the Summary Deportation Order
of the BOC but also the latter’s Omnibus Resolution, and, thus, order the respondent’s immediate
release. The respondent also prayed that the CA issue a writ of mandamus for the immediate
resolution of his Urgent Motion for Reconsideration. The said motion had to be resolved by the BOC
as the order sought to be resolved and reconsidered was issued by it and not by the petitioner alone.
The powers and duties of the BOC may not be exercised by the individual members of the
Commission.44

Section 7, Rule 3 of the Rules of Court, as amended, requires indispensable parties to be joined as
plaintiffs or defendants. The joinder of indispensable parties is mandatory. Without the presence of
indispensable parties to the suit, the judgment of the court cannot attain real finality.45 Strangers to a
case are not bound by the judgment rendered by the court.46 The absence of an indispensable party
renders all subsequent actions of the court null and void. Lack of authority to act not only of the
absent party but also as to those present.47 The responsibility of impleading all the indispensable
parties rests on the petitioner/plaintiff.48

However, the non-joinder of indispensable parties is not a ground for the dismissal of an action.
Parties may be added by order of the court on motion of the party or on its own initiative at any stage
of the action and/or such times as are just.49 If the petitioner/plaintiff refuses to implead an
indispensable party despite the order of the court, the latter may dismiss the complaint/petition for
the petitioner/plaintiff’s failure to comply therefor.50 The remedy is to implead the non-party claimed to
be indispensable.51 In this case, the CA did not require the respondent (petitioner therein) to implead
the BOC as respondent, but merely relied on the rulings of the Court in Vivo v. Arca,52 and Vivo v.
Cloribel.53 The CA’s reliance on the said rulings is, however, misplaced. The acts subject of the
petition in the two cases were those of the Immigration Commissioner and not those of the BOC;
hence, the BOC was not a necessary nor even an indispensable party in the aforecited cases.

The Non-joinder of an
Indispensable Party is not
a Ground for the Dismissal
of the Petition

The Court may be curing the defect in this case by adding the BOC as party-petitioner. The petition
should not be dismissed because the second action would only be a repetition of the first.54 In
Salvador, et al., v. Court of Appeals, et al.,55 we held that this Court has full powers, apart from that
power and authority which is inherent, to amend the processes, pleadings, proceedings and
decisions by substituting as party-plaintiff the real party-in-interest. The Court has the power to avoid
delay in the disposition of this case, to order its amendment as to implead the BOC as party-
respondent. Indeed, it may no longer be necessary to do so taking into account the unique backdrop
in this case, involving as it does an issue of public interest.56 After all, the Office of the Solicitor
General has represented the petitioner in the instant proceedings, as well as in the appellate court,
and maintained the validity of the deportation order and of the BOC’s Omnibus Resolution. It cannot,
thus, be claimed by the State that the BOC was not afforded its day in court, simply because only
the petitioner, the Chairperson of the BOC,57 was the respondent in the CA, and the petitioner in the
instant recourse. In Alonso v. Villamor,58 we had the occasion to state:

There is nothing sacred about processes or pleadings, their forms or contents. Their sole purpose is
1âwphi1

to facilitate the application of justice to the rival claims of contending parties. They were created, not
to hinder and delay, but to facilitate and promote, the administration of justice. They do not constitute
the thing itself, which courts are always striving to secure to litigants. They are designed as the
means best adapted to obtain that thing. In other words, they are a means to an end. When they
lose the character of the one and become the other, the administration of justice is at fault and
courts are correspondingly remiss in the performance of their obvious duty.

The CA had Jurisdiction

Over the Petition for
Certiorari, Prohibition
and Mandamus

We do not agree with the petitioner’s contention that the issue before the CA, as to the power of the
President to determine whether an alien may remain or be deported from the Philippines, is beyond
the appellate court’s competence to delve into and resolve. The contention of the petitioner is based
on a wrong premise.

The settled rule is that the authority to exclude or expel aliens by a power affecting international
relation is vested in the political department of the government, and is to be regulated by treaty or by
an act of Congress, and to be executed by the executive authority according to the regulations so
established, except in so far as the judicial department has been authorized by treaty or by statute,
or is required by the Constitution to intervene.59 The judicial department cannot properly express an
opinion upon the wisdom or the justice of the measures executed by Congress in the exercise of the
power conferred on it,60 by statute or as required by the Constitution. Congress may, by statute, allow
the decision or order of the Immigration Commissioner or the BOC to be reviewed by the President
of the Philippines or by the courts, on the grounds and in the manner prescribed by law.

Article VIII, Section 1 of the Constitution has vested judicial power in the Supreme Court and the
lower courts such as the Court of Appeals, as established by law. Although the courts are without
power to directly decide matters over which full discretionary authority has been delegated to the
legislative or executive branch of the government and are not empowered to execute absolutely their
own judgment from that of Congress or of the President,61 the Court may look into and resolve
questions of whether or not such judgment has been made with grave abuse of discretion, when the
act of the legislative or executive department violates the law or the Constitution. In Harvy Bridges v.
I.F. Wixon,62 the United States Federal Supreme Court reversed an Order of Deportation made by the
Attorney General for insufficiency of evidence and for "improper admission of evidence." In Nging v.
Nagh,63 the United States Court of Appeals (9th Circuit Court) held that conclusions of administrative
offices on the issues of facts are invulnerable in courts unless when they are not rendered by fair-
minded men; hence, are arbitrary. In Toon v. Stump,64 the Court ruled that courts may supervise the
actions of the administrative offices authorized to deport aliens and reverse their rulings when there
is no evidence to sustain them. When acts or omissions of a quasi-judicial agency are involved, a
petition for certiorari or prohibition may be filed in the Court of Appeals as provided by law or by the
Rules of Court, as amended.65

In this case, the respondent alleges that the petitioner acted arbitrarily, contrary to law and with
grave abuse of discretion in causing his arrest and detention at a time when his Urgent Motion for
Reconsideration of the BOC’s Summary Deportation Order had yet to be resolved. There was no
factual or legal basis for his deportation considering that he was a documented alien and a law-
abiding citizen; the respondent, thus, prayed for a writ of mandamus to compel the petitioner, the
Chairperson of the BOC, to resolve the said motion. The petition before the CA did not involve the
act or power of the President of the Philippines to deport or exclude an alien from the country. This
being so, the petition necessarily did not call for a substitution of the President’s discretion on the
matter of the deportation of the respondent with that of the judgment of the CA.

Irrefragably, the CA had jurisdiction over the petition of the respondent.

The BOC Committed a Grave
Abuse of Discretion Amounting
To Lack or Excess of Jurisdiction
In Issuing its Summary Deportation
Order and Omnibus Resolution; The
Petitioner Committed a Grave Abuse
Of Her Discretion Amounting to
Lack or Excess of Jurisdiction in
Causing the Arrest and Detention
Of The Private Respondent

On the Solicitor General’s fourth and fifth arguments, we are convinced that the BOC committed a
grave abuse of discretion amounting to excess or lack of jurisdiction in issuing its Summary
Deportation Order and Omnibus Resolution, and that the petitioner committed grave abuse of
discretion amounting to excess or lack of jurisdiction in causing the arrest and detention of the
private respondent.

The settled rule is that the entry or stay of aliens in the Philippines is merely a privilege and a matter
of grace; such privilege is not absolute nor permanent and may be revoked. However, aliens may be
expelled or deported from the Philippines only on grounds and in the manner provided for by the
Constitution, the Immigration Act of 1940, as amended, and administrative issuances pursuant
thereto. In Mejoff v. Director of Prisons,66 we held, thus:

Moreover, by its Constitution (Art. II, Sec. 3) the Philippines "adopts the generally accepted
principles of international law a part of the law of Nation." And in a resolution entitled "Universal
Declaration of Human Rights" and approved by the General Assembly of the United Nations of which
the Philippines is a member, at its plenary meeting on December 10, 1948, the right to life and liberty
and all other fundamental rights as applied to all human beings were proclaimed. It was there
resolved that "All human beings are born free and equal in degree and rights" (Art. 1); that
"Everyone is entitled to all the rights and freedom set forth in this Declaration, without distinction of
any kind, such as race, color, sex, language, religion, political or other opinion, nationality or social
origin, property, birth, or other status" (Art. 2); that "Every one has the right to an effective remedy by
the competent national tribunals for acts violating the fundamental rights granted him by the
Constitution or by law" (Art. 8); that "No one shall be subjected to arbitrary arrest, detention or exile"
(Art. 9); etc.

In this case, the BOC ordered the private respondent’s deportation on September 27, 1995 without
even conducting summary deportation proceedings. The BOC merely relied on the June 29, 1995
Letter of the German Vice Consul and of the German Embassy’s Note Verbale No. 369/95 dated
July 26, 1995. It issued the Summary Deportation Order on September 27, 1995 allegedly under
paragraph 3 of Office Memorandum Order No. 34 dated August 21, 1989 which reads:

3. If a foreign embassy cancels the passport of the alien or does not reissue a valid passport to him,
the alien loses the privilege to remain in the country, under the Immigration Act, Sections 10 and 15
(Schonemann vs. Santiago, et al., G.R. No. 81461, 30 May 1989). The automatic loss of the
privilege obviates deportation proceedings. In such instance, the Board of Commissioners may issue
summary judgment of deportation which shall be immediately executory.

However, as gleaned from the Summary Deportation Order, the respondent was ordered deported
not only because his passport had already expired; the BOC speculated that the respondent
committed insurance fraud and illegal activities in the Philippines and would not, thus, be issued a
new passport. This, in turn, caused the BOC to conclude that the respondent was an undesirable
alien. Section 37(c) of Commonwealth Act No. 613, as amended, provides that:

No alien shall be deported without being informed of the specific grounds for deportation or without
being given a hearing under rules of procedure to be prescribed by the Commissioner of
Immigration.

Under paragraphs 4 and 5 of Office Memorandum Order No. 34, an alien cannot be deported unless
he is given a chance to be heard in a full deportation hearing, with the right to adduce evidence in
his behalf, thus:

4. All other cases shall be tried in full deportation hearing, with due observance of the pertinent
provisions of Law Instruction No. 39.

5. In all cases, the right of the alien to be informed of the charges against him, to be notified of the
time and place of hearing, when necessary, to examine the evidence against him, and to present
evidence in his own behalf, where appropriate, shall be observed.

The respondent was not afforded any hearing at all. The BOC simply concluded that the respondent
committed insurance fraud and illegal activities in Palawan without any evidence. The respondent
was not afforded a chance to refute the charges. He cannot, thus, be arrested and deported without
due process of law as required by the Bill of Rights of the Constitution. In Lao Gi v. Court of
Appeals,67 we held that:

Although a deportation proceeding does not partake of the nature of a criminal action, however,
considering that it is a harsh and extraordinary administrative proceeding affecting the freedom and
liberty of a person, the constitutional right of such person to due process should not be denied. Thus,
the provisions of the Rules of Court of the Philippines particularly on criminal procedure are
applicable to deportation proceedings.
It must be noted that the respondent was a permanent resident before his passport expired on July
2, 1995. In Chew v. Colding,68 the United States Federal Supreme Court ruled:

It is well established that if an alien is a lawful permanent resident of the United States and remains
physically present there, he is a person within the protection of the Fifth Amendment. He may not be
deprived of his life, liberty or property without due process of law. Although it later may be
established, as respondents contend, that petitioner can be expelled and deported, yet before his
expulsion, he is entitled to notice of the nature of the charge and a hearing at least before an
executive or administrative tribunal. Although Congress may prescribe conditions for his expulsion
and deportation, not even Congress may expel him without allowing him a fair opportunity to be
heard.

As Mr. Justice Murphy said in his concurring opinion in Bridges v. Wixon:69

The Bill of Rights belongs to them as well as to all citizens. It protects them as long as they reside
within the boundaries of our land. It protects them in the exercise of the great individual rights
necessary to a sound political and economic democracy.

According to Vattal,70 an alien who is a permanent resident in a country is a member of the new
society, at least as a permanent inhabitant, and is a kind of citizen of inferior order from the native
citizens; but is, nevertheless, limited and subject to the society, without participating in all its
advantages. Sir Robert Philconse called them "de facto," though not de jure citizens of the country of
their domicile.71

Such permanent resident72 may be classified as a "denizen," a kind of middle state between alien and
a natural-born subject and partakes of both. Paraphrasing Justice Brewer in his dissenting opinion in
Fong Yue Ting v. United States,73 when the right to liberty and residence is involved, some other
protection than the mere discretion of the petitioner or the BOC is required. We recall the warning of
the United States Supreme Court in Boyd v. United States:74

Illegitimate and unconstitutional practices get their first footing in that way, namely, by silent
approaches and slight deviations from legal modes of procedure. This can only be obviated by
adhering to the rule that constitutional provisions for the security of person and property should be
liberally construed. A close and literal construction deprives them of half their efficacy, and leads to a
gradual depreciation of the right, as if it consisted more in sound than in substance. It is the duty of
the courts to be watchful for the constitutional rights of the citizen, and against any stealthy
encroachments thereon. Their motto should be obsta principiis.

In sum, the arrest and detention of the respondent and his deportation under the Summary
Deportation Order of the BOC for insurance fraud and illegal activities in Palawan violated his
constitutional and statutory rights to due process.

The Respondent’s Arrest and

Detention was Premature,
Unwarranted and Arbitrary

We agree that the Immigration Commissioner is mandated to implement a legal and valid Summary
Deportation Order within a reasonable time. But in this case, the arrest of the respondent in his
house, at near midnight, and his subsequent detention was premature, unwarranted and arbitrary.
Like a thunderbolt in the sky, the BID agents and marines arrested the respondent on June 6, 2002,
on orders of the petitioner based on the September 27, 1995 Summary Deportation Order. Under
the basic rudiments of fair play and due process, the petitioner was required to first resolve the
respondent’s Urgent Motion for Reconsideration of the said Order, which was filed more than six
years before or on December 5, 1995.

