G.R. No. 150327               June 18, 2003 perimeter of the Mt.
perimeter of the Mt. Apo National Park, a forest reserve under Proclamation No. 59, as amended,
REPUBLIC OF THE PHILS., represented by the Secretary of Department of Environment and
Natural Resources, the Regional Executive Director, (DENR Region XI) and MARION V.
ABUNDO, SR., Conservation Officer (DENR Region XI), Petitioners,
vs.
MARILYN A. PERALTA, ROSIE A. LAVALAN, GRACE A. REYES, ALBERTO B. ALONDAY,
MERCY B. ALONDAY, RICHELIEU B. ALONDAY, AZUCENA B. ALONDAY AND JANETA A.
BALURAN, and the Register of Deeds of Davao City, Respondents.
DECISION
CALLEJO, SR., J.:
This is a petition for review on certiorari of the Decision1 of the Court of Appeals in CA-G.R. SP No.
53440 which upheld the orders, dated February 5, 1999 and May 6, 1999, of the Regional Trial
Court of Davao City, Branch 13.2
The Antecedents
On September 26, 1994, Marilyn A. Peralta, Rosie A. Lavalan, Grace A. Reyes, Alberto B.
Alonday, Mercy B. Alonday, Rochelieu B. Alonday, Azucena B. Alonday, Benedicto B. Alonday,
and Janeta A. Baluran filed a complaint for recovery of possession and ownership of real property
with the Regional Trial Court of Davao City, Branch 13, against the defendants Republic of the
Philippines, the Regional Executive Director of Region XI of the Department of Environment and
Natural Resources (DENR) and the Conservation Officer in said region. The plaintiffs alleged
therein, inter alia, that they are the heirs of Benedicto B. Alonday who applied for and was granted
Homestead Patent No. V-11244 by the then Secretary of Agriculture and Natural Resources
(DENR) over Lot 3561 with an area of 237,898 square meters; the said lot was a portion of Lot
2988 of the Guiang Cadastre located in Guiang, Davao City and that on the basis of said patent,
Benedicto Alonday was issued Original Certificate of Title No. P-275 over the said property by the
Register of Deeds; they purchased the said property from their father Benedicto and were issued
on April 25, 1988 Transfer Certificate of Title No. T-134231 in their names; the property was
allegedly alienable and disposable property within Project 1-B, certified on January 13, 1931 as per
LC Map No. 1412 approved by the Director of Bureau of Forestry, as confirmed by the letter of the
petitioner Regional Director, dated February 15, 1994; they had been in possession of the said
property as owner thereof since November 1965 and that some time in 1969, officers of the Bureau
of Forest Development (BFD) sought his permission to use a portion of said property with an area
of five hectares; the BFD caused the construction of a big concrete building on said portion of the
property; on June 28, 1971, Benedicto’s lawyer wrote a letter to the BFD demanding that it vacate
the said portion of his property on which the building was constructed but said letter was ignored;
on February 24, 1979, Forest Conservation Officer Marion Abundio, Sr. asked permission from
Benedicto to allow the BFD to install on a portion of the subject property consisting of twenty-five
square meters a small generator to provide electricity to the existing building and compound of the
Philippine Eagles Acclimatization and Breeding Center; Benedicto did not give his assent to these
requests of the aforenamed government officials despite which they still caused the construction of
the building and installation of the generator unit; the plaintiffs demanded that the defendants
vacate the property on July 14, 1994 but the latter refused. The plaintiffs prayed that after due
proceedings judgment be rendered in their favor and that the defendants be ordered to vacate the
subject property and pay the plaintiffs damages and litigation expenses.
The plaintiffs appended as annexes to their petition copies of the aforesaid title and letters of the
BFD officials. In their answer to the complaint, the defendants, through the Office of the Solicitor
General (OSG), interposed the special and affirmative defenses that: (a) the complaint did not state
a cause of action against them; (b) the building constructed by the defendants was within the
of the President of the Philippines, and not on the plaintiffs’ property; (c) the installation of a
generator unit did not push through; (d) Project 1-B, under which the subject property was
declassified as alienable and disposable property per Land Classification Map No. 1412, should
not prevail over Proclamation No. 59, as amended; (e) the suit was against the State which cannot
be sued without its consent; (f) the plaintiffs failed to exhaust all administrative remedies before
filing their complaint. 3 The defendants prayed that the complaint be dismissed.
The parties filed their respective pre-trial briefs. After the requisite pre-trial conference, the RTC
issued an Order, dated August 29, 1995, constituting a panel of commissioners composed of
Engineer Roderick R. Calapardo, as Team Leader, and Gregorio Cenabre and Engineer Rogelio
Zantua, as members, to conduct a relocation survey and determine if the respondents’ property is
part of the Mt. Apo National Park. After the survey, the panel submitted its report to the trial court,
dated November 7, 1995, stating that: "the land in case is 92,216 square meters within the certified
Alienable and Disposable (A & D) Lands while the remaining portion of 145,682 square meters is
within the Mt. Apo National Park Reservation." 4
In their comment on the report, the plaintiffs claimed that the survey team altered the boundary line
of their property in the course of the survey and that the team did not take into account Project 1-B
per Land Classification Map No. 1412 approved by the Director of the Bureau of Forestry. The
defendants, on the other hand, insisted that the survey team did not alter the boundary line of the
property and that it took into account Project 1-B and Land Classification Map No. 1412 in
conducting the survey and preparing its report. On motion of the plaintiffs and with the conformity
of the defendants, through Assistant Solicitor General Aurora P. Cortez, the RTC issued an order
on March 7, 1997 declaring that there were no factual issues involved in the case and that it would
decide the case on the basis of the pleadings and memoranda of the parties as well as the
commissioners’ report.
On May 6, 1997, the RTC rendered judgment in favor of the plaintiffs and against the defendants
finding and declaring that the property occupied by the defendants was part of the plaintiffs’
property. The RTC ordered the defendants to vacate the property, restore possession thereof to
the plaintiffs and remove all the improvements thereon made by them. The decretal portion of the
decision reads:
In view of all the foregoing, judgment is hereby rendered sustaining the validity and legality of the
plaintiff’s right of ownership and possession over that parcel of land covered by Transfer Certificate
of Title No. T-134231 of the Registry of Davao City. Defendants are hereby ordered to vacate the
portion of land covered by Transfer Certificate of Title No. T-134231 of the Registry of Deeds of
Davao City alluded to by the plaintiffs and to restore peaceful possession of the same to them.
Defendants are further ordered to remove all the improvements they have introduced thereon. 5
The RTC declared that the report of the panel did not take into account Property 1-B for LC Map
1412; hence, the said report had no probative weight. According to the RTC, the torrens title of the
property prevails over the relocation survey of the panel of commissioners and that the Director of
Forestry declassified the respondents’ property pursuant to Section 1827 of the 1987 Revised
Administrative Code.
On May 30, 1997, five days before the expiration of the period to file an appeal, the defendants
filed, through registered mail, a motion for the reconsideration of the RTC decision. On June 11,
1997, the RTC issued ex parte an order expunging the said motion for reconsideration on the
ground that it was a mere scrap of paper for failure of the defendants to incorporate any notice of
hearing as required by Sections 4 and 5, Rule 15 of the Rules of Court. Unaware of the June 11,
1997 Order of the RTC, the defendants filed on July 14, 1997 a Manifestation with Notice of
Hearing on Motion for Reconsideration dated July 7, 1997 appending thereto a notice of hearing of
their May 30, 1997 Motion for Reconsideration.
Page 1 of 53
In the meantime, on July 18, 1997, the defendants received a copy of the June 11, 1997 Order of
the trial court expunging their motion for reconsideration. On July 22, 1997, the defendants filed
their notice of appeal from the decision of the court. The plaintiffs, for their part, filed a motion to
dismiss the appeal of the defendants on the ground that their May 30, 1997 Motion for
Reconsideration was a mere scrap of paper; hence, the motion did not toll the running of the
reglementary period for appeal. Thus, the defendants allegedly failed to perfect their appeal from
the decision of the court within the reglementary period. On August 11, 1997, the RTC received the
defendants’ notice of appeal.
Meanwhile, the presiding judge of Branch 13 retired, and for a time, the said RTC branch remained
vacant. On January 28, 1999, the RTC, through the newly-appointed judge, issued an order giving
due course to the defendants’ appeal declaring that they still had a period of five days from July 18,
1997 when they received a copy of the order expunging their notice of appeal or until July 23, 1997
within which to perfect their appeal from the June 11, 1997 Order. Since the defendants filed their
notice of appeal on July 22, 1997, they had perfected their appeal within the reglementary period.
The RTC further declared that although the defendants’ May 30, 1997 Motion for Reconsideration
was defective, the Rules of Court should be liberally construed. The RTC forthwith directed the
branch clerk of court to forward the records of the case to the Court of Appeals.
On February 5, 1999, however, the RTC issued an ex parte order dismissing the defendants’
appeal on its finding that in light of jurisprudence brought to its attention, they failed to perfect their
appeal within the reglementary period. When the defendants received the February 5, 1999 Order
of the RTC, they filed a motion for reconsideration thereof, set for hearing on February 19, 1999.
On February 8, 1999, the RTC issued an order declaring that the hearing set on February 19, 1999
was mooted by its Order dated February 5, 1999 which dismissed the defendants’ appeal. The
plaintiffs filed on February 10, 1999 a motion for execution, claiming that the RTC decision had
become final and executory. On February 18, 1999, the RTC issued an order granting the plaintiffs’
motion and ordered the issuance of a writ of execution. The defendants filed a Motion for
Reconsideration dated February 26, 1999 of the February 5, 1999 Order of the RTC dismissing
their appeal and their opposition to the issuance of a writ of execution. The defendants were
unaware that in the interim, the RTC had already granted the plaintiffs’ motion for a writ of
execution on February 18, 1999. The plaintiffs opposed the defendants’ Motion for Reconsideration
dated February 26, 1999.
On May 6, 1999, the RTC issued an order denying the defendants’ motion for reconsideration and
at the same time denying the plaintiffs’ motion for execution on the ground that public policy
prohibited the issuance of a writ of execution against the government. The RTC recalled the writ of
execution it earlier issued.
Thereafter, the defendants, now the petitioners, filed with the Court of Appeals a petition for
certiorari under Rule 65 of the 1997 Rules of Court, as amended, for the nullification of the
February 5, 1999 and May 6, 1999 Orders of the RTC alleging that the:
I opposition, the trial court would have no way of determining whether the adverse party agrees or
RESPONDENT COURT COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
OR EXCESS OF JURISDICTION IN ISSUING ITS ORDER DATED FEBRUARY 5, 1999 AND
ORDER DATED MAY 6, 1999.
II
RESPONDENT COURT COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK
OR EXCESS OF JURISDICTION IN SUSTAINING THE VALIDITY AND LEGALITY OF
OWNERSHIP OF PRIVATE RESPONDENTS OVER A PARCEL OF LAND COVERED BY
TRANSFER CERTIFICATE OF TITLE NO. 134231.6
On April 27, 2001, the CA rendered its decision denying due course and dismissing the petition for
certiorari. The appellate court held that petitioners’ May 30, 1997 Motion for Reconsideration of the
RTC decision did not comply with Section 5, Rule 15 of the Rules of Court, as amended; hence, a
mere scrap of paper which did not toll the running of the reglementary period for appeal. Thus, the
RTC decision had already become final and executory. According to the appellate court, the RTC
did not commit any grave abuse of discretion in dismissing the petitioners’ appeal therein. As such,
they were not entitled to a writ of certiorari. The CA further held that the petitioners, through the
negligence of the OSG, failed to perfect their appeal. The CA opined that to nullify the title of
respondents over the subject property, the petitioners should have instituted a petition for
reversion, and not a petition for certiorari under Rule 65 of the 1997 Rules of Court, as amended.
The petitioners filed the instant petition for review on certiorari seeking to reverse and set aside the
decision of the CA. The petitioners allege that the appellate court committed reversible error in
finding and declaring that they failed to perfect their appeal from the decision of the trial court within
the reglementary period. The CA likewise allegedly erred when it held that the RTC did not commit
grave abuse of its discretion amounting to excess or lack of jurisdiction when it dismissed the
petitioners’ appeal via its February 5, 1999 Order. The petitioners contend that by dismissing their
petition, the CA thereby sustained the validity of the respondents’ title despite strong evidence that
the said property is part of the public forest and, therefore, inalienable. The petitioners further
argue that even if their notice of appeal was belatedly filed, the rule on perfection of appeals should
be suspended and that their appeal should be given due course on grounds of equity and
substantial justice. They submit that if their appeal is not reinstated, the Republic of the Philippines
will be deprived of a part of the Mt. Apo National Park consisting of no less than 145,682 square
meters. The petitioners cite the ruling of this Court in Republic v. Court of Appeals.7
The petition is meritorious.