It may be argued that respondent’s filing of an Urgent Motion for Reconsideration did not ipso facto
suspend the efficacy of the BOC’s deportation order. However, such an argument cannot be
sustained in this case because of the extant and peculiar factual milieu. It bears stressing that more
than six years had elapsed, from the time the Summary Deportation Order was issued, until the
respondent was finally arrested. Supervening facts and circumstances rendered the respondent’s
arrest and detention unjust, unreasonable, barren of factual and legal basis. The BOC should have
set the respondent’s motion for hearing to afford him a chance to be heard and adduce evidence in
support thereon. It was bad enough that the BOC issued its Summary Deportation Order without a
hearing; the BOC dealt the respondent a more severe blow when it refused to resolve his motion for
reconsideration before causing his arrest on June 6, 2002.

As aforestated, the BOC ordered the deportation of the respondent after a summary proceeding
without prior notice on the following grounds: (a) the respondent’s German passport had expired; (b)
there was a pending criminal case for physical injuries against him in Germany; (c) the respondent
indulged in illegal activities in Palawan; (d) that in all likelihood, the respondent’s passport will not be
renewed by the German Embassy as he was wanted for insurance fraud in Germany; and, (e) he
was an undesirable alien. But then, in response to the written query of no less than the petitioner
herself, the German Embassy declared that the respondent was not wanted by the German police
for any crime, including insurance fraud. This could only mean that the warrant of arrest issued by
the German Federal police mentioned in Note Verbale No. 369/95 had been lifted, and that the
respondent was not involved in any illegal activities in Germany. The criminal case against the
respondent for physical injuries, which does not involve moral turpitude, was dismissed by the
German District Court. Furthermore, there was no evidence of insurance fraud against the
respondent.

The BOC issued its Summary Deportation Order without affording the respondent the right to be
heard on his motion and adduce evidence thereon. It merely concluded that the respondent was
involved in "illegal activities in Palawan." What made matters worse was that the BOC indulged in
sheer speculation, that the German Embassy is unlikely to issue a new passport to the respondent.
The deportation of aliens should not be based on mere speculation or a mere product of
procrastinations as in this case. As it turned out, the German Embassy re-issued the respondent’s
passport; he was issued a temporary passport, and, thereafter, a regular passport, yet to expire on
March 12, 2006. The petitioner cannot feign ignorance of this matter because the respondent
himself, six years before he was arrested, informed then Immigration Commissioner Verceles in a
Letter dated March 1, 1996. The respondent’s letter forms part of the records of the BOC. There is
no evidence on record that the respondent committed any illegal activities in Palawan. He was even
designated as special agent of the NBI, and was, in fact, issued clearances by the PNP and the NBI
no less. Despite all the foregoing, the petitioner ordered and caused the arrest and detention of the
respondent.

What is most nettlesome is the apparent antedating of the BOC Omnibus Resolution. The records
show that the petitioner sought to assuage the respondent’s concern on the belated resolution of his
pending urgent motion for reconsideration in a Letter to the latter’s counsel dated July 18, 2002 in
which the petitioner assured the respondent that the BOC will provide him of its action on the said
motion:

Dear Atty. Sagisag,

We respond to your letter of 17 June 2002 by informing you that the case of Mr. Herbert Scheer is
being evaluated by the Board of Commissioners (BOC). The BOC will provide you of the results of
its collegial action in due time.

Very truly yours,

(Sgd.) ANDREA D. DOMINGO

Commissioner75

However, the Omnibus Resolution of the BOC was dated June 14, 2002, although on its face it was
filed with the Records Division of the BID only on July 18, 2002.

The foregoing gave reason for the CA to suspect that the Omnibus Resolution of the BOC was
antedated.76 The petition of the respondent in the CA must have jolted the petitioner and the BOC
from its stupor because it came out with its Omnibus Resolution on July 18, 2002, which was,
however, dated as early as June 14, 2002. The respondent had to wait in anxiety for the BOC to
quench his quest for justice. The BOC’s wanton acts amounted to an abdication of its duty to act
and/or resolve cases/incidents with reasonable dispatch. To recall our ruling in Board of
Commissioners v. De la Rosa,77 citing Sheor v. Bengson,78 thus:

This inaction or oversight on the part of the immigration officials has created an anomalous situation
which, for reasons of equity, should be resolved in favor of the minor herein involved.

The petitioner and the BOC should have taken to heart the following pronouncement in
Commissioner of Immigration v. Fernandez:79

In the face of the disclosure that Teban Caoili had been all along working in the Avenue Electrical
Supply Co. (Avesco), located at No. 653 Rizal Avenue, Manila, until his arrest, and the documentary
evidence showing that he had been issued a Philippine Passport; had regularly paid his Residence
Tax Certificates (A & B), and filed Income Tax Returns, a finding of fact is necessary whether the
Commissioner really had intended to notify Teban Caoili of the exclusion proceedings the Board had
conducted in his absence. While it may be true that the proceedings is purely administrative in
nature, such a circumstance did not excuse the serving of notice. There are cardinal primary rights
which must be respected even in proceedings of administrative character, the first of which is the
right of the party interested or affected to present his own case and submit evidence in support
thereof.80

...

Since the proceedings affected Caoili’s status and liberty, notice should have been given. And in the
light of the actuations of the new Board of Commissioners, there is a necessity of determining
whether the findings of the Board of Special Inquiry and the old Board of Commissioners are correct
or not. This calls for an examination of the evidence, and, the law on the matter.81

Apparently, the BOC did not bother to review its own records in resolving the respondent’s Urgent
Motion for Reconsideration. It anchored its Omnibus Resolution only on the following: the
membership of the BOC had changed when it issued its September 27, 1995 Summary Deportation
Order and under Commonwealth Act No. 613, Section 27(b); the BOC is precluded from reversing a
previous order issued by it;82 and, the September 27, 1995 Order of the BOC had become final and
could no longer be reviewed and reversed by it after the lapse of one year.83 However, the rulings
cited by the petitioner are not applicable in the instant case, as the said cases cited involve appeals
to the BOC from the decisions of the Board of Special Inquiry (BSI). In Sy v. Vivo84 and Lou v.
Vivo,85 we ruled that under Section 27(b) of Commonwealth Act No. 613, as amended, the Decision
of the BOC on appeal from the decision of the BSI becomes final and executory after one year:

(b) A board of special inquiry shall have authority (1) to determine whether an alien seeking to enter
or land in the Philippines shall be allowed to enter or land or shall be excluded, and (2) to make its
findings and recommendations in all the cases provided for in section twenty-nine of this Act wherein
the Commissioner of Immigration may admit an alien who is otherwise inadmissible. For this
purpose, the board or any member thereof, may administer oaths and take evidence and in case of
necessity may issue subpoena and/or subpoena duces tecum. The hearing of all cases brought
before a board of special inquiry shall be conducted under rules of procedure to be prescribed by the
Commissioner of Immigration. The decision of any two members of the board shall prevail and shall
be final unless reversed on appeal by the Board of Commissioners as hereafter stated, or in the
absence of an appeal, unless reversed by the Board of Commissioners after a review by it, motu
propio, of the entire proceedings within one year from the promulgation of the decision.

In Commissioner of Immigration v. Fernandez,86 we held that the BOC composed of new members is
precluded from reversing, motu proprio, the decision of the BOC on appeal from a BSI decision. But
not to be ignored was our ruling that "at any rate, the issue of authority should be made in
accordance with the procedure established by law, with a view to protecting the rights of
individuals."87

In this case, the Summary Deportation Order was issued by the BOC in the exercise of its authority
under Office Memorandum Order No. 34, and not in the exercise of its appellate jurisdiction of BSI
decisions. There is no law nor rule which provides that a Summary Deportation Order issued by the
BOC in the exercise of its authority becomes final after one year from its issuance,88 or that the
aggrieved party is barred from filing a motion for a reconsideration of any order or decision of the
BOC. The Rules of Court may be applied in a suppletory manner to deportation proceedings89 and
under Rule 37, a motion for reconsideration of a decision or final order may be filed by the aggrieved
party.

Neither is there any law nor rule providing that the BOC, composed of new members, cannot revise
a Summary Deportation Order previously issued by a different body of Commissioners. The BOC
that issued the Summary Deportation Order and the BOC which resolved the respondent’s Urgent
Motion for Reconsideration are one and the same government entity, with the same powers and
duties regardless of its membership. Similarly, an RTC judge who replaces another judge who
presided over a case may review the judgment or order of his predecessor as long as the said
judgment or order has not as yet become final or executory. The act subject of review is not the act
of the judge but the act of the court.

The petitioner’s contention that it failed to resolve the respondent’s motion for reconsideration
because of the change of administration in the BOC was branded by the CA as flimsy, if not
bordering on the absurd:

Firstly, it was issued three days (June 14, 2002) after petitioner filed this instant petition on June 11,
2002 or almost seven years from the time the motion for reconsideration was filed;

Secondly, respondent’s counsel’s excuse that it took such time to resolve it because it was only later
that the motion for reconsideration was discovered because of change of administration, is flimsy, if
not bordering on the absurd;90

The Issuance of a New and Regular

Passport to the Respondent
Rendered the Summary
Deportation Order Moot and
Academic, and the Omnibus
Resolution of the BOC Lacking
in Legal Basis

We agree with the petitioner that a foreign embassy’s cancellation of the passport it had issued to its
citizens, or its refusal to issue a new one in lieu of a passport that has expired, will result in the loss
of the alien’s privilege to stay in this country and his subsequent deportation therefrom. But even the
BOC asserted in its Summary Deportation Order that an embassy’s issuance of a new passport to
any of its citizens may bar the latter’s deportation, citing the resolution of this Court in Schonemann
v. Commissioner Santiago.91

Irrefragably, Commissioner Verceles was mandated to cause the arrest of the respondent
preparatory to his deportation from the Philippines. However, there was no fixed period in the Order
within which to comply with the same. The Commissioner is not mandated to deport an alien
immediately upon receipt of the BOC’s deportation order. It is enough that the Commissioner
complies with the Order within a "reasonable time," which, in Mejoff v. Director of Prisons,92 we held
to connote as follows:

The meaning of "reasonable time" depends upon the circumstances, specially the difficulties of
obtaining a passport, the availability of transportation, the diplomatic arrangements with the
governments concerned and the efforts displayed to send the deportee away; but the Court warned
that "under established precedents, too long a detention may justify the issuance of a writ of habeas
corpus.

In this case, the BOC had yet to act on the respondent’s Urgent Motion for Reconsideration. The
respondent was also given a chance to secure a clearance and a new passport with the German
Embassy. After all, the possibility that the German Embassy would renew the respondent’s passport
could not be ruled out. This was exactly what happened: the German Embassy issued a new
passport to the respondent on March 12, 1996 after the German District Court dismissed the case
for physical injuries. Thus, the respondent was no longer an undocumented alien; nor was he an
undesirable one for that matter.

The petitioner even admits that there is no longer a legal or factual basis to disqualify the respondent
from remaining in the country as a permanent resident. Yet, the OSG insists that he has to be
deported first so that the BOC’s Summary Deportation Order could be implemented. This contention
was rejected by the CA, thus:

During the hearing of petitioner’s prayer for issuance of a writ of preliminary injunction before Us,
respondent’s counsel from the Office of the Solicitor General had the occasion to manifest in open
court that the State has no opposition to petitioner’s stay in the country provided he first leave and
re-enter and re-apply for residency if only to comply with the Summary Deportation Order of 1995.
That, to Our mind, seems preposterous, if not ridiculous. An individual’s human rights and rights to
freedom, liberty and self-determination recognize no boundaries in the democratic, free and civilized
world. Such rights follow him wherever he may be. If presently, there is no factual or legal
impediment to disqualify petitioner in his stay in the country, other than allegedly those relied upon in
the Summary Deportation Order of 1995 (as hereinbefore discussed, had ceased to exist), requiring
petitioner to leave the country and re-enter and re-apply for residency makes little sense or no sense
at all, more so, in the case of petitioner who, for many years past, had lived herein and nurtured a
family that is Filipino.
Thus, opined, We, therefore, believe and hereby rule, that there is presently every reason to
enjoin/prohibit the Bureau of Immigration, respondent Commissioner Domingo in particular, from
presently deporting petitioner.93

We agree with the Court of Appeals. The Summary Deportation Order had been rendered moot and
academic upon the German Embassy’s issuance of a new passport to the respondent. The
respondent had been in the Philippines as a permanent resident since July 18, 1986, and had
married a Filipino citizen, with whom he has two children. He is not a burden to the country nor to the
people of Palawan. He put up, and has been managing, the Bavaria Restaurant with about 30
employees. He has no pending criminal case; nor does he have any derogatory record. The
respondent was allowed by then Immigration Commissioner Verceles to renew his passport and was
given time to secure a clearance from the German Embassy. The respondent was able to do so. The
case against him for physical injuries was dismissed by the German District Court. Thus, the
inceptual basis for the respondent’s deportation had ceased to exist.

The power to deport is a police matter against undesirable aliens, whose presence in the country is
found to be injurious to the public good. We believe that the deportation of the respondent late in the
day did not achieve the said purpose. The petitioner admitted that there is no longer a factual and
legal basis to disqualify the respondent from staying in the country. He is not an undesirable alien;
nor is his presence in the country injurious to public good. He is even an entrepreneur and a
productive member of society.

Arrest, detention and deportation orders of aliens should not be enforced blindly and
indiscriminately, without regard to facts and circumstances that will render the same unjust, unfair or
illegal.94 To direct the respondent to leave the country first before allowing him re-entry is downright
iniquitous.95 If the respondent does leave the country, he would thereby be accepting the force and
effect of the BOC’s Summary Deportation Order with its attendant infirmities. He will thereby lose his
permanent resident status and admit the efficacy of the cancellation of his permanent resident visa.
Moreover, his entry into the country will be subject to such conditions as the petitioner may impose.