The Court agrees with the CA that the OSG was negligent when it filed on May 30, 1997 the
defective motion for reconsideration. Section 2, Rule 37 of the Rules of Court provides that a
motion for reconsideration or a motion for a new trial shall be made in writing stating the ground or
grounds therefor, a written notice of which shall be served by the movant on the adverse party.
Such written notice is that prescribed in Sections 4 and 5, Rule 15 of the Rules of Court. Under
Section 4, paragraph 2 of said rule, a notice of hearing on a motion shall be served by the movant
to all the parties concerned at least three days before the date of hearing.1âwphi1 Section 5 of the
same rule requires that the notice of hearing shall be directed to the parties concerned and shall
state the time and place of the hearing of the motion. The requirements, far from being merely
technical and procedural as claimed by the petitioners, are vital elements of procedural due
process.8
Since the Rules of Court do not fix any period within which the said party may file his reply or
objects to the motion and, if he objects, to hear him on his objection. Hence, the need for the
movant to set the time and place of hearing of its motion. 9 The requirements entombed in Sections
4 and 5 of Rule 15 of the Rules of Court are mandatory and non-compliance therewith is fatal and
renders the motion pro forma; a worthless piece of paper which the clerk of court has no right to
receive and which the court has no authority to act upon. 10 In cases of motions for a new trial or for
the reconsideration of a judgment, the running of the period for appeal is not tolled by the mere
filing or pendency of said motion.11
In this case, the petitioners, through the OSG, received on May 20, 1997 the decision of the RTC;
hence, they had until June 4, 1997 within which to file their motion for reconsideration or for a new
trial or to perfect their appeal from said adverse decision. Although the petitioners filed the motion
Page 2 of 53
for reconsideration dated May 30, 1997 within the reglementary period, said motion failed to
comply with Sections 4 and 5 of Rule 15. The records show that there is no proof that the
respondents were actually served with a copy of said motion, as required by Section 10, Rule 13 of
the Rules of Court.1avvphi1 The OSG did not bother to file an amended motion for reconsideration
containing the requirements of Sections 4 and 5 of Rule 15 of the Rules of Court.
The OSG offered no valid justification for its failure to comply with Sections 4 and 5, Rule 15 of the
Rules of Court except the self-serving claim of Solicitor Evaristo M. Padilla that his omission was
sheer inadvertence, caused by heavy pressure of work in preparing numerous pleadings and in the
almost daily attendance in court for naturalization cases and those for nullity of marriage, among
others. Other than the barefaced allegations of Solicitor Padilla, he offered no specific details as to
what pleadings he prepared and the hearings he attended which prevented him from complying
with Sections 4 and 5 of Rule 15 of the Rules of Court. Moreover, if Solicitor Padilla was able to
prepare within the reglementary period the May 30, 1997 Motion for Reconsideration, he offered no
valid justification for his failure to incorporate in said motion or append thereto a simple one-
paragraph notice of hearing which could have been accomplished in a few minutes. What is so
nettlesome is that the May 30, 1997 Motion for Reconsideration of petitioners was signed not only
by Solicitor Padilla but also by Assistant Solicitor General Aurora P. Cortes. Even if Solicitor
Padilla, through his negligence, failed to incorporate in said motion for reconsideration the requisite
notice of hearing, the Assistant Solicitor General should have noticed the omission before she
affixed her signature thereon and sought the immediate rectification thereof by Solicitor Padilla
before said motion was filed. She did not. She offered no valid explanation for her faux pas either.
The general rule is that the clients are bound by the mistakes and negligence of their counsel. 12
In a case of recent vintage, the Court took to task the OSG for its lackadaisical attitude and
complacency in the handling of its cases for the government and reminded the OSG that:
property is, indeed, part of the forest reserve as claimed by the petitioners but their right to adduce
their evidence is foreclosed by the dismissal of the present petition, the said property would be
forever lost to the prejudice of the State. In Republic v. Imperial,16 this Court held that:
The need, therefore, to determine once and for all whether the lands subject of petitioner’s
reversion efforts are foreshore lands constitutes good and sufficient cause for relaxing procedural
rules and granting the third and fourth motions for extension to file appellant’s brief. Petitioner’s
appeal presents an exceptional circumstance impressed with public interest and must then be
given due course.17
The trial court rendered judgment in favor of the respondents as it ordered the petitioners to vacate
that portion of the subject property occupied by them and to return possession thereof to the
respondents, without requiring the parties to adduce evidence on the factual issues of (a) whether
or not the property covered by the title of the respondents is part of the Mt. Apo National Park (a
forest reserve); (b) whether or not the building constructed by the petitioners is inside the forest
reserve; and (c) whether or not the petitioners installed a generator unit in the respondents’
property.
It bears stressing that the trial court formed a panel of commissioners to conduct a relocation
survey of the subject property. The panel of commissioners found that 145,682 square meters
which is a portion of the Mt. Apo National Park had been included in the respondents’ title to the
subject property. The trial court ignored this and did not even bother to receive the parties’
respective evidence on the said report. The panel of commissioners was not even called to testify
on its findings. The appellate court will be able to review on appeal the decision of the trial court
and ascertain whether there has been a travesty of justice to the gross prejudice of the State.

The respondents will not suffer substantial prejudice if the trial is reopened. The records show that
… just like other members of the Bar, the canons under the Code of Professional Responsibility
the trial court denied respondents’ motion for a writ of execution although the trial court had
apply with equal force on lawyers in government service in the discharge of their official tasks.
dismissed the appeal of the petitioners. The respondents did not even assail the order of the trial
These ethical duties are rendered even more exacting as to them because, as government
court.
counsel, they have the added duty to abide by the policy of the State to promote a high standard of
ethics in public service. Furthermore, it is incumbent upon the OSG, as part of the government
bureaucracy, to perform and discharge its duties with the highest degree of professionalism, IN LIGHT OF ALL THE FOREGOING, the decision of the Court of Appeals in CA-G.R. SP No.
intelligence and skill and to extend prompt, courteous and adequate service to the public. 13 53440 is REVERSED AND SET ASIDE. The Orders of the Regional Trial Court of Davao City,
Branch 13, dated February 5, 1999 and May 5, 1999 in Civil Case No. 23,168-94 are SET ASIDE.
The said Regional Trial Court is DIRECTED to reopen the trial to enable the parties to adduce their
Trite to state, this Court is impelled to do so anew in this case.1âwphi1 The CA cannot be faulted
respective evidence. The Office of the Solicitor General is hereby directed to represent the
for ruling that having lost their right of appeal through the negligence of the OSG the petitioners are
petitioners during the trial. No costs.
not entitled to a writ of certiorari under Rule 65 of 1987 Rules of Civil Procedure. 14

SO ORDERED.
However, prescinding from all the foregoing, this Court grants not only petitioners’ plea that it
suspend its own rule on the perfection of appeals but also directs the reopening of the trial of the
case for the parties to adduce their respective evidence. The Court excepts this case from the said
rule in the interest of justice, to avert a grave miscarriage of justice to the State through the
negligence of the OSG. The State has the right to adduce its evidence, testimonial and
documentary. Courts should proceed with caution so as not to deprive a party of this right but,
instead, afford every party litigant the amplest opportunity for the proper and just disposition of its
cause, free from the constraints of technicalities. 15 The trial court no less declared in its January 28,
1999 Order that although the petitioners’ May 30, 1997 Motion for Reconsideration was defective,
the Rules of Court should be liberally construed only to make a volte face and issue ex parte an
order dismissing the appeal of the petitioners and canceling the hearing on the petitioners’ motion
for reconsideration set on February 19, 1999.

What is involved in this case is a portion of land consisting of no less than 145,682 square meters
or less than fifteen hectares which they claim is part of the Mt. Apo National Park as shown by the
relocation survey of the panel of commissioners. The case is one of public interest. If the aforesaid

Page 3 of 53
 with the three-day notice rule did not toll the running of the period of appeal, which rendered the
decision final.

On 4 October 2004, the RTC issued an Order, denying petitioner’s Motion for Reconsideration for
failure to appeal within the 15 days reglementary period and declaring the 22 January 2004
Decision as final and executory. The RTC ruled that petitioner’s Motion for Reconsideration was
fatally flawed for failure to observe the three-day notice rule. Petitioner filed an Omnibus Motion for
G.R. No. 171872               June 28, 2010 Reconsideration of the Order dated 4 October 2004. In its Order dated 22 February 2005, the RTC
dismissed the Omnibus Motion. Petitioner then filed a petition for certiorari with the Court of
Appeals, alleging that the RTC committed grave abuse of discretion in dismissing the Motion for
FAUSTO R. PREYSLER, JR., Petitioner, Reconsideration and Omnibus Motion for petitioner’s alleged failure to observe the three-day notice
vs. rule.
MANILA SOUTHCOAST DEVELOPMENT CORPORATION, Respondent.

The Ruling of the Court of Appeals

DECISION

In its Decision dated 22 November 2005, the Court of Appeals dismissed the petition. The Court of
CARPIO, J.: Appeals held that the three-day notice rule under Sections 4, 5, and 6 of Rule 15 of the Rules of
Court is mandatory and non-compliance therewith is fatal and renders the motion pro forma. As
The Case found by the RTC, petitioner’s Motion for Reconsideration dated 12 February 2004 was received by
respondent only on 3 March 2004, or six days after the scheduled hearing on 26 February 2004.
Furthermore, the Court of Appeals held that all violations of Sections 4, 5, and 6 of Rule 15 which
This petition for review 1 assails the 22 November 2005 Decision 2 and the 3 March 2006 render the purpose of the notice of hearing of the motion nugatory are deemed fatal.
Resolution3 of the Court of Appeals in CA-G.R. SP No. 89621.

Petitioner moved for reconsideration, which the Court of Appeals denied in its Resolution dated 3
The Facts March 2006. Hence, this petition for review.

On 15 January 2002, petitioner Fausto R. Preysler, Jr. (petitioner) filed with the Municipal Trial The Issues
Court (MTC) of Batangas a complaint for forcible entry against respondent Manila Southcoast
Development Corporation (respondent). The subject matter of the complaint is a parcel of land with
an area of 21,922 square meters located in Sitio Kutad, Barangay Papaya, Nasugbu, Batangas. In his petition for review, petitioner submits that:
The disputed land, covered by Transfer Certificate of Title (TCT) No. TF-1217 4 in the name of
petitioner, is also within the property covered by TCT No. T-72097 5 in the name of I
respondent.6 TCT No. T-72097 covers three contiguous parcels of land with an aggregate area of
86,507,778 square meters.
THE COURT OF APPEALS COMMITTED GRAVE ERROR IN AFFIRMING THE RULING OF THE
PUBLIC RESPONDENT THAT PETITIONER HAD VIOLATED THE THREE-DAY NOTICE RULE
On 13 December 2002, the MTC ruled in favor of petitioner and ordered respondent to vacate the DESPITE THE FACTS THAT:
disputed land covered by TCT No. TF-1217 in the name of petitioner and to return the possession
of the land to petitioner. 7 Respondent appealed to the Regional Trial Court (RTC). In its Decision
dated 22 January 2004, the RTC, Branch 14, Nasugbu, Batangas reversed the MTC decision and A) PRIVATE RESPONDENT WAS DULY HEARD ON THE MOTION FOR
dismissed petitioner’s complaint. RECONSIDERATION, HAD OPPORTUNITY TO OPPOSE, AND ACTUALLY
OPPOSED SAID MOTION.
Petitioner received the RTC Decision on 9 February 2004 and thereafter filed a Motion for
Reconsideration, which was set for hearing on 26 February 2004. Petitioner sent a copy of the B) PRIVATE RESPONDENT WAS NOT PREJUDICED BY THE ALLEGED DEFECT OF
Motion for Reconsideration to respondent’s counsel by registered mail on 23 February 2004. THE MOTION.
During the 26 February 2004 scheduled hearing of the motion, the RTC judge reset the hearing to
2 April 2004 because the court’s calendar could not accommodate the hearing of the motion. All
C) THE PURPOSE OF THE THREE-DAY NOTICE RULE WAS SUFFICIENTLY
the parties were notified of the schedule for the next hearing.
ACHIEVED.