The deportation of an alien is not intended as a punishment or penalty. But in a real sense, it is. In
1âw phi 1

Bridges v. Wixon,96 Mr. Justice Murphy declared that the impact of deportation upon the life of an
alien is often as great if not greater than the imposition of a criminal sentence. In dealing with
deportation, there is no justifiable reason for disregarding the democratic and human tenets of our
legal system and descending to the practices of despotism. As Justice Brewer opined in Fong Yue
Ting v. United States,97 deportation is a punishment because it requires first, an arrest, a deprivation
of liberty and second, a removal from home, from family, from business, from property. To be forcibly
taken away from home, family, business and property and sent across the ocean to a distant land is
punishment; and that oftentimes is most severe and cruel. It would be putting salt on the
respondent’s woes occasioned by the BOC’s ineptitude. Considering the peculiar backdrop and the
equities in this case, the respondent’s deportation and the cancellation of his permanent resident
visa as a precondition to his re-entry into this country is severe and cruel; it is a form of punishment.

Our ruling in Vivo v. Cloribel,98 has no application in this case, precisely because the factual milieu
here is entirely different. In that case, the Commissioner of Immigration required the respondents to
leave the country on or before September 12, 1962, because their stay in the country as approved
by the Secretary of Justice had been cancelled. Our ruling in Bing v. Commission on
Immigration,99 even buttresses the case for the respondent since we ruled therein that an alien
entitled to a permanent stay cannot be deported without being accorded due notice and hearing.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Decision of the Court of Appeals
is AFFIRMED.
SO ORDERED.

SECOND DIVISION

[G.R. NO. 173192 : April 14, 2008]

ROSENDO BACALSO, RODRIGO BACALSO, MARCILIANA B.

DOBLAS, TEROLIO BACALSO, ALIPIO BACALSO, JR., MARIO
BACALSO, WILLIAM BACALSO, ALIPIO BACALSO III and
CRISTITA B. BAÑES, Petitioners, v.MAXIMO PADIGOS,
FLAVIANO MABUYO, GAUDENCIO PADIGOS, DOMINGO
PADIGOS, VICTORIA P. ABARQUEZ, LILIA P. GABISON,
TIMOTEO PADIGOS, PERFECTO PADIGOS, PRISCA SALARDA,
FLORA GUINTO, BENITA TEMPLA, SOTERO PADIGOS, ANDRES
PADIGOS, EMILIO PADIGOS, DEMETRIO PADIGOS, JR.,
WENCESLAO PADIGOS, NELLY PADIGOS, EXPEDITO
PADIGOS, HENRY PADIGOS and ENRIQUE P.
MALAZARTE,Respondents.

DECISION

CARPIO MORALES, J.:

The case at bar involves a parcel of land identified as Lot No. 3781
(the lot) located in Inayawan, Cebu, covered by Original Certificate
of Title No. RO-2649 (0-9092)1 in the name of the following 13 co-
owners, their respective shares of which are indicated opposite their
names:

Fortunata Padigos 1/8

(Fortunata)
Felix Padigos (Felix) 1/8
Wenceslao Padigos 1/8
(Wenceslao)
Maximiano Padigos 1/8
(Maximiano)
Geronimo Padigos 1/8
(Geronimo)
Macaria Padigos 1/8
Simplicio Padigos (Simplicio) 1/8
Ignacio Padigos (Ignacio) 1/48
Matilde Padigos 1/48
Marcelo Padigos 1/48
Rustica Padigos 1/48
Raymunda Padigos 1/48
Antonino Padigos 1/48

Maximo Padigos (Maximo), Flaviano Mabuyo (Flaviano), Gaudencio

Padigos (Gaudencio), Domingo Padigos (Domingo), and Victoria P.
Abarquez (Victoria), who are among the herein respondents, filed
on April 17, 1995, before the Regional Trial Court (RTC) of Cebu
City, a Complaint,2 docketed as Civil Case No. CEB-17326, against
Rosendo Bacalso (Rosendo) and Rodrigo Bacalso (Rodrigo) who are
among the herein petitioners, for quieting of title, declaration of
nullity of documents, recovery of possession, and damages.

The therein plaintiffs-herein respondents Maximo and Flaviano

claimed that they are children of the deceased co-owner Simplicio;
that respondents Gaudencio and Domingo are children of the
deceased co-owner Ignacio; and that respondent Victoria and
respondent Lilia P. Gabison (Lilia) are grandchildren of the late co-
owner Fortunata.3

Respondents also alleged that the therein defendants-petitioners

Rosendo and Rodrigo are heirs of Alipio Bacalso, Sr. (Alipio, Sr.)
who, during his lifetime, secured Tax Declaration Nos. L-078-02223
and L-078-02224 covering the lot without any legal basis; that
Rosendo and Rodrigo have been leasing portions of the lot to
persons who built houses thereon, and Rosendo has been living in a
house built on a portion of the lot;4 and that demands to vacate and
efforts at conciliation proved futile,5 prompting them to file the
complaint at the RTC.
In their Answer6 to the complaint, petitioners Rosendo and Rodrigo
claimed that their father Alipio, Sr. purchased via deeds of sale the
shares in the lot of Fortunata, Simplicio, Wenceslao, Geronimo, and
Felix from their respective heirs, and that Alipio, Sr. acquired the
shares of the other co-owners of the lot by extraordinary acquisitive
prescription through continuous, open, peaceful, and adverse
possession thereof in the concept of an owner since 1949.7

By way of Reply and Answer to the Defendants'

Counterclaim,8 herein respondents Gaudencio, Maximo, Flaviano,
Domingo, and Victoria alleged that the deeds of sale on which
Rosendo and Rodrigo base their claim of ownership of portions of
the lot are spurious, but assuming that they are not, laches had set
in against Alipio, Sr.; and that the shares of the other co-owners of
the lot cannot be acquired through laches or prescription.

Gaudencio, Maximo, Flaviano, Domingo, and Victoria, with leave of

court,9 filed an Amended Complaint10 impleading as additional
defendants Alipio, Sr.'s other heirs, namely, petitioners
Marceliana11 Doblas, Terolio Bacalso, Alipio Bacalso, Jr., Mario
Bacalso, William Bacalso, Alipio Bacalso III, and Christine B.
Bañes.12 Still later, Gaudencio et al. filed a Second Amended
Complaint13 with leave of court,14impleading as additional plaintiffs
the other heirs of registered co-owner Maximiano, namely, herein
respondents Timoteo Padigos, Perfecto Padigos, Frisca15 Salarda,
Flora Quinto (sometimes rendered as "Guinto"), Benita Templa,
Sotero Padigos, Andres Padigos, and Emilio Padigos.16

In their Answer to the Second Amended Complaint,17 petitioners

contended that the Second Amended Complaint should be dismissed
in view of the failure to implead other heirs of the other registered
owners of the lot who are indispensable parties.18

A Third Amended Complaint19 was thereafter filed with leave of

court20impleading as additional plaintiffs the heirs of Wenceslao,
namely, herein respondents Demetrio Padigos, Jr., Wenceslao
Padigos, and Nelly Padigos, and the heirs of Felix, namely, herein
respondents Expedito Padigos (Expedito), Henry Padigos, and
Enrique P. Malazarte.21
After trial, Branch 16 of the Cebu City RTC decided22 in favor in the
therein plaintiffs-herein respondents, disposing as follows:

WHEREFORE, premises considered, judgment is hereby rendered

in favor of the plaintiffs and against the defendants.

1. Declaring the plaintiffs to be entitled to the ownership and

possession of the lot in litigation;

2. Declaring as null and void the Deeds of Absolute Sale in question;

3. Ordering the defendants to pay plaintiffs the sum of P50,000.00

as actual and compensatory damages[,] the sum of P20,000.00 as
attorney's fees, and P10,000.00 as litigation expenses.

4. Ordering the defendants to pay the costs of suit.

SO ORDERED.23 (Emphasis in the original; underscoring supplied)

The defendants-herein petitioners Bacalsos appealed.24 Meanwhile,

the trial court, on respondents' Motion for Execution Pending
Appeal,25 issued a writ of execution which was implemented by,
among other things, demolishing the houses constructed on the
lot.26

By Decision27 of September 6, 2005, the Court of

Appeals affirmed the trial court's decision. Their Motion for
Reconsideration28 having been denied,29petitioners filed the present
Petition for Review on Certiorari,30 faulting the Court of Appeals:

. . . when it ruled that the Second Amended Complaint is valid and

legal, even if not all indispensable parties are impleaded or joined . .
.

. . . when [it] wittingly overlooked the most potent, unescapable

and indubitable fact or circumstance which proved the continuous
possession of Lot No. 3781 by the defendants and their
predecessors in interest, Alipio Bacalso [Sr.] and/or when it
sanctioned impliedly the glaring arbitrary RTC order of
the demolition of the over 40 years old houses, situated on Lot
No. 3781 Cebu Cad., belonging to the old lessees, long allowed to
lease or stay thereat for many years, by Alipio Bacalso [Sr.],
father and [predecessor] in interest of the defendants, now the
herein Petitioners. The said lessees were not even joined as parties
in this case, much less were they given a chance to air their side
before their houses were demolished, in gross violation of the due
process clause provided for in Sec. 1[,] Art. III of the Constitution .
..

. . . in upholding as gospel truth the report and conclusion of

Nimrod Vaño, the supposed handwriting expert[,] that signatures
and thumb marks appearing on all documents of sale presented by
the defendants are forgeries, and not mindful that Nimrod Vaño was
not cross-examined thoroughly by the defense counsel as he was
prevented from doing so by the trial judge, in violation of the law
more particularly Sec. 6, Rule 132, Rules of Court and/or the
accepted and usual course of judicial proceedings and is therefore
not admissible in evidence.

. . . [when it] . . . wittingly or unwittingly, again overlooked the

vital facts, the circumstances, the laws and rulings of the Supreme
Court, which are of much weight, substance and influence which, if
considered carefully, undoubtedly uphold that the defendants and
their predecessors in interests, have long been in continuous, open,
peaceful and adverse, and notorious possession against the whole
world of Lot No. 3781, Cebu Cad., in concept of absolute owners for
46 years, a period more than sufficient to sustain or uphold the
defense of prescription, provided for in Art. 1137 of the Civil Code
even without good faith.31 (Emphasis and underscoring in the
original; italics supplied)

Respondents admit that Teodulfo Padigos (Teodulfo), an heir of

Simplicio, was not impleaded.32 They contend, however, that the
omission did not deprive the trial court of jurisdiction because
Article 487 of the Civil Code states that "[a]ny of the co-owners
may bring an action in ejectment."33

Respondents' contention does not lie. The action is for quieting of

title, declaration of nullity of documents, recovery of possession and
ownership, and damages. Arcelona v. Court of Appeals34 defines
indispensable parties under Section 7 of Rule 3, Rules of Court as
follows:

[P]arties-in-interest without whom there can be no final

determination of an action. As such, they must be joined either as
plaintiffs or as defendants. The general rule with reference to the
making of parties in a civil action requires, of course, the joinder of
all necessary parties where possible, and the joinder of all
indispensable parties under any and all conditions, their presence
being a sine qua non for the exercise of judicial power. It is
precisely "when an indispensable party is not before the court (that)
the action should be dismissed." The absence of an indispensable
party renders all subsequent actions of the court null and void for
want of authority to act, not only as to the absent parties but even
as to those present.

Petitioners are co-owners of a fishpond . . . The fishpond is

undivided; it is impossible to pinpoint which specific portion of the
property is owned by Olanday, et. al. and which portion belongs to
petitioners. x x x Indeed, petitioners should have been properly
impleaded as indispensable parties. x x x

x x x x35 (Underscoring supplied) cralawlib rary

The absence then of an indispensable party renders all subsequent

actions of a court null and void for want of authority to act, not only
as to the absent party but even as to those present.36

Failure to implead indispensable parties aside, the resolution of the

case hinges on a determination of the authenticity of the documents
on which petitioners in part anchor their claim to ownership of the
lot. The questioned documents are:

1. Exhibit "3" - a notarized Deed of Sale executed by Gaudencio,

Domingo, a certain Hermenegilda Padigos, and the heirs of
Fortunata, in favor of Alipio, Sr. on June 8, 1959;

2. Exhibit "4" - a notarized Deed of Sale executed on September 9,

1957 by Gavino Padigos (Gavino), alleged son of Felix, in favor of
Alipio Gadiano;
3. Exhibit "5" - a private deed of sale executed in June 1957 by
Macaria Bongalan, Marciano Padigos, and Dominga Padigos,
supposed heirs of Wenceslao, in favor of Alipio, Sr.;

4. Exhibit "6" - a notarized deed of sale executed on September 9,

1957 by Gavino and Rodulfo Padigos, heirs of Geronimo, in favor of
Alipio Gadiano;

5. Exhibit "7" - a notarized deed of sale executed on March 19, 1949

by Irenea Mabuyo, Teodulfo and Maximo, heirs of Simplicio;

6. Exhibit "8" - a private deed of sale executed on May 3, 1950 by

Candido Padigos, one of Simplicio's children, in favor of Alipio, Sr.;
andcralawlibra ry

7. Exhibit "9" - a notarized deed of sale executed on May 17, 1957

by Alipio Gadiano in favor of Alipio, Sr.