Meanwhile, it was only on 3 March 2004, or 6 days after the scheduled hearing on 26 February
D) THE ALLEGED FAILURE OF PETITIONER TO COMPLY WITH SECTION 4, RULE
2004, that respondent’s counsel received a copy of petitioner’s Motion for Reconsideration.
15 WAS CURED BY THE FACT THAT THE PUBLIC RESPONDENT RESET SEVERAL
TIMES THE HEARING OF THE MOTION, AND THE PRIVATE RESPONDENT WAS
The rescheduled hearing on 2 April 2004 was again reset on 7 May 2004 because the RTC judge PROPERLY NOTIFIED THEREOF AND OPPOSED SAID MOTION.
was on official leave. The 7 May 2004 hearing was further reset to 6 August 2004. After the
hearing, respondent filed its Motion to Dismiss dated 9 August 2004, 8 claiming that non-compliance

Page 4 of 53
 E) PETITIONER HAD AN EXTREMELY MERITORIOUS CASE.
II
THE COURT OF APPEALS SERIOUSLY ERRED IN NOT RULING ON THE ISSUE OF THE
ALLEGED DEFECT OF THE PETITIONER’S OMNIBUS MOTION, THEREBY AFFIRMING THE
ERRONEOUS COMPUTATION OF THE THREE-DAY NOTICE BY THE RESPONDENT TRIAL
JUDGE.
III
THE COURT OF APPEALS ERRED IN NOT RESOLVING THE MERITS OF THE PETITIONER’S
MOTION FOR RECONSIDERATION FILED BEFORE THE PUBLIC RESPONDENT. 9
The Ruling of the Court
We find the petition meritorious.
In upholding the RTC Order denying petitioner’s Motion for Reconsideration, the Court of Appeals
relied mainly on petitioner’s alleged violation of the notice requirements under Sections 4, 5, and 6,
Rule 15 of the Rules of Court which read:
SECTION 4. Hearing of motion. – Except for motions which the court may act upon without
prejudicing the rights of the adverse party, every written motion shall be set for hearing by the
applicant.
Every written motion required to be heard and the notice of the hearing thereof shall be served in
such a manner as to ensure its receipt by the other party at least three (3) days before the date of
hearing, unless the court for good cause sets the hearing on shorter notice.
SECTION 5. Notice of hearing. – The notice of hearing shall be addressed to all parties concerned,
and shall specify the time and date of the hearing which must not be later than ten (10) days after
the filing of the motion.
SECTION 6. Proof of service necessary. – No written motion set for hearing shall be acted upon by
the court without proof of service thereof.
The three-day notice rule is not absolute. A liberal construction of the procedural rules is proper
where the lapse in the literal observance of a rule of procedure has not prejudiced the adverse
party and has not deprived the court of its authority. 10 Indeed, Section 6, Rule 1 of the Rules of
Court provides that the Rules should be liberally construed in order to promote their objective of
securing a just, speedy and inexpensive disposition of every action and proceeding. Rules of
procedure are tools designed to facilitate the attainment of justice, and courts must avoid their strict
and rigid application which would result in technicalities that tend to frustrate rather than promote
substantial justice.11
In Somera Vda. De Navarro v. Navarro,12 the Court held that there was substantial compliance of
the rule on notice of motions even if the first notice was irregular because no prejudice was caused
the adverse party since the motion was not considered and resolved until after several
postponements of which the parties were duly notified.13
Likewise, in Jehan Shipping Corporation v. National Food Authority,14 the Court held that despite
the lack of notice of hearing in a Motion for Reconsideration, there was substantial compliance with
the requirements of due process where the adverse party actually had the opportunity to be heard
and had filed pleadings in opposition to the motion. The Court held:
This Court has indeed held time and again, that under Sections 4 and 5 of Rule 15 of the Rules of
Court, mandatory is the requirement in a motion, which is rendered defective by failure to comply
with the requirement. As a rule, a motion without a notice of hearing is considered  pro forma and
does not affect the reglementary period for the appeal or the filing of the requisite pleading.
As an integral component of the procedural due process, the three-day notice required by
the Rules is not intended for the benefit of the movant. Rather, the requirement is for the
purpose of avoiding surprises that may be sprung upon the adverse party, who must be
given time to study and meet the arguments in the motion before a resolution of the court.
Principles of natural justice demand that the right of a party should not be affected without
giving it an opportunity to be heard.
The test is the presence of opportunity to be heard, as well as to have time to study the
motion and meaningfully oppose or controvert the grounds upon which it is based. x x x
A close perusal of the records reveal that the trial court gave petitioner ten days within which to
comment on respondent’s Motion for Reconsideration. Petitioner filed its Opposition to the Motion
on November 26, 2001. In its 14-page Opposition, it not only pointed out that the Motion was
defective for not containing a notice of hearing and should then be dismissed outright by the court;
it also ventilated its substantial arguments against the merits of the Motion and of the Supplemental
Motion for Reconsideration. Notably, its arguments were recited at length in the trial court’s
January 8, 2002 Joint Resolution. Nevertheless, the court proceeded to deny the Motions on the
sole ground that they did not contain any notice of hearing.
The requirement of notice of time and hearing in the pleading filed by a party is necessary only to
apprise the other of the actions of the former. Under the circumstances of the present case, the
purpose of a notice of hearing was served.15 (Emphasis supplied)
In this case, the Court of Appeals ruled that petitioner failed to comply with the three-day notice
rule. However, the Court of Appeals overlooked the fact that although respondent received
petitioner’s Motion for Reconsideration six days after the scheduled hearing on 26 February 2004,
the said hearing was reset three (3) times with due notice to the parties. Thus, it was only on 6
August 2004, or more than five months after respondent received a copy of petitioner’s Motion for
Reconsideration, that the motion was heard by the RTC. Clearly, respondent had more than
sufficient time to oppose petitioner’s Motion for Reconsideration. In fact, respondent did oppose the
motion when it filed its Motion to Dismiss dated 9 August 2004. In view of the circumstances of this
case, we find that there was substantial compliance with procedural due process. Instead of
dismissing petitioner’s Motion for Reconsideration based merely on the alleged procedural lapses,
the RTC should have resolved the motion based on the merits.