Exhibits "3," "4," "6," "7," and "8," which are notarized documents,
have in their favor the presumption of regularity.37

Forgery, as any other mechanism of fraud, must be proved clearly

and convincingly, and the burden of proof lies on the party alleging
forgery.38

The trial court and the Court of Appeals relied on the findings of
Nimrod Bernabe Vaño (Vaño), expert witness for respondents, that
Gaudencio's signature on Exhibit "3" (Deed of Absolute Sale
covering Fortunata's share in the lot) and Maximo's thumbprint on
Exhibit "7" (Deed of Sale covering Simplicio's share in the lot) are
spurious.39 Vaño's findings were presented by respondents to rebut
those of Wilfredo Espina (Espina), expert witness for petitioners,
that Gaudencio's signature and Maximo's thumbprint are genuine.40

Expert opinions are not ordinarily conclusive. They are generally

regarded as purely advisory in character.41 The courts may place
whatever weight they choose upon and may reject them, if they find
them inconsistent with the facts in the case or otherwise
unreasonable.42 When faced with conflicting expert opinions, courts
give more weight and credence to that which is more complete,
thorough, and scientific.43

The Court observes that in examining the questioned signatures of

respondent Gaudencio, petitioners' expert witness Espina used as
standards 15 specimen signatures which have been established to
be Gaudencio's,44 and that after identifying similarities between the
questioned signatures and the standard signatures, he concluded
that the questioned signatures are genuine. On the other hand,
respondents' expert witness Vaño used, as standards, the
questioned signatures themselves.45 He identified characteristics of
the signatures indicating that they may have been forged. Vaño's
statement of the purpose of the examination is revealing:

x x x [t]o x x x discover, classify and determine the authenticity of

every document that for any reason requires examination be [sic]
scrutinized in every particular that may possibly throw any light
upon its origin, its age or upon quality element or condition
that may have a bearing upons [sic] its genuineness or
spuriousness.46 (Emphasis supplied) cralawl ib rary

The Court also notes that Vaño also analyzed the signatures of the
witnesses to the questioned documents, the absence of standard
specimens with which those signatures could be compared
notwithstanding.47 On the other hand, Espina refrained from making
conclusions on signatures which could not be compared with
established genuine specimens.48

Specifically with respect to Vaño's finding that Maximo's thumbprint

on Exhibit "7" is spurious, the Court is not persuaded, no
comparison having been made of such thumbprint with a genuine
thumbprint established to be Maximo's.49

Vaño's testimony should be received with caution, the trial court

having abruptly cut short his cross-examination conducted by
petitioners' counsel,50 thus:

COURT:
You are just delaying the proceedings in this case if you are going to
ask him about the documents one by one. Just leave it to the Court
to determine whether or not he is a qualified expert witness. The
Court will just go over the Report of the witness. You do not have to
ask the witness one by one on the document,51

thereby depriving this Court of the opportunity to determine his

credibility. Espina, on the other hand, withstood thorough cross-
examination, re-direct and re-cross examination.52

The value of the opinion of a handwriting expert depends not upon

his mere statements of whether a writing is genuine or false, but
upon the assistance he may afford in pointing out distinguishing
marks, characteristics and discrepancies in and between genuine
and false specimens of writing which would ordinarily escape notice
or detection from an unpracticed observer.53 While differences exist
between Gaudencio's signatures appearing on Exhibits "3" - "3-D"
and his signatures appearing on the affidavits accompanying the
pleadings in this case,54the gap of more than 30 years from the
time he affixed his signatures on the questioned document to the
time he affixed his signatures on the pleadings in the case could
explain the difference. Thus Espina observed:

x x x

4. Both questioned and standard signatures exhibited the same

style and form of the movement impulses in its execution;

5. Personal habits of the writer were established in both questioned

and standard signatures such as misalignment of the whole
structure of the signature, heavy penpressure [sic] of strokes from
initial to the terminal, formation of the loops and ovals, poor line
quality and spacing between letters are all repeated;

6. Both questioned and standard signatures [show] no radical

change in the strokes and letter formation in spite o[f] their wide
difference in dates of execution considering the early writing
maturity of the writer;
7. Variations in both writings questioned and standards were
considered and properly evaluated.

x x x

Fundamental similarities are observed in the following

characteristics to wit:

x x x

SIGNATURES

1. Ovals of "a" either rounded or angular at the base;

2. Ovals of "d" either narrow, rounded, or angular at the base;

3. Loop stems of "d" consistently tall and retraced in both

specimens questioned and standards;

4. Base alignment of "e" and "i" are repeated with sameness;

5. Top of "c" either with a retrace, angular formation or an eyelet;

6. Terminal ending of "o" heavy with a short tapering formation;

7. Loop stem of "P" with wide space and angular;

8. Oval of "P" either rounded or multi-angular;

9. Base loop of "g" consistently short either a retrace, a blind loop

or narrow space disproportionate to the top oval;

10. Angular top of "s" are repeated with sameness;

11. Terminal ending of "s" short and heavy with blind loop or
retrace at the base.55

And Espina concluded

x x x
[t]hat the four (4) questioned signatures over and above the
typewritten name and word GAUDENCIO PADIGOS Vendor on four
copies of a DEED OF ABSOLUTE SALE (original and carbon) dated
June 8, 1959 were written, signed, and prepared by the hand who
wrote the standard specimens Exh. "G" and other specimen
materials collected from the records of this case that were
submitted or comparison; a product of one Mind and
Brain hence GENUINE and AUTHENTIC.56 (Emphasis in the
original; underscoring supplied)

Respondents brand Maximo's thumbmark on Exhibit "7" as spurious

because, so they claim, Maximo did not affix his signature thru a
thumbmark, he knowing how to write.57 Such conclusion is a non
sequitur, however, for a person who knows how to write is not
precluded from signing by thumbmark.

In affirming the nullification by the trial court of Exhibits "3," "4,"

"5," "6," "7," and "8," the Court of Appeals held:

x x x

First of all, facts about pedigree of the registered owners and their
lawful heirs were convincingly testified to by plaintiff-appellant
Gaudencio Padigos and his testimony remained uncontroverted.

x x x

Giving due weight to his testimony, we find that x x x the vendors

in the aforesaid Deeds of Sale x x x were not the legal heirs of the
registered owners of the disputed land. x x x

x x x

As for Exhibit "4," the vendor Gavino Padigos is not a legal heir of
the registered owner Felix Padigos. The latter's heirs are plaintiff-
appellants Expedito Padigos, Henry Padigos and Enrique P.
Malazarte. Accordingly, Exhibit "4" is a patent nullity and did not
vest title of Felix Padigos' share of Lot 3781 to Alipio [Gadiano].
As for Exhibit "6," the vendors Gavino and Rodulfo Padigos are not
the legal heirs of the registered owner Geronimo Padigos. Therefore,
these fictitious heirs could not validly convey ownership in favor of
Alipio [Gadiano].

x x x

As for Exhibit "8," the vendor Candido Padigos is not a legal heir of
Simplicio Padigos. Therefore, the former could not vest title of the
land to Alipio Bacalso.

As for Exhibit "3," the vendors Gaudencio Padigos, Hermenegilda

Padigos and Domingo Padigos are not the legal heirs of registered
owner Fortunata Padigos. Hermenegilda Padigos is not a known heir
of any of the other registered owners of the property.

On the other hand, plaintiffs-appellants Gaudencio and Domingo

Padigos are only some of the collateral grandchildren of Fortunata
Padigos. They could not by themselves dispose of the share of
Fortunata Padigos.

x x x

As for Exhibit "5," the vendors in Exhibit "5" are not the legal heirs
of Wenceslao Padigos. The children of registered owner Wenceslao
Padigos are: Wenceslao Padigos, Demetrio Padigos and Nelly
Padigos. Therefore, Exhibit "5" is null and void and could not convey
the shares of the registered owner Wenceslao Padigos in favor of
Alipio Bacalso.

As for Exhibit "9," the Deed of Sale executed by Alipio [Gadiano] in

favor of Alipio Bacalso is also void because the shares of the
registered owners Felix and Geronimo Padigos were not validly
conveyed to Alipio[Gadiano] because Exhibit "4" and "6" were void
contracts.Thus, Exhibit "9" is also null and void.58 (Italics in the
original; underscoring supplied)

The evidence regarding the "facts of pedigree of the registered

owners and their heirs" does not, however, satisfy this Court. Not
only is Gaudencio's self-serving testimony uncorroborated; it
contradicts itself on material points. For instance, on direct
examination, he testified that Ignacio is his father and Fortunata is
his grandmother.59 On cross-examination, however, he declared
that his father Ignacio is the brother of Fortunata.60 On direct
examination, he testified that his co-plaintiffs Victoria and Lilia are
already dead.61 On cross-examination, however, he denied
knowledge whether the two are already dead.62 Also on direct
examination, he identified Expedito, Henry, and Enrique as the
children of Felix.63Expedito himself testified, however, that he is the
son of a certain Mamerto Padigos, the son of a certain Apolonio
Padigos who is in turn the son of Felix.64

At all events, respondents are guilty of laches - the negligence or

omission to assert a right within a reasonable time, warranting a
presumption that the party entitled to assert it has either
abandoned it or declined to assert it.65 While, by express provision
of law, no title to registered land in derogation of that of the
registered owner shall be acquired by prescription or adverse
possession, it is an enshrined rule that even a registered owner may
be barred from recovering possession of property by virtue of
laches.66

Respondents insist, however, that they only learned of the deeds of

sale in 1994, the year that Alipio, Sr. allegedly commenced
possession of the property.67 The record shows, however, that
although petitioners started renting out the land in 1994, they have
been tilling it since the 1950s,68 and Rosendo's house was
constructed in about 1985.69 These acts of possession could not
have escaped respondents' notice given the following unassailed
considerations, inter alia: Gaudencio testified that he lived on the
lot from childhood until 1985, after which he moved to a place three
kilometers away, and after he moved, a certain Vicente Debelos
lived on the lot with his permission.70 Petitioners' witness Marina
Alcoseba, their employee,71 testified that Gaudencio and Domingo
used to cut kumpay planted by petitioners' tenant on the lot.72 The
tax declarations in Alipio, Sr.'s name for the years 1967-1980
covering a portion of the lot indicate Fortunata's share to be the
north and east boundaries of Alipio, Sr.'s;73 hence, respondents
could not have been unaware of the acts of possession that
petitioners exercised over the lot.

Upon the other hand, petitioners have been vigilant in protecting

their rights over the lot, which their predecessor-in-interest Alipio,
Sr. had declared in his name for tax purposes as early as 1960, and
for which he had been paying taxes until his death in 1994, by
continuing to pay the taxes thereon.74

Respondents having failed to establish their claim by preponderance

of evidence, their action for quieting of title, declaration of nullity of
documents, recovery of possession, and damages must fail.

A final word. While petitioners' attribution of error to the appellate

court's "implied sanction" of the trial court's order for the demolition
pending appeal of the houses of their lessees is well taken, the
Court may not consider any grant of relief to them, they not being
parties to the case.

WHEREFORE, the petition is GRANTED. The September 6, 2005

decision of the Court of Appeals is REVERSED and SET ASIDE.
Civil Case No. CEB-17326 of Branch 16 of the Regional Trial Court of
Cebu City is DISMISSED.

SO ORDERED.

G.R. No. 102900 October 2, 1997

MARCELINO ARCELONA, TOMASA ARCELONA-CHIANG and RUTH ARCELONA, represented

by their attorney-in-fact, ERLINDA PILE, petitioners,
vs.
COURT OF APPEALS, REGIONAL TRIAL COURT OF DAGUPAN CITY, Branch XL, and
MOISES FARNACIO, respondents.

PANGANIBAN, J.:

What are the remedies and the grounds therefor to invalidate a final and executory judgment? May
extraneous matters, not found in the records of the original case, be used to void such final
judgment? Procedurally, may an independent action for annulment of a decision filed in the Court of
Appeals prosper in the face of a claim that the remedy of intervention could have been availed of in
the regional trial court during the original proceedings? Are allthe co-owners pro indiviso of a real
property indispensable parties? Does the non-inclusion of some of such co-owners in a suit involving
tenancy over said property constitute sufficient ground to nullify the final decision rendered in such
case?

The Case

These are the main questions raised in this petition for review of the Decision1 in CA G.R. SP No.
24846 promulgated on July 16, 1991 by the Court of Appeals2 denying petitioners' plea for
annulment of a final and executory judgment rendered by the Regional Trial Court of Dagupan City,
Branch 40, in Civil Case No. D-7240, and the Resolution3 promulgated on November 21, 1991 by the
appellate court denying their motion for reconsideration.

The Facts

Petitioners Marcelino Arcelona, Tomasa Arcelona-Chiang and Ruth Arcelona are natural-born
Filipinos who are now naturalized Americans residing in California, U.S.A. Petitioner Ruth Arcelona
is the surviving spouse and legal heir of the deceased Benedicto Arcelona, brother of Marcelino and
Tomasa. Together with their three sisters — Pacita Arcelona-Olanday, Maria Arcelona-Arellano and
Natividad Arcelona-Cruz (hereinafter collectively referred to as Olanday, et al.) — petitioners are co-
owners pro-indiviso of a fishpond which they inherited from their deceased parents.4 The six
Arcelonas (two brothers and four sisters) are named as co-owners in Transfer Certificate of Title No.
34341 which evidences ownership over the fishpond.

On March 4, 1978, a contract of lease over the fishpond was executed between Cipriano Tandoc
and Olanday, et al. The lease contract was for a period of three (3) years but was renewed up to
February 2, 1984.5

Private Respondent Moises Farnacio was appointed in turn by Tandoc as caretaker-tenant of the
same fishpond, effective on the date the contract of lease was executed. After the termination of the
lease contract, the lessee (Tandoc) surrendered possession of the leased premises to the lessors,
Olanday, et al.