Furthermore, the RTC likewise erred in dismissing petitioner’s Omnibus Motion for allegedly failing
to comply with the three-day notice requirement. The RTC found that the notice of hearing of
petitioner’s Omnibus Motion which was set to be heard on 12 November 2004 was received by
respondent on 9 November 2004. The RTC held that the service of the notice of hearing was one
day short of the prescribed minimum three days notice.1avvph!1
We disagree. Section 4 of Rule 15 provides that "[e]very written motion required to be heard and
the notice of the hearing thereof shall be served in such a manner as to ensure its receipt by
the other party at least three (3) days before the date of the hearing, unless the court for good
Page 5 of 53
cause sets the hearing on shorter notice." Thus, the date of the hearing should be at least three
days after receipt of the notice of hearing by the other parties. In this case, the petitioner’s
Omnibus Motion was set for hearing on 12 November 2004. Thus, to comply with the notice
requirement, respondent should have received the notice of the hearing at least three days before
12 November 2004, which is 9 November 2004. Clearly, respondent’s receipt on 9 November 2004
(Tuesday) of the notice of hearing of the Omnibus Motion which was set to be heard on 12
November 2004 (Friday), was within the required minimum three-days’ notice. As explained by
Retired Justice Jose Y. Feria in his book, Civil Procedure Annotated, when the notice of hearing
should be given:
The ordinary motion day is Friday. Hence, the notice should be served by Tuesday at the
latest, in order that the requirement of the three days may be complied with.
If notice be given by ordinary mail, it should be actually received by Tuesday, or if not claimed from
the post office, the date of the first notice of the postmaster should be at least five (5) days before
Tuesday.16 (Emphasis supplied)
WHEREFORE, we GRANT the petition. We SET ASIDE the Decision dated 22 November 2005
and the Resolution dated 3 March 2006 of the Court of Appeals in CA-G.R. SP No. 89621.
We REMAND the case to the Regional Trial Court, Branch 14, Nasugbu, Batangas to resolve
petitioner’s Motion for Reconsideration and Omnibus Motion on the merits.
SO ORDERED.
G.R. No. 143440             February 11, 2003
SERENA T. BACELONIA, GRACIANO BACELONIA, SR. and GRACIANO T. BACELONIA,
JR., petitioners,
vs.
THE COURT OF APPEALS and SPS. VICTORINO S. BOLOS, JR. and OLIVIA P.
BOLOS, respondents.
DECISION
CORONA, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court of the
resolution1 of the Court of Appeals promulgated on March 6, 2000 in CA.G.R. SP No. 57455
dismissing the petition for certiorari filed by the petitioners and its resolution 2 promulgated on May
19, 2000 denying the motion for reconsideration.
The facts show that, on January 12, 1998, private respondents Victorino and Olivia Bolos filed a
complaint3 for damages against herein petitioners including Simeon Roxas-Cu and Daniel Cariño
before the Regional Trial Court of Quezon City which was docketed as Civil Case No. Q-98-33149.
The case stemmed from a vehicular accident, involving a tamaraw-type school shuttle service
vehicle and a 6 x 6 Isuzu cargo truck, that occurred along Aurora Blvd. in Quezon City on February
3, 1993 resulting in the untimely demise of private respondents’ daughter, Jemelee Bolos. Jemelee
was on board the school shuttle service vehicle that used to transport her from Marikina City to St.
Bridget School in Quezon City.
Petitioners-spouses Graciano, Sr. and Serena Bacelonia were named defendants in the said
complaint for damages as owners/operators of the school shuttle service that figured in the
accident. Graciano Bacelonia, Jr. was the driver thereof. The other defendants therein, Simeon
Roxas-Cu and Daniel Cariño were the owner and the driver of the cargo truck, respectively.
On February 9, 1998, the petitioners filed their answer 4 with special and affirmative defenses and
counterclaim while their co-defendants, Simeon Roxas-Cu and Daniel Cariño, filed their answer
with affirmative defenses and cross-claim.
Meanwhile, it appears that, prior to the filing of the complaint for damages by the private
respondents, herein petitioners filed on March 1, 1995 a complaint 5 for damages arising from the
said accident against their co-defendants with the Regional Trial Court of Quezon City which was
docketed as Civil Case No. Q-95-23169. On April 27, 1995, herein petitioners and their co-
defendants entered into a compromise agreement 6 that led to the dismissal7 of the complaint in Civil
Case No. Q-95-23169 on April 28, 1995 by the trial court.
On September 24, 1999, and upon termination of the testimony of the second witness for the
complainants (herein private respondents) in Civil Case No.Q-98-33149, petitioners filed a
motion8 to be dropped as defendants therefrom on the ground that a compromise agreement had
already been entered into by the parties in Civil Case No. 95-23169. The petitioners opined in
essence that their co-defendants, Simeon Roxas-Cu and Daniel Cariño, had explicitly admitted
sole responsibility for the vehicular accident by entering into the compromise agreement. Thus,
they (the Bacelonias) should be excluded as defendants in Civil Case No. 98-33149. However,
their co-defendants, Simeon Roxas-Cu and Daniel Cariño, filed an opposition 9 thereto substantially
contending that res-judicata does not obtain insofar as the present case is concerned, and that, on
the contrary, they never admitted any responsibility for the accident on February 3, 1993.
The trial court resolved to deny the motion of the petitioners to be dropped as defendants from Civil
Case No. Q-98-33149 on January 10, 2000 for lack of merit and scheduled the reception of
evidence of the defense on February 3, 2000.1a\^/phi1.net
On January 31, 2000, the petitioners filed a motion for reconsideration 10 of the trial court’s order
denying their motion to be dropped as defendants from Civil Case No. Q-98-33149 and set the
date of hearing11 thereof on February 15, 2000 at 8:30 o’clock in the morning. On the same day,
January 31, 2000, the petitioners also filed a separate motion to cancel 12 the hearing for the
presentation of evidence for the defense earlier scheduled on February 3, 2000 so that their motion
for reconsideration, scheduled for hearing on February 15, 2000, may not be rendered moot and
academic. The motion to cancel hearing was itself scheduled to be heard on February 3, 2000.
Private respondents opposed the twin motions of the petitioners for lack of merit and argued that
the scheduled hearing on February 3, 2000 for the initial presentation of evidence of the defense
may be availed of by said petitioners for oral argument in support of their motion for
reconsideration.
During the scheduled hearing for the initial presentation of evidence of the defense on February 3,
2000, the trial court denied the motion for reconsideration of the petitioners for lack of merit. 13 The
petitioners elevated the matter to the Court of Appeals through a petition for certiorari 14 maintaining
that they were not accorded their right to due process when their motion for reconsideration was
denied by the trial court prior to its scheduled hearing on February 15, 2000. However, the petition
was dismissed by the Court of Appeals in the questioned Resolution promulgated on March 6,
2000 for being premature and for lack of merit. The appellate court explained that the questioned
order of the trial court was interlocutory and could not be assailed in a petition for certiorari and
that, moreover, res judicata did not apply insofar as the claim in Civil Case No. Q-98-33149 was
concerned. The subsequent motion for reconsideration was denied by the appellate court on May
19, 2000. Hence, the instant petition 15 raising the sole issue of whether or not the Court of Appeals
exceeded its jurisdiction when it dismissed the petition in CA-G.R. SP No. 57455.
Page 6 of 53
The private respondents filed their Comment 16 on October 9, 2000 which elicited a Reply 17 from the 24, 1999 in Civil Case No. Q-98-33149 (actually a motion to dismiss the case against them), based
petitioners on May 15, 2001.l^vvphi1.net Both parties filed their respective memoranda 18 on on a compromise agreement that did not even bind the complainants (herein private respondents)
December 18, 2001 in compliance with our resolution dated October 8, 2001 after which the case who were not parties thereto. 23 At such stage, the private respondents were already winding up the
was deemed submitted for decision. presentation of their evidence in Civil Case No. Q-98-33149.

It should be noted at the outset that, while the instant petition is ostensibly denominated as a Upon the denial of their Motion to Exclude on January 10, 2000, the petitioners filed the subject
petition for review on certiorari under Rule 45 of the Revised Rules of Court seeking a review of the motion for reconsideration on January 31, 2000. In addition, they moved to cancel the scheduled
questioned resolutions of the Court of Appeals, the discussion therein exclusively dwells on the hearing for the initial presentation of their evidence already scheduled on February 3, 2000
sole issue of whether or not the appellate court committed grave abuse of discretion, a question ostensibly to give way to oral arguments in support of their motion for reconsideration which, as
which may be appropriately addressed through a petition for certiorari under Rule 65. Specifically, above discussed, was pro forma. By their actuations, it can be conclusively presumed that the
petitioners claim that the Court of Appeals exceeded its jurisdiction when it dismissed their petition petitioners had no other intention but to delay the proceedings in Civil Case No. Q-98-33149.
in CA G.R. S.P. No. 57455 allegedly for being premature and for lack of merit, thereby totally
ignoring the basic issue on the alleged violation by the trial court of their basic right to due process.
Besides, the petitioners cannot validly invoke violation of due process to question the trial court’s
It must be emphasized that a petition for review under Rule 45 of the Revised Rules of Court is
denial of their motion for reconsideration. It should be pointed out that the motion to cancel the
generally limited only to questions of law or errors of judgment. 19 On the other hand, the petition for
scheduled hearing on February 3, 2000 filed on January 31, 2000 by the petitioners was itself
certiorari under Rule 65 may be availed of to correct errors of jurisdiction including the commission
scheduled to be heard on February 3, 2000 24 which latter date, incidentally, was previously set by
of grave abuse of discretion amounting to lack or excess of jurisdiction. 20 Consequently, the instant
the trial court for reception of defendants’ evidence. Admittedly, the petitioners were present during
petition for review may be denied for being an erroneous legal recourse.1awphi1.nét
the hearing on said date to argue on the merits of their motion to cancel. 25 On the same occasion,
the private respondents objected to the motion to cancel the hearing on February 3, 2000, arguing
At any rate, and to finally dispose of the instant controversy, we rule that the Court of Appeals that no compelling reason existed to grant the said pending motion; they proposed instead that
correctly dismissed the petition in CA G.R. S.P. No. 57455 for the reason that the trial court did not petitioners avail of the said setting to argue their motion for reconsideration. 26
abuse its discretion in denying the petitioners’ motion for reconsideration on February 3, 2000. By
grave abuse of discretion is meant such capricious and whimsical exercise of judgment as would
Despite the denial by the trial court of their motion to cancel, and a subsequent directive for them to
be equivalent to lack of jurisdiction. The abuse of discretion must be patent and gross as to amount
argue their motion for reconsideration on February 3, 2000, the petitioners chose to ignore the
to an evasion of positive duty or a virtual refusal to perform a duty enjoined by law, or to act at all in
same. The petitioners thus had only themselves to blame for not having been heard on their motion
contemplation of law as where the power is exercised in an arbitrary and despotic manner by
for reconsideration. Under the Constitution, what is violative of due process is the denial of the
reason of passion and hostility.21
opportunity to be heard. In the case at bar, no grave abuse of discretion can be ascribed to the trial
court inasmuch as it afforded the petitioners more than ample opportunity to explain their side. 27
It should be noted that the motion for reconsideration of the trial court’s resolution on January 10,
2000 was filed by the petitioners on January 31, 2000. The date and time of hearing thereof was
WHEREFORE, the instant petition for review on certiorari is hereby DENIED.
set by the petitioners on February 15, 2000 at 8:30 o’clock in the morning. In this connection, Rule
15, Section 5 of the Revised Rules of Court on motions provides:
SO ORDERED.
Section 5. Notice of hearing.- The notice of hearing shall be addressed to all parties concerned,
and shall specify the time and date of the hearing which must not be later than ten (10) days after
the filing of the motion. (Emphasis ours)
G.R. No. 181132               June 5, 2009
It is clear then that the scheduled hearing of the said motion for reconsideration was beyond the
period specified by the Revised Rules of Court which was not later than ten (10) days after the
filing of the motion, or no later than February 10, 2000. Significantly, the above provision of Rule HEIRS OF LORETO C. MARAMAG, represented by surviving spouse VICENTA PANGILINAN
15, Section 5 uses the mandatory term "must" in fixing the period within which the motion shall be MARAMAG, Petitioners,
scheduled for hearing. A motion that fails to religiously comply with the mandatory provision of Rule vs.
15, Section 5 is pro forma and presents no question which merits the attention and consideration of EVA VERNA DE GUZMAN MARAMAG, ODESSA DE GUZMAN MARAMAG, KARL BRIAN DE
the court.22 GUZMAN MARAMAG, TRISHA ANGELIE MARAMAG, THE INSULAR LIFE ASSURANCE
COMPANY, LTD., and GREAT PACIFIC LIFE ASSURANCE CORPORATION, Respondents.