Three days thereafter, on February 7, 1984, Private Respondent Farnacio instituted Civil Case D-
7240 for "peaceful possession, maintenance of security of tenure plus damages, with motion for the
issuance of an interlocutory order" against Olanday, et al., before Respondent Regional Trial Court
of Dagupan City, Branch 40. The case was intended to maintain private respondent as tenant of the
fishpond.6

On October 31, 1984, the trial court rendered a decision in favor of private respondent, the
dispositive portion of which reads:7

WHEREFORE, in the light of the foregoing considerations, this Court hereby renders
judgment as follows; to wit:

1. Declaring and recognizing Moises Farnacio as tenant-caretaker over the fishpond in

question located at Lomboy District, Dagupan City;
 2. Ordering the defendants to maintain plaintiff in the peaceful possession and cultivation of
said fishpond, with all the rights accorded and obligations imposed upon him by law;

3. Ordering the Branch Clerk of Court to withdraw and deliver to the plaintiff all the amounts
deposited with this Court; and

4. All others claims of the parties are hereby denied for lack of merit.

Olanday, et al. elevated the decision to the then Intermediate Appellate Court (IAC)8 which affirmed
with slight modification the decision of the trial court on May 31, 1985. On appeal, this
Court9 sustained the IAC decision in G.R. No. 71217. On May 25, 1991, after remand of the case to
the court of origin, private respondent was placed in possession of the entire property covered by
TCT 34341.

Petitioners then filed with Respondent Court of Appeals a petition for annulment of the aforesaid
judgment against private respondent and the implementing sheriff.10 The case was docketed as CA
GR SP No. 24846. On May 8, 1991, Respondent Court issued a resolution directing petitioners "to
implead as party defendant the Regional Trial Court of Dagupan City, Branch 50, Dagupan
City."11 Respondent Court promulgated in due course the assailed Decision and Resolution.

Dissatisfied, petitioners lodged this petition for review before us on May 10, 1992. On August 24,
1992, due course was granted to the petition, and the parties filed their respective memoranda.

The Issues

In their Memorandum dated November 7, 1992, petitioners allege that Respondent Court of Appeals
has committed the following errors:12

I. The Respondent Court of Appeals erred in ruling that the sole and only
ground for annulment of judgment is extrinsic fraud.

II. The Respondent Court of Appeals erred when it failed to consider that lack
of due process and jurisdiction over the persons of the petitioners are also
valid grounds for annulment of judgment.

III. In annulment of judgment the grounds should be based solely on the

records of the case. It is then an error for the Respondent Court of Appeals to
consider matters extraneous to the records of the case.

IV. The Respondent Court of Appeals erred in ruling that petitioners should
have intervened in the proceedings for issuance of writ of execution before
the lower court.

V. The Respondent Court of Appeals erred in ruling that the petitioners are
estopped or are guilty of laches in questioning the decision of the lower court.

The Court believes that these five assigned errors may be condensed into three issues:

(1) May a final judgment be annulled on the ground of lack of jurisdiction

(over the subject matter and/or over the person of indispensable parties) and
denial of due process, aside from extrinsic fraud?
 (2) May extraneous matters, not found in the records of the original case, be
used in voiding or defending the validity of such final judgment?

(3) Procedurally, will an independent action for annulment of the decision of

the regional trial court (which was affirmed both by the Court of Appeals and
the Supreme Court) filed before the Court of Appeals prosper, or is
intervention before the court of origin the only remedy?

The Court's Ruling

The petition is meritorious.

First Issue: Grounds for Annulment of Final Judgment

Petitioners contend that Respondent Court of Appeals erred in decreeing "the all-sweeping and
categorical pronouncement that the sole and only ground for annulment of judgment is extrinsic
fraud," and in thereby ignoring various Supreme Court rulings that a final judgment may also be
annulled for "a) lack of jurisdiction over the subject matter; b) lack of jurisdiction over the persons of
necessary or indispensable parties; and c) lack of due process."13Petitioners argue that, being co-
owners of the subject property, they are "indispensable parties."14 Inasmuch as they were not
impleaded in Civil Case D-7240, "the questioned judgment of the lower court is void insofar as the
petitioners are concerned for want of jurisdiction over their persons and [for] lack of due
process."15 Petitioners "do not see any reason why a person who was not made a party at all could
not assail the same proceedings involving his property and affecting his rights and interests."16

Petitioners further maintain that since "the case involves the personal status of the private
respondent, or relates to, or the subject of which is property within the Philippines, then the
petitioners as non-residents" are entitled to extra-territorial service,17 which is a "due process
requirement." As they were never served with summons, to "bar them [from] questioning the
proceedings of the lower court will be compounding injustice . . . . If a party to a case can assail the
proceedings for defective service of summons," the same right should be afforded to a person who
was not made a party at all.18

Public respondent disposed of petitioners' above contention in this

wise:19

First. Annulment of judgment, as the Supreme Court had occasion to rule, rests on a single
ground: extrinsic fraud (Canlas vs. Court of Appeals, 170 [sic] SCRA 160, 170). Islamic Da'
Wah Council of the Phils. vs. Court of Appeals, 178, 186, citing Anuran vs. Aquino, 38 Phil.
29, emphatically announced that there can be no question as to the right of any person
adversely affected by a judgment to maintain an action to enjoin its enforcement and to have
it declared a nullity on the ground of fraud and collusion practiced in obtaining the judgment
when such fraud is extrinsic or collateral to the matters involved in the issues raised at the
trial which resulted in such judgment.

xxx xxx xxx

Clearly, there is nothing in the petition that extrinsic fraud, as Macabingkil defines it, indeed
vitiated the proceedings during the trial of Civil Case No. D-7240.

The essence of the instant petition is worded by the petitioners as follows:

 The common property involved in this case is covered by a Torrens Title,
specifically mentioning the co-owners thereof. To bind the entire property and
the owners thereof, all the registered owners must be impleaded. The private
respondent ONLY IMPLEADED the three co-owners, excluding the
petitioners herein. For the petitioners to be bound by the questioned decision,
such would really be a derogation of their constitutional right to due process.
The questioned decision, too, suffers the fatal defect of utter want of
jurisdiction.

Accordingly, since the petition for annulment of judgment is not based on the ground of
extrinsic fraud, the petition suffers from a basic and fundamental infirmity that deprives
petitioners of a valid cause of action against respondents herein.

We hold that the Court of Appeals erred in limiting the ground(s) for annulment of judgment to only
one, namely, extrinsic fraud. While it is true that in the cited cases of Canlas vs. CA20 and Islamic Da'
Wah Council of the Philippines vs. Court of Appeals,21 this Court said that a judgment "may be
annulled on the ground of extrinsic or collateral fraud,"22 we should hasten to add that in Macabingkil
vs. People's Homesite and Housing Corporation,23where the above ruling on annulment of judgment
was based, we held that there are really three ways by which a final judgment may be attacked: 24

Under existing rules, there are three (3) ways by which a final and executory judgment may
be set aside. The first is by petition for relief from judgment under Rule 38 of the Revised
Rules of Court, when judgment has been taken against the party through fraud, accident,
mistake or excusable negligence, in which case the petition must be filed within sixty (60)
days after the petitioner learns of the judgment, but not more than six (6) months after such
judgment was entered. The second is by direct action to annul and enjoin the enforcement of
the judgment. This remedy presupposes that the challenged judgment is not void upon its
face, but is entirely regular in form, and the alleged defect is one which is not apparent upon
its face or from the recitals contained in the judgment.[fn: Abbain v. Chua, 22 SCRA 798;
Cadano v. Cadano, 49 SCRA 33; Anuran v. Aquino, 38 Phil. 329] As explained in Banco
Español-Filipino v. Palanca, [fn: 37 Phil. 291, 949] "under accepted principles of law and
practice, long recognized in American courts, the proper remedy in such case, after the time
for appeal or review has passed, is for the aggrieved party to bring an action enjoining the
judgment, if not already carried into effect; or if the property has already been disposed of,
he may institute suit to recover it." The third is either a direct action, as certiorari, or by a
collateral attack against the challenged judgment (which is) is void upon its face, or that the
nullity of the judgment is apparent by virtue of its own recitals. As aptly explained by Justice
Malcolm in his dissent in Banco Español-Filipino v. Palanca, supra, "A judgment which is
void upon its face, and which requires only an inspection of the judgment roll to demonstrate
its want of vitality is a dead limb upon the judicial tree, which should be lopped off, if the
power so to do exists."

Since the aforementioned decision in Civil Case No. Q-5866 is not void upon its face, it may
only be annulled by direct action on the ground of fraud.

It is only extrinsic or collateral fraud, as distinguished from intrinsic fraud, however, that can
serve as a basis for the annulment of judgment. [Aring v. Original, 6 SCRA 1021, 1025;
Velasco v. Velasco, 2 SCRA 736] Fraud has been regarded as extrinsic or collateral, within
the meaning of the rule, "where it is one the effect of which prevents a party from having a
trial, or real contest, or from presenting all of his case to the court, or where it operates upon
matters pertaining, not to the judgment itself, but to the manner in which it was procured so
that there is not a fair submission of the controversy." [46 Am. Jur. 913] . . . .
It is clear then that to set aside a final and executory judgment, there are three remedies available to
a litigant: first, a petition for relief from judgment under Rule 38 of the Rules of Court25 on grounds of
fraud, accident, mistake and excusable negligence filed within sixty (60) days from the time
petitioner learns of the judgment but not more than six (6) months from the entry thereof; second, a
direct action to annul the judgment on the ground of extrinsic fraud; and third, a direct action
for certiorari or collateral attack to annul a judgment that is void upon its face or void by virtue of its
own recitals. Thus, Macabingkil did not preclude the setting aside of a decision that
is patently voidwhere mere inspection of the judgment is enough to demonstrate its nullity on
grounds of want of jurisdiction or non-compliance with due process of law. This doctrine is
recognized in other cases: 26

. . . . There is no question that a final judgment may be annulled. There are, however, certain
requisites which must be established before a judgment can be the subject of an action for
annulment. "Under the present procedure, aside from the reliefs provided in these two
sections (Secs. 1 & 2, Rule 38), there is no other means whereby the defeated party may
procure final and executory judgment to be a set aside with a view to the renewal of the
litigation, unless (a) the judgment is void for want of jurisdiction or for lack of due process of
law, or (b) it has been obtained by fraud." (I Moran's Rule of Court 1950 Ed., 697, citing
Anuran v. Aquino, 38 Phil. 29; Banco Español-Filipino v. Palanca, 37 Phil. 921). Reason of
public policy which favors the stability of judicial decisions are (sic) mute in the presence of
fraud which the law abhors (Garchitorena vs. Sotelo, 74 Phil. 25).

On the one hand, extrinsic fraud is the ground to annul a voidable final judgment; the declaration of
nullity of a patently void final judgment, on the other, is based on grounds other than extrinsic fraud.
To say, then, that petitioners can avail themselves only of the ground of extrinsic fraud and no other
is to fail to appreciate the true meaning and ramifications of annulment/nullity.

Jurisdiction is conferred by law. Its exercise must strictly comply with the legal requisites; otherwise,
a challenge on the ground of lack of jurisdiction may be brought up anytime. Such jurisdiction
normally refers to jurisdiction over the subject. As an example, in a case involving the issuance of a
new owner's duplicate certificate of title, the original of which was lost, stolen or destroyed, the court
must strictly comply with the requisites of Section 109 of P.D. 1529; otherwise, its jurisdiction may be
attacked anytime. Thus, we ruled in New Durawood Co. Inc. vs. Court of Appeals:27

In Demetriou vs. Court of Appeals, et al., [238 SCRA 158, at 162 (November 14, 1994)] this
Court ruled:

In Serra Serra v. Court of Appeals (195 SCRA 482 [1991]), on facts

analogous to those involved in this case, this Court already held that if a
certificate of title has not been lost but is in fact in the possession of another
person, the reconstituted title is void and the court rendering the decision has
not acquired jurisdiction. Consequently the decision may be attacked any
time.

In the instant case, the owner's duplicate certificates of title were in the possession of Dy
Quim Pong, the petitioner's chairman of the board and whose family controls the petitioner
corporation. Since said certificates were not in fact "lost or destroyed," there was no
necessity for the petition filed in the trial court for the "Issuance of New Owner's Duplicate
Certificates of Title . . . ," In fact, the said court never acquired jurisdiction to order the
issuance of new certificates. Hence, the newly issued duplicates are themselves null and
void.
 It is obvious that this lapse happened because private respondents and respondent judge
failed to follow the procedure set forth in P.D. No. 1529 which, as already stated, governs the
issuance of new owner's duplicate certificates of title.

Section 109 of the said law provides, inter alia, that "due notice under oath" of the loss or
theft of the owner's duplicate certificate "shall be sent by the owner or by someone in his
behalf to the Register of Deeds . . ." (emphasis supplied). In this case, while an affidavit of
loss was attached to the petition in the lower court, no such notice was sent to the Register
of Deeds.

Private respondents tried to convince the Court that by their failure to locate Francis
Dytiongsee, they had no other recourse but to file a petition for reconstitution. Sec. 107 of the
P.D. 1529, however, states that the remedy, in case of the refusal or failure of the holder —
in this case, the petitioner — to surrender the owner's duplicate certificate of title, is a
"petition in court to compel surrender of the same to the Register of Deeds," and not a
petition for reconstitution.

Ineluctably, a judgment rendered without jurisdiction over the subject matter is void. As we
elucidated in Leonor vs. CA:28

Clearly and unequivocally, the summary procedure under Rule 108, and for that matter
under Art. 412 of the Civil Code, cannot be used by Mauricio to change his and Virginia's
civil status from married to single and of their three children from legitimate to illegitimate.
Neither does the trial court, under said Rule, have any jurisdiction to declare their marriage
null and void and as a result thereof, to order the local civil registrar to cancel the marriage
entry in the civil registry. Further, the respondent trial judge gravely and seriously abused his
discretion in unceremoniously expanding his very limited jurisdiction under such rule to hear
evidence on such a controversial matter as nullity of a marriage under the Civil Code and/or
Family Code, a process that is proper only in ordinary adversarial proceedings under the
Rules.

Jurisdiction over the Persons

of Indispensable Parties

True, the above dispositions refer to jurisdiction over the subject matter. Basic considerations of due
process, however, impel a similar holding in cases involving jurisdiction over the persons of
indispensable parties which a court must acquire before it can validly pronounce judgments personal
to said defendants. Courts acquire jurisdiction over a party plaintiff upon the filing of the complaint.
On the other hand, jurisdiction over the person of a party defendant is assured upon the service of
summons in the manner required by law or otherwise by his voluntary appearance. As a rule, if a
defendant has not been summoned, the court acquires no jurisdiction over his person, and a
personal judgment rendered against such defendant is null and void.29 A decision that is null and void
for want of jurisdiction on the part of the trial court is not a decision in the contemplation of law and,
hence, it can never become final and executory.30

Rule 3, Section 7 of the Rules of Court, defines indispensable parties as parties-in-interest without
whom there can be no final determination of an action. As such, they must be joined either as
plaintiffs or as defendants. The general rule with reference to the making of parties in a civil action
requires, of course, the joinder of all necessary parties where possible, and the joinder of all
indispensable parties under any and all conditions, their presence being a sine qua non for the
exercise of judicial power.31 It is precisely "when an indispensable party is not before the court (that)
the action should be dismissed."32 The absence of an indispensable party renders all subsequent
actions of the court null and void for want of authority to act, not only as to the absent parties but
even as to those present.33

Petitioners are co-owners of a fishpond. Private respondent does not deny this fact, and the Court of
Appeals did not make any contrary finding. The fishpond is undivided; it is impossible to pinpoint
which specific portion of the property is owned by Olanday, et al. and which portion belongs to
petitioners. Thus, it is not possible to show over which portion the tenancy relation of private
respondent has been established and ruled upon in Civil Case D-7240. Indeed, petitioners should
have been properly impleaded as indispensable parties. Servicewide Specialists, Incorporated
vs. Court of Appeals34 held that no final determination of a case could be made if an indispensable
party is not impleaded:

. . . . An indispensable party is one whose interest will be affected by the court's action in the
litigation, and without whom no final determination of the case can be had. The party's
interest in the subject matter of the suit and in the relief sought are so inextricably intertwined
with the other parties that his legal presence as a party to the proceeding is an absolute
necessity. In his absence there cannot be a resolution of the dispute of the parties before the
court which is effective, complete, or equitable.

Formerly, Article 487 of the old Civil Code provided that "any one of the co-owners may bring an
action in ejectment." It was subsequently held that a co-owner could not maintain an action in
ejectment without joining all the other co-owners. Former Chief Justice Moran, an eminent authority
on remedial law, explains:35

. . . . As held by the Supreme Court, were the courts to permit an action in ejectment to be
maintained by a person having merely an undivided interest in any given tract of land, a
judgment in favor of the defendants would not be conclusive as against the other co-owners
not parties to the suit, and thus the defendant in possession of the property might be
harassed by as many succeeding actions of ejectment, as there might be co-owners of the
title asserted against him. The purpose of this provision was to prevent multiplicity of suits by
requiring the person asserting a right against the defendant to include with him, either as co-
plaintiffs or as co-defendants, all persons standing in the same position, so that the whole
matter in dispute may be determined once and for all in one litigation.

Contrariwise, it is logical that a tenant, in an action to establish his status as such, must implead all
the pro-indivisoco-owners; in failing to do so, there can be no final determination of the action. In
other words, a tenant who fails to implead all the co-owners cannot establish with finality his tenancy
over the entire co-owned land.

Co-owners in an action for the security of tenure of a tenant are encompassed within the definition of
indispensable parties; thus, all of them must be impleaded. As defined:36

An indispensable party is a party who has such an interest in the controversy or subject
matter that a final adjudication cannot be made, in his absence, without injuring or affecting
that interest, a party who has not only an interest in the subject matter of the controversy, but
also has an interest of such nature that a final decree cannot be made without affecting his
interest or leaving the controversy in such a condition that its final determination may be
wholly inconsistent with equity and good conscience. It has also been considered that an
indispensable party is a person in whose absence there cannot be a determination between
the parties already before the court which is effective, complete, or equitable. Further, an
indispensable party is one who must be included in an action before it may properly go
forward.
 A person is not an indispensable party, however, if his interest in the controversy or subject
matter is separable from the interest of the other parties, so that it will not necessarily be
directly or injuriously affected by a decree which does complete justice between them. Also,
a person is not an indispensable party if his presence would merely permit complete relief
between him and those already parties to the action, or if he has no interest in the subject
matter of the action. It is not a sufficient reason to declare a person to be an indispensable
party that his presence will avoid multiple litigation.

Clearly, the decision in Civil Case D-7240 cannot bind petitioners and cannot adjudicate the entire
co-owned property, not even that portion belonging to Olanday et al., ownership of the property
being still pro-indiviso. Obviously, the failure to implead petitioners barred the lower court from
making a final adjudication. Without the presence of indispensable parties to a suit or proceeding, a
judgment therein cannot attain finality.37

Ergo, res inter alios judicatae nullum aliis praejudicarium faciunt.38 Thus, the Court, through former
Chief Justice Marcelo B. Fernan, held that a person who was not impleaded in the complaint cannot
be bound by the decision rendered therein, for no man shall be affected by a proceeding in which he
is a stranger.39

Admittedly, in this case, the want of jurisdiction of the trial court in rendering its decision in Civil Case
No. D-7240 is not patent on the face of said judgment. However, there were glaring documentary
and testimonial pieces of evidence referred to by the trial court in its decision which should have
prompted it to inquire further whether there were other indispensable parties who were not
impleaded. These facts and circumstances should have forewarned the trial court that it had not
acquired jurisdiction over a number of indispensable parties. In American jurisprudence, the nullity of
a decision arising from lack of jurisdiction may be determined from the record of the case, not
necessarily from the face of the judgment only.40 We believe that this rule should be applied to this
case, considering that in the assailed trial court's decision, referrals were made to crucial evidence
which if scrutinized would readily reveal that there were indispensable parties omitted.

First, the decision referred to the subject property "as Lot No. 3312 of the Cadastral Survey."41 This
lot was particularly described in private respondent's Complaint dated February 6, 1984 filed in Civil
Case D-7240.42Obviously such description was copied by private respondent from the transfer
certificate of title over the subject fishpond issued on August 12, 1975 naming all the co-owners,
including the herein petitioners and the fact of their foreign residences, thus:43

IT IS HEREBY CERTIFIED that certain land situated in the City of Dagupan, formerly in the
Province of Pangasinan bounded and described as follows:

A parcel of land (Lot 3312 of the Cadastral Survey of Dagupan), situated in

the City of Dagupan . . . .

is registered in accordance with the provisions of the Land Registration Act in the name
of PACITA ARCELONA, married to Miguel Ulanday; TOMASA ARCELONA, married to Tung
Ming Chiang; MARCELINO V. ARCELONA, married to Soledad Tiongco; MARIA V.
ARCELONA, married to Oreste Arellano; BENEDICTO V. ARCELONA, married to Ruth
Suget; and NATIVIDAD ARCELONA, married to Agrimero Cruz; all of legal age, Filipinos,
the second and fifth named residents of Los Angeles, California, U.S.A., third & fourth of
Manila; first of Villasis, Pangasinan & the last named of Lingayen, Pangasinan as owner
thereof in fee simple, subject to such of the incumbrances mentioned in Section 39 of said
Act as may be subsisting, and to
xxx xxx xxx

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Considering that private respondent was suing to establish his status as a tenant over the subject
fishpond, the responsibility for impleading all the indispensable parties undeniably rested on him as
provided under Rule 3 of the Rules of Court. Section 2 of Rule 3 requires that "every action must be
prosecuted and defended in the name of the real party in interest. All persons having an interest in
the subject of the action and in obtaining the relief demanded shall be joined as plaintiffs." Further,
Section 7 of the same rule states that "(p)arties in interest without whom no final determination can
be had of an action shall be joined either as plaintiffs or defendants."

Second, Respondent Court of Appeals ruled that private respondent "in his motion to dismiss (before
said Court) alleged that petitioners knew of the lessee as revealed by the testimony of Pacita
Olanday, one of the defendants in Civil Case No. D-7240 and a sister of petitioners. (TSN, pp. 15-
16, hearing of October 2, 1984, Civil Case No. D-7240)." That being so, why did private respondent
fail to include petitioners as defendants in the case below? It should be noted that the lease contract
was between Cipriano Tandoc and Olanday, et al. Private respondent, a caretaker-tenant of Tandoc,
knew or should have known that there were co-owners other than Olanlday, et al. And even
conceding arguendo that petitioners had authorized Olanday, et al. to enter into a lease contract with
Tandoc, this fact did not authorize the latter to represent petitioners in the civil case he brought.
Under Rule 9, Section 9 of the Rules of Court, the pleader is required to set forth the names, if
known to him, of persons who ought to be parties, if complete relief is to be accorded to those who
are already parties but who are not joined; and to state why they have been omitted. Surely, he
brought suit to establish his status as a tenant. It is thus his responsibility to state the names of all
the persons against whom he wants to establish his status as tenant.
Third, both the private respondent and the trial court knew of the obvious omission of petitioners as
party defendants. Telling is the fact that, by reciting part of the transcript of stenographic notes,
private respondent himself provided clear evidence in his memorandum that he knew of the
existence of other co-owners who were not impleaded in his case against Olanday et al.:44

As admitted by Pacita Olanday, one of the defendants in Civil Case No. D-7240, the
petitioners know of the lease with Cipriano Tandoc; they were authorized to lease the shares
of the petitioners. Here is the testimony of Pacita Olanday:

ATTY. VINLUAN:

Q. You made mentioned that you were authorized by your brothers and sister
who are (sic) residing in the United States to enter into a contract. Did these
brothers and sister of yours make any special power of attorney authorizing
you to that effect?

xxx xxx xxx

A. I talked with my brothers when they "balik-bayan", they said I will make an
agreement. (tsn. October 2, 1984 pp. 15 and 16 — CV# D-7240).

He also knew that in executing the lease, Pacita Olanday represented only her sisters (Maria and
Natividad) who were residing in the Philippines. Definitely, at the time of the execution of the
contract, she had no brother residing in the Philippines because her only brothers, Marcelino and
Benedicto Arcelona, (the latter now deceased and represented in this case by Petitioner Ruth
Arcelona) were living in California. This fact can be deduced from the recitals of the RTC decision:45

It is undisputed in the records that the defendants (referring to Olanday, et al.) are co-owners
and civil law lessors of a fishpond otherwise known as Lot No. 3312 of the Cadastral Survey
of Dagupan City; that as owners, they entered into a Contract of Lease (Exh. "1") with one
Cipriano Tandoc dated March 4, 1978 for a term of three (3) years from February 2, 1982,
which contract was renewed for another two (2) years up to February 2, 1984. On the 31st of
January, 1984, Exhibit "3", an "Affidavit of Surrender of Rights and Possession of Lessee
over a Fishpond" was executed between Cipriano Tandoc and Pacita Olanday who signed
for herself and in behalf of her two (2) sisters. Plaintiff Moises Farnacio was however,
instituted as caretaker-tenant over the same fishpond by Cipriano Tandoc on the date of the
Contract of Lease was entered into between the owners-lessors and Cipriano Tandoc. The
private agreement (Exh. "D") signed by Cipriano Tandoc and Moises Farnacio is, however,
assailed in a criminal case for falsification in the Fiscal's Office." (Emphasis supplied).

In fact, only these co-owners who are residing in the Philippines were joined as defendants in Civil
Case D-7240. But the mention of Pacita's relatives who were residing abroad should have made the
trial court aware of the existence of indispensable parties who were not yet impleaded.

Despite this knowledge of the apparent defect in the complaint and in its jurisdiction, the trial court
did not take the initiative to implead petitioners as defendants or to order private respondent to do
so, contrary to the clear mandate of Rule 3, Sec. 11 of the Rules of Court46 which provides:

Sec. 11. Misjoinder and non-joinder of parties. — Misjoinder of parties is not ground for
dismissal of an action. Parties may be dropped or added by order of the court on motion of
any party or on its own initiative at any stage of the action and on such terms as are just. Any
claim against a party may be severed and proceeded with separately.
The foregoing testimony on the existence of other co-owners was a clear signal that indispensable
parties had not yet been impleaded. Indeed, this knowledge should have put the private respondent
and the trial court on guard. The burden to implead or to order the impleading of indispensable
parties is placed on private respondent and on the trial court, respectively. Since no evidence was
presented to prove that petitioners were aware of the civil case filed against Olanday et al., they
cannot be faulted for not intervening therein.

In sum, we hold that the nullity of a judgment grounded on lack of jurisdiction may be shown not only
by what patently appears on the face of such decision but also by documentary and testimonial
evidence found in the records of the case and upon which such judgment is based.

Before ending our discussion on the first issue, we must stress that the then Intermediate Appellate
Court and this Court, in affirming the RTC decision in Civil Case No. D-7240 which we here nullify,
had not been given the occasion to rule on the issue of the trial court's jurisdiction over the persons
of indispensable parties; verily, this question had not been raised before the two appellate courts.
The review of civil cases by appellate courts is confined only to the issues raised by the parties.
Hence, appellate courts do not have the privilege or the opportunity afforded the trial courts to
consider matters beyond the specifically contested issues, e.g., jurisdiction over indispensable
parties, as in this case. Such lack of jurisdiction could not have been known by the appellate courts,
including this Court, as it was not patent from the documents or submissions filed before them. The
issue raised before the then Intermediate Appellate Court and this Court was formulated in this wise:
"(t)he validity of private respondent's claim that he is a tenant of the petitioners' fishpond, with
security of tenure as such assured under the law, is the basic question presented in this
appeal."47 We underscore the fact that the issue of whether all the indispensable parties had been
validly impleaded, if at all, had not been raised at that time. In any event, whether the indispensable
parties were actually impleaded and jurisdiction over them was acquired was a factual question for
the trial court to determine. Consistent with the basic doctrine that factual findings of lower courts are
binding on appellate courts unless covered by the recognized exceptions,48 appellate courts must be
able to rely on the implied affirmation of the trial court that jurisdiction had been acquired over
indispensable parties, especially when this was not raised as an issue on appeal. The responsibility
for impleading indispensable parties for the exhaustive trial of a case cannot rest on this forum or on
the then Intermediate Appellate Court. Indeed, the Decision of this Court affirming the said trial
court's decision is captioned only as "Pacita A. Olanday, Maria A. Arellano and Natividad A. Cruz,
petitioners, vs. Intermediate Appellate Court and Moises Farnacio, respondents", clearly indicating
that petitioners herein had been omitted as indispensable parties in the proceedings before the trial
court and before the appellate tribunals. Substantial justice requires that this error be now rectified.

Second Issue: Estoppel and Laches

Apart from holding that there was only one ground to annul a judgment, namely, extrinsic fraud, the
appellate court — using extraneous evidence — also found that estoppel and laches had set in
against petitioners, thereby barring them from asserting lack of jurisdiction over their persons. These
"extraneous matters" are stated by the Respondent Court in this wise:

. . . True, indeed, that petitioners were not original parties to the action and that the decision
embraces half of the property in dispute belonging to petitioners as co-owners thereof. But
they cannot now complain they were denied due process. It will be recalled that the contract
of lease was entered with one Cipriano Tandoc on March 4, 1978 for a term of three years,
which contract was renewed for another two years up to February 2, 1984. During all the
years of the existence of the lease contract, it would be incredulous for petitioners to assert
that they never knew of such lease agreement from their three sisters, the defendants
herein. Petitioners raised no overt protest against the lease contract executed by their sisters
 with Cipriano Tandoc in 1978 and renewed in 1982. Petitioners took no direct action to
promptly disavow or disaffirm the action taken by their sisters to lease the entire property to
Tandoc.

It is likewise unbelievable that during all the years that the subject property (fishpond) is
under litigation in Civil Case No. D-7240 from 1984 to 1991, petitioners were not aware that
their property is subject of the controversy. By their continued silence, they have permitted
the acts of their sisters in leasing the property and they cannot now be heard, after a
prolonged period of time, to denounce such acts as done without their knowledge and
consent. The rule of acquiescence by silence has estopped petitioners to deny the reality of
the state of things which they made to appear to exist and upon which others have been led
to reply. Parties must take the consequences of the position they assume. Sound ethics
require that the apparent in its effects and consequences should be as if it were real, and the
law properly so regards. (Metro Manila Transit Corporation vs. Morales, 173 SCRA 629,
633).

In Santiago Syjuco, Inc. vs. Castro, 175 SCRA 171, 192, it was held, inter alia:

xxx xxx xxx

. . . . Likewise, in Criminal Case No. 16866 for falsification against respondent Farnacio
before Branch 3 of the Municipal Trial Court of Dagupan City, witness Juan Bernal testified
that the petitioners herein Tomasa Arcelona, Marcelino Arcelona and Ben Arcelona
authorized their sisters Natividad Cruz, Corazon Arcelona, Pacita Olanday to lease the
fishpond to Cipriano Tandoc. (TSN, pp. 5-6, hearing of August 10, 1987 in Criminal Case No.
16866).49

Petitioners balk at these pronouncements, arguing that in annulment of judgments, "the grounds
thereof must be based solely on the records of the case." They contend that "to permit the court's
record to be contradicted or varied by evidence dehors would render such records of no avail."
Petitioners contend that Respondent Court of Appeals erred in taking into account "the proceedings
in Criminal Case No. 16866 to show alleged knowledge of the petitioners herein of the lease of the
property to Cipriano Tandoc."50 Petitioners submit that the bone of contention in this case is

not knowledge of the petitioners of the Lease Contract executed by Pacita Olanday et al. and
Cipriano Tandoc, but whether the petitioners knew of the case filed by private respondent
against Pacita Olanday et al. involving their common property.

Petitioners stress that Private Respondent Farnacio is "a total stranger" and has absolutely no privity
of interest with them because it was Tandoc, not Farnacio, who entered into a lease contract with
Olanday, et al.51

Petitioners deny any concealment or deception on their part that would constitute estoppel. They
contend that in the transfer certificate of title, their names "were specifically mentioned as co-owners
of the property on which the private respondent sought to be installed in physical possession as
tenant."52 They aver that Respondent Court of Appeals' finding that they had knowledge of the lease
contract "is based on presumption not on clear and convincing evidence." Assuming, according to
petitioners, that they can be held in estoppel, it can only be as against Cipriano Tandoc, not private
respondent who "was never a party to the lease contract."53

Since the judgment is void "insofar as the petitioner are concerned for lack of jurisdiction [over] their
persons and for want of due process," and since they "were never given the opportunity to institute
any action to protect their interest," petitioners contend that to bar them now by laches and estoppel
"will create an unfair and unjust situation." For as petitioners candidly state, they "do not question the
pronouncement that private respondent is the tenant of Pacita Olanday et al."; however, they submit
that the issue in this case is whether private respondent "is also the tenant of herein petitioners
entitled to be placed in physical possession and cultivation of their undetermined share in the
property without [petitioners] being made parties in the case."54

Private respondent counters that "Pacita Olanday . . . testified that she was authorized to lease the
share of . . . petitioners." According to private respondent, while petitioners were in the Philippines,
they were informed of the appointment of private respondent as caretaker-tenant of the entire
fishpond, and they did not object to such appointment.55 Further, private respondent contends that
petitioners failed to intervene in the case before the writ of execution was granted on "May 5, 1991"
despite the "appearance . . . of their counsel, Atty. Marina Cruz, when the motion for issuance of
said writ was heard." Private respondent adds that he was "impliedly recognized" as a tenant when
petitioners "received their corresponding shares [i]n the lease rental of the property from the private
respondent, through Olanday, et al. and their counsel, Atty. Marina Cruz."56

As correctly put by petitioners, we hold that Respondent Court of Appeals, in deciding the petition to
declare the judgment void, cannot consider extraneous matters to vary what the records bear. In
other words, the Court of Appeals cannot annul or declare null the assailed decision with such
extraneous matters. The validity or nullity of the said decision must stand or fall on its own face and
the evidence on record.

In an action to declare a judgment void because of lack of jurisdiction over the parties or subject
matter, only evidence found in the records of the case can justify the annulment of the said
judgment. Contrariwise, the nullity of the judgment due to lack of jurisdiction may be proved at most
by the evidence on record but never by extraneous evidence. Sen. Vicente J. Francisco aptly
explains this in his treatise on the Rules of Court:57

The validity of a final judgment may be attacked on the ground that the judgment or order is
null and void, because the court had no power or authority to grant the relief or no jurisdiction
over the subject matter or over the parties or both. The aggrieved party may attack the
validity of the final judgment by a direct action or proceeding in order to annul the same,
as certiorari, which is not incidental to, but is the main object of the proceeding. The validity
of a final judgment may also be attacked collaterally as when a party files a motion for the
execution of the judgment and the adverse party resists the motion by claiming that the court
has no authority to pronounce the judgment and that the same is null and void for lack of
jurisdiction over the subject matter or over the parties.

In cases of collateral attack, the principles that apply have been stated as follows: "The
legitimate province of collateral impeachment is void judgments. There and there alone can it
meet with any measure of success. Decision after decision bears this import: "In every case
the field of collateral inquiry is narrowed down to the single issue concerning the void
character of the judgment and the assailant is called upon to satisfy the court that such is the
fact. To compass his purpose of overthrowing the judgment, it is not enough that he shows a
mistaken or erroneous decision or a record disclosing non-jurisdictional irregularities in the
proceedings leading up to the judgment. He must go beyond this and show to the court,
generally from the fact of the record itself, and not by extraneous evidence that the judgment
complained of is utterly void. If he can do that his attack will succeed for the cases leave no
doubt respecting the right of a litigant to collaterally impeach a judgment that he can prove to
be void.
 The reason for the rule of exclusion of extraneous proof to show that the judgment
complained of is utterly void for lack of jurisdiction has been expressed in the following
words: "The doctrine that the question of jurisdiction is to be determined by the record alone,
thereby excluding extraneous proof seems to be the natural unavoidable result of that stamp
of authenticity which, from the earliest times, was placed upon the "record," and which gave
it such "uncontrollable credit and verity that no plea, proof, or averment could be heard to the
contrary." . . . Any rule, . . . would be disastrous in its results, since to permit the court's
record to be contradicted or varied by evidence dehors would render such records of no avail
and definite sentences would afford but slight protection to the rights of parties once
solemnly adjudicated.

We should add, however, that where an action for annulment of judgment is grounded on extrinsic
fraud, extraneous evidence is admitted. We have held that, although a person need not be a party to
the judgment sought to be annulled by reason of extrinsic fraud, he must prove his allegation that the
judgment was obtained by the use of fraud and collusion and that he would be adversely affected
thereby.58 Fraud must be extraneous, otherwise, there would be no end to litigation. Extrinsic fraud
refers to any fraudulent act committed by a prevailing party outside the trial of the case, whereby the
defeated party has been prevented from fully exhibiting his side of the case, because of fraud or
deception practiced on him by his opponent.59 As distinctly defined in Cosmic Lumber Corporation
vs. Court of Appeals, et al.:60

There is extrinsic fraud within the meaning of Sec. 9, par. (2), of B.P. Blg. 129, where it is
one the effect of which prevents a party from hearing a trial, or real contest, or from
presenting all of his case to the court, or where it operates upon matters, not pertaining to
the judgment itself, but to the manner in which it was procured so that there is not a fair
submission of the controversy. In other words, extrinsic fraud refers to any fraudulent act of
the prevailing party in the litigation which is committed outside of the trial of the case,
whereby the defeated party has been prevented from exhibiting fully his side of the case by
fraud or deception practiced on him by his opponent. (fn: Makabingkil v. PHHC, No. L-29080,
17 August 1976, 72 SCRA 326, 343-344) Fraud is extrinsic where the unsuccessful party
has been prevented from exhibiting fully his case, by fraud or deception practiced on him by
his opponent, as keeping him away from court, a false promise of a compromise; or where
the defendant never had knowledge of the suit, being kept in ignorance by the acts of the
plaintiff; or where an attorney fraudulently or without authority connives at his defeat; these
and similar cases which show that there has never been a real contest in the trial or hearing
of the case are reasons for which a new suit may be sustained to set aside and annul the
former judgment and open the case for a new and fair hearing. (fn: Id., p. 344 citing U.S. v.
Throckmorton, 25 L. Ed. 93, 95)

In deciding the "petition for annulment of judgment" — which should be a "petition to declare
judgment void" — Respondent Court of Appeals should not have considered the following matters
which find no support from the records and are thus considered "extraneous": (1) the assumption
that petitioners knew of the five-year lease contract with private respondent and the pendency of
Civil Case No. D-7240 from 1984 to 1991; and (2) the testimony of Juan Bernal in a separate
criminal case before another court concerning the authority granted to Olanday et al. and where
petitioners were not parties. The rule is that the nullity of the decision arising from want of jurisdiction
and/or due process should appear from the records of the case. And the validity of the judgment
cannot be anchored on mere suppositions or speculations, as Respondent Court did.

Equally important, the finding of estoppel and laches by Respondent Court is not supported by the
evidence on record. The silence of petitioners can easily be explained by the fact that they were not
in the country during the pendency of the subject civil case. Such absence from the country was
never rebutted by private respondent. Even in the proceedings antecedent to this case before us
now, petitioners were merely represented by their attorney-in-fact.61 Moreover, they were not at all
impleaded as parties in the judgment sought to be voided. Neither were they properly served
summons. The indelible fact is that they were completely ignored.

In any event, we ruled in Alabang Development Corporation vs. Valenzuela62 that no laches attach
when the judgment is null and void for want of jurisdiction:

The herein respondents attribute laches to the petitioners for not appealing from the order of
the lower court denying their motion to intervene and motion for new trial hence allowing the
said order/decision to become final. There is no laches nor finality of any decision to speak of
since the decision under question is herein pronounced null and void for having been
rendered without jurisdiction. Prescinding therefrom, as admitted by themselves in their
comment, the judgment of reconstitution is "ineffective" against the owners of lands covered
thereby who were not joined as parties in the proceeding. As the Court ruled in Bernal case
on the matter of intervention [fn: 93 SCRA at pp. 247, 248] "a valid judgment cannot even be
rendered where there is want of indispensable parties' such as petitioners who hold
subsisting Torrens Title to the properties in question and "this aspect of the case commands
the joinder of indispensable parties to allow them to uphold their interests based upon the
Torrens titles they hold overrides any question of later intervention." Petitioners have
precisely availed of the proper, speedy and adequate remedy of the present special civil
action of certiorari and prohibition to annul and set aside for want of jurisdiction the decision
and all proceedings of respondent judge.

On the other hand, the doctrine of estoppel is predicated on and finds its roots in equity which,
broadly defined, is justice according to natural law and right. It is a principle intended to prevent a
clear case of injustice. The term is hardly separable from a waiver of right. Estoppel, like laches,
must be intentional and unequivocal, for when misapplied, it can easily become a most convenient
and effective means of injustice. Estoppel is a principle that, as a rule, can be invoked only in highly
exceptional and legitimate cases.63 In Cruz vs. Court of Appeals,64 we reiterated the requisites of
estoppel:

In Kalalo vs. Luz, [fn: 34 SCRA 337] We held that the essential elements of estoppel in
respect to the party claiming it are: (a) lack of knowledge and of the means of knowledge of
the truth as the facts in question; (b) reliance, in good faith, upon the conduct or statements
of the party to be estopped; and (c) action or inaction based thereon of such character as to
change the position or status of the party claiming the estoppel, to his injury, detriment, or
prejudice.

The herein facts ineluctably show the absence of the first element in this case. Inasmuch as there is
no proof that petitioners had knowledge of the pending tenancy case filed by private respondent, it is
only fair that they should not be held in estoppel for failing to intervene in and to question the
jurisdiction of the trial court in Civil Case No. D-7240. Thus, private respondent may not say that he
was misled into believing that petitioners knew of the lease contract and of the litigation of Civil Case
No. D-7240. Undisputedly, from the evidence on record, petitioners had no such knowledge.

Petitioners' receipt of lease rentals cannot be used as proof of recognition of private respondent as a
caretaker-tenant. This issue was not raised in the lower court and is being alleged for the first time
before us. Well-settled is the doctrine that questions not raised in the lower courts cannot be raised
for the first time on appeal.65

Third Issue: Intervention as a Remedy of Petitioners

Petitioners contend that Respondent Court of Appeals erred when it ruled that their only remedy was
intervention during the execution stage of Civil Case No. D-7240. Inasmuch as "annulment of
judgment could be made either collaterally or directly," petitioners insist that their resort to "direct
action in annulling the Decision of the lower court should not be taken against them."66 Moreover,
petitioners argue that "in proceedings for execution of a final decision or judgment, it is the
ministerial duty of the court of origin to issue the writ."67 Petitioners add that because their action
would result in the "modification, alteration, and annulment of the judgment, the specific provision of
law that annulment of judgment of the Regional Trial Court is within the exclusive jurisdiction of the
Court of Appeals should prevail."68

Private respondent counters that petitioners deliberately did not intervene "to afford them opportunity
to question, as they now question, the validity of any decision to be rendered in said case, . . . in the
event of an adverse decision."69

We hold that intervention is not the only remedy to assail a void final judgment. There is no
procedural rule prescribing that petitioners' intervention in the hearing for the issuance of a writ is the
only way to question a void final judgment. As already stated, petitioners were not aware of such
hearing. Besides, as already discussed, a direct action is available in assailing final judgments
grounded on extrinsic fraud, while a direct or a collateral action may be used to show lack of
jurisdiction.

The assailed Decision of Respondent Court of Appeals cites certain cases allowing intervention as
follows:70

A case in which an execution has been issued is regarded as still pending so that all
proceedings in the execution are proceedings in the suit. There is no question that the court
which rendered the judgment has a general supervisory control over its process of execution
and this power carries with it the right to determine every question of fact and law which may
be involved in the execution. (Suson vs. Court of Appeals, 172 SCRA 70, 75, citing Paman
vs. Severis, 115 SCRA 709; Seavan Carrier vs. GTI Sportswear, 137 SCRA 580)

These cases, which require intervention of parties who may be adversely affected by the decision,
are not applicable. In the cited Suson vs. Court of Appeals,71 the parties, though not impleaded, knew
of the case and were in fact directed by the trial court to intervene, but they refused to do so. These
particular facts are absent in the instant case where, to repeat, petitioners were abroad when Civil
Case D-7240 was prosecuted.

In any event, as earlier pointed out, jurisprudence upholds the soundness of an independent action
to declare as null and void a judgment rendered without jurisdiction as in this case. In Leonor
vs. Court of Appeals,72 Petitioner Virginia A. Leonor, through a "petition for certiorari, prohibition
and mandamus . . . sought the nullification of both the decision dated December 14, 1992 and the
order dated February 24, 1993 of the trial court for having been issued in excess of jurisdiction
and/or with grave abuse of discretion."73 We held in that case that:74

A void judgment for want of jurisdiction is no judgment at all. It cannot be the source of any
right nor the creator of any obligation. All acts performed pursuant to it and all claims
emanating from it have no legal effect. Hence, it can never become final and any writ of
execution based on it is void: ". . . it may be said to be a lawless thing which can be treated
as an outlaw and slain at sight, or ignored wherever and whenever it exhibits its head."

WHEREFORE, the petition for certiorari is GRANTED. The Decision of Respondent Court of
Appeals is hereby REVERSED and SET ASIDE. The decisions in Civil Case No. D-7240, AC-G.R.
SP-05237-CAR and G.R. No. L-71217 are ANNULLED and SET ASIDE for lack of jurisdiction. No
costs.

SO ORDERED.

G.R. No. 148211 July 25, 2006

SINCERE Z. VILLANUEVA, petitioner,

vs.
MARLYN P. NITE,* respondent.

DECISION

CORONA, J.:

In this petition for review on certiorari under Rule 45, petitioner submits that the Court of Appeals
(CA) erred in annulling and setting aside the Regional Trial Court (RTC) decision on the ground of
extrinsic fraud.

The facts follow.1

Respondent allegedly took out a loan of P409,000 from petitioner. To secure the loan, respondent
issued petitioner an Asian Bank Corporation (ABC) check (Check No. AYA 020195) in the amount
of P325,500 dated February 8, 1994. The date was later changed to June 8, 1994 with the consent
and concurrence of petitioner.

The check was, however, dishonored due to a material alteration when petitioner deposited the
check on due date. On August 24, 1994, respondent, through her representative Emily P. Abojada,
remitted P235,000 to petitioner as partial payment of the loan. The balance of P174, 000 was due on
or before December 8, 1994.

On August 24, 1994, however, petitioner filed an action for a sum of money and damages (Civil
Case No. Q-94-21495) against ABC for the full amount of the dishonored check. And in a decision
dated May 23, 1997, the RTC of Quezon City, Branch 101 ruled in his favor.2 When respondent went
to ABC Salcedo Village Branch on June 30, 1997 to withdraw money from her account, she was
unable to do so because the trial court had ordered ABC to pay petitioner the value of respondent’s
ABC check.

On August 25, 1997, ABC remitted to the sheriff a manager’s check amounting to P325,500 drawn
on respondent’s account. The check was duly received by petitioner on the same date.

Respondent then filed a petition in the CA seeking to annul and set aside the trial court’s decision
ordering ABC to pay petitioner the value of the ABC check.3 The CA ruled:

WHEREFORE, premises considered, the petition is GRANTED and the Decision dated May
23, 1997 of the public respondent is hereby ANNULLED and SET ASIDE for extrinsic fraud.
 [Petitioner] Villanueva is hereby ordered to pay [Nite] —

1) the sum of [P146,500] as actual damages plus interest at 12% per annum from August 25,
1997 until full payment;

2) the sum of [P75,000] as moral damages;

3) the sum of [P50,000] as exemplary damages; and

4) the sum of [P50,000] as attorney’s fees and cost of suit.

SO ORDERED.4

Thus, this petition. We find for respondent.

Annulment of judgment is a remedy in law independent of the case where the judgment sought to be
annulled is promulgated. It can be filed by one who was not a party to the case in which the assailed
judgment was rendered.Section 1 of Rule 47 provides:

Section 1. Coverage. – This Rule shall govern the annulment by the Court of Appeals of
judgments or final orders and resolutions in civil actions of Regional Trial Courts for which
the ordinary remedies of new trial, appeal, petition for relief or other appropriate remedies
are no longer available through no fault of the petitioner.

Respondent may avail of the remedy of annulment of judgment under Rule 47. The ordinary
remedies of new trial, appeal and petition for relief were not available to her for the simple reason
that she was not made a party to the suit against ABC. Thus, she was neither able to participate in
the original proceedings nor resort to the other remedies because the case was filed when she was
abroad.

Annulment of judgment may be based only on extrinsic fraud and lack of jurisdiction.5 Extrinsic or
collateral fraud pertains to such fraud which prevents the aggrieved party from having a trial or
presenting his case to the court, or is used to procure the judgment without fair submission of
the controversy.6 This refers to acts intended to keep the unsuccessful party away from the courts as
when there is a false promise of compromise or when one is kept in ignorance of the suit.7

We uphold the appellate court’s finding of extrinsic fraud:

Barely 6 days after receipt of the partial payment of P235,000.00 and agreeing that the
balance of P174,000.00 shall be paid on or before December 8, 1994, [Sincere] filed his
complaint against [ABC] for the full amount of the dishonored check in the sum of
P320,500.00 without impleading petitioner. The apparent haste by which [Sincere] filed his
complaint and his failure to implead [Marlyn] clearly shows his intent to prevent [Marlyn] from
opposing his action.

[A]t the time news about [Marlyn] having left the country was widespread, appearing even in
print media as early as May 1994, [Marlyn] paid [Sincere] the amount of P235,000.00 as
partial payment on [August 18, 1994], through a representative.

Notwithstanding the foregoing, SIX (6) days later or on [August 24, 1994, Sincere] instituted
an action for collection with damages for the whole amount of the issued check.
 [Sincere] does not deny knowledge of such payment neither of the fact that he concurred in
settling the balance of P174,000.00 on December 8, 1994.

[His] actuation and pronouncement shows not only bad faith on his part but also of his
fraudulent intention to completely exclude [Marlyn] from the proceedings in the court a
quo. By doing what he did he prevented the [trial court] from fully appreciating the particulars
of the case.8

In any event, the RTC decision may be annulled for lack of jurisdiction over the person of
respondent. The pertinent provisions of the Negotiable Instruments Law are enlightening:

SEC. 185. Check, defined. – A check is a bill of exchange drawn on a bank payable on
demand. Except as herein otherwise provided, the provisions of this Act applicable to a bill of
exchange payable on demand apply to a check.9 (emphasis ours)

SEC. 189. When check operates as an assignment. – A check of itself does not operate as
an assignment of any part of the funds to the credit of the drawer with the bank, and the
bank is not liable to the holder, unless and until it accepts or certifies the
check. (emphasis ours)

If a bank refuses to pay a check (notwithstanding the sufficiency of funds), the payee-holder cannot,
in view of the cited sections, sue the bank. The payee should instead sue the drawer who might in
turn sue the bank. Section 189 is sound law based on logic and established legal principles: no
privity of contract exists between the drawee-bank and the payee. Indeed, in this case, there was no
such privity of contract between ABC and petitioner.

Petitioner should not have sued ABC. Contracts take effect only between the parties, their assigns
and heirs, except in cases where the rights and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by provision of law.10 None of the foregoing
exceptions to the relativity of contracts applies in this case.

The contract of loan was between petitioner and respondent. No collection suit could prosper without
respondent who was an indispensable party. Rule 3, Sec. 7 of the Rules of Court states:

Sec. 7. Compulsory joinder of indispensable parties. – Parties in interest without whom no

final determination can be had of an action shall be joined either as plaintiffs or
defendants. (emphasis ours)

An indispensable party is one whose interest in the controversy is such that a final decree will
necessarily affect his rights. The court cannot proceed without his presence.11 If an indispensable
party is not impleaded, any judgment is ineffective.12 On this, Aracelona v. Court of
Appeals13 declared:

Rule 3, Section 7 of the Rules of Court defines indispensable parties as parties-in-interest

without whom there can be no final determination of an action. As such, they must be joined
either as plaintiffs or as defendants. The general rule with reference to the making of parties
in a civil action requires, of course, the joinder of all necessary parties where possible, and
the joinder of all indispensable parties under any and all conditions, their presence
being sine qua non for the exercise of judicial power. It is precisely "when an indispensable
party is not before the court (that) the action should be dismissed." The absence of an
indispensable party renders all subsequent actions of the court null and void for want of
authority to act, not only as to the absent parties but even as to those present.
WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals in CA-G.R. SP
No. 44971 is AFFIRMED in toto.

Costs against petitioner.

SO ORDERED.

Higit Pa

Magpadala ng Mensahe

Philippine Justice Network by Justice Adolfo S. Azcuna

Hulyo 31 nang 1:26 AM ·

PHILIPPINE JUSTICE NETWORK

29 July 2019

By: ADOLFO S. AZCUNA

_______________________________

1. SUSAN GALANG and BERNADETH ALBINO ET AL., vs. VERONICA WALLIS, NELSON INAGCONG
SUMERWE, MANUEL KADATAR, FELINO EUGENIO ET AL., G.R. No. 223434, JULY 3, 2019, THIRD DIVISION,
PERALTA, J.
_______________________________

The bone of contention in the present case has already been extensively discussed in our
pronouncement in Unduran, et al. v. Aberasturi, et al. There, the Court unequivocally declared that
pursuant to Section 66 of the IPRA, the NCIP shall have jurisdiction over claims and disputes involving
rights of ICC/IP only when they arise between or among parties belonging to the same ICC/IP group.
When such claims and disputes arise between or among parties who do not belong to the same ICC/IP
group, the case shall fall under the jurisdiction of the regular courts, instead of the NCIP. Thus, even if
the real issue involves a dispute over a land which appears to be located within the ancestral domain of
the ICC/IP, it is not the NCIP, but the RTC, which has the power to hear, try and decide the case.

With respect to the finding of the RTC on primary and concurrent jurisdiction of the regular courts and
the NCIP, moreover, the Court pronounced in Unduran that there is nothing in the provisions of the
entire IPRA that expressly or impliedly confer concurrent jurisdiction to the NCIP and the regular courts
over claims and disputes involving rights of ICC/IP between and among parties belonging to the same
ICC/IP group. As such, the NCIP's jurisdiction vested under Section 66 of the IPRA is merely limited and
cannot be deemed concurrent with the regular courts. Instead, its primary jurisdiction is bestowed not
under Section 66, but under Sections 52 (h) and 53, in relation to Section 62, and Section 54 of the IPRA.
Thus, only when the claims involve the following matters shall the NCIP have primary jurisdiction
regardless of whether the parties are non-ICC/IP, or members of different ICC/IP groups: (1) adverse
claims and border disputes arising from the delineation of ancestral domains/lands; (2) cancellation of
fraudulently issued Certificates of Ancestral Domain Title; and (3) disputes and violations of ICC/IP's
rights between members of the same ICC/IP group. A perusal of the allegations in the complaint before
us, however, reveals that the present controversy does not involve these matters cognizable by the
primary jurisdiction of the NCIP. Hence, we reiterate our finding that the RTC has jurisdiction over the
instant case.