The mandatory character of Rule 15, Section 5 of the Revised Rules of Court becomes specially
significant in this case, considering the claim of the private respondents that the petitioners have DECISION
been engaging in dilatory tactics, an imputation not without factual basis. As borne by the records,
herein petitioners and their co-defendants, Simeon Roxas-Cu and Daniel Cariño, entered into a NACHURA, J.:
compromise agreement on April 27, 1995 that led to the dismissal by the trial court of the complaint
in Civil Case No. Q-95-23169 on April 28, 1995.
This is a petition 1 for review on certiorari under Rule 45 of the Rules, seeking to reverse and set
aside the Resolution2 dated January 8, 2008 of the Court of Appeals (CA), in CA-G.R. CV No.
This compromise agreement was already interposed by the petitioners as one of the special and 85948, dismissing petitioners’ appeal for lack of jurisdiction.
affirmative defenses in their answer to the complaint for damages in Civil Case No. Q-98-33149.
Thus it was no longer legally possible for the petitioners to file the Motion to Exclude on September
Page 7 of 53
The case stems from a petition3 filed against respondents with the Regional Trial Court, Branch 29,
for revocation and/or reduction of insurance proceeds for being void and/or inofficious, with prayer
for a temporary restraining order (TRO) and a writ of preliminary injunction.
The petition alleged that: (1) petitioners were the legitimate wife and children of Loreto Maramag
(Loreto), while respondents were Loreto’s illegitimate family; (2) Eva de Guzman Maramag (Eva)
was a concubine of Loreto and a suspect in the killing of the latter, thus, she is disqualified to
receive any proceeds from his insurance policies from Insular Life Assurance Company, Ltd.
(Insular)4 and Great Pacific Life Assurance Corporation (Grepalife); 5 (3) the illegitimate children of
Loreto—Odessa, Karl Brian, and Trisha Angelie—were entitled only to one-half of the legitime of
the legitimate children, thus, the proceeds released to Odessa and those to be released to Karl
Brian and Trisha Angelie were inofficious and should be reduced; and (4) petitioners could not be
deprived of their legitimes, which should be satisfied first.
In support of the prayer for TRO and writ of preliminary injunction, petitioners alleged, among
others, that part of the insurance proceeds had already been released in favor of Odessa, while the
rest of the proceeds are to be released in favor of Karl Brian and Trisha Angelie, both minors, upon
the appointment of their legal guardian. Petitioners also prayed for the total amount of ₱320,000.00
as actual litigation expenses and attorney’s fees.
In answer,6 Insular admitted that Loreto misrepresented Eva as his legitimate wife and Odessa,
Karl Brian, and Trisha Angelie as his legitimate children, and that they filed their claims for the
insurance proceeds of the insurance policies; that when it ascertained that Eva was not the legal
wife of Loreto, it disqualified her as a beneficiary and divided the proceeds among Odessa, Karl
Brian, and Trisha Angelie, as the remaining designated beneficiaries; and that it released Odessa’s
share as she was of age, but withheld the release of the shares of minors Karl Brian and Trisha
Angelie pending submission of letters of guardianship. Insular alleged that the complaint or petition
failed to state a cause of action insofar as it sought to declare as void the designation of Eva as
beneficiary, because Loreto revoked her designation as such in Policy No. A001544070 and it
disqualified her in Policy No. A001693029; and insofar as it sought to declare as inofficious the
shares of Odessa, Karl Brian, and Trisha Angelie, considering that no settlement of Loreto’s estate
had been filed nor had the respective shares of the heirs been determined. Insular further claimed
that it was bound to honor the insurance policies designating the children of Loreto with Eva as
beneficiaries pursuant to Section 53 of the Insurance Code.
In its own answer 7 with compulsory counterclaim, Grepalife alleged that Eva was not designated as
an insurance policy beneficiary; that the claims filed by Odessa, Karl Brian, and Trisha Angelie
were denied because Loreto was ineligible for insurance due to a misrepresentation in his
application form that he was born on December 10, 1936 and, thus, not more than 65 years old
when he signed it in September 2001; that the case was premature, there being no claim filed by
the legitimate family of Loreto; and that the law on succession does not apply where the
designation of insurance beneficiaries is clear.
As the whereabouts of Eva, Odessa, Karl Brian, and Trisha Angelie were not known to petitioners,
summons by publication was resorted to. Still, the illegitimate family of Loreto failed to file their
answer. Hence, the trial court, upon motion of petitioners, declared them in default in its Order
dated May 7, 2004.
During the pre-trial on July 28, 2004, both Insular and Grepalife moved that the issues raised in
their respective answers be resolved first. The trial court ordered petitioners to comment within 15
days.
In their comment, petitioners alleged that the issue raised by Insular and Grepalife was purely legal
– whether the complaint itself was proper or not – and that the designation of a beneficiary is an act
of liberality or a donation and, therefore, subject to the provisions of Articles 752 8 and 7729 of the
Civil Code.
In reply, both Insular and Grepalife countered that the insurance proceeds belong exclusively to the
designated beneficiaries in the policies, not to the estate or to the heirs of the insured. Grepalife
also reiterated that it had disqualified Eva as a beneficiary when it ascertained that Loreto was
legally married to Vicenta Pangilinan Maramag.
On September 21, 2004, the trial court issued a Resolution, the dispositive portion of which reads –
WHEREFORE, the motion to dismiss incorporated in the answer of defendants Insular Life and
Grepalife is granted with respect to defendants Odessa, Karl Brian and Trisha Maramag. The
action shall proceed with respect to the other defendants Eva Verna de Guzman, Insular Life and
Grepalife.
SO ORDERED.10
In so ruling, the trial court ratiocinated thus –
Art. 2011 of the Civil Code provides that the contract of insurance is governed by the (sic) special
laws. Matters not expressly provided for in such special laws shall be regulated by this Code. The
principal law on insurance is the Insurance Code, as amended. Only in case of deficiency in the
Insurance Code that the Civil Code may be resorted to. (Enriquez v. Sun Life Assurance Co., 41
Phil. 269.)
The Insurance Code, as amended, contains a provision regarding to whom the insurance proceeds
shall be paid. It is very clear under Sec. 53 thereof that the insurance proceeds shall be applied
exclusively to the proper interest of the person in whose name or for whose benefit it is made,
unless otherwise specified in the policy. Since the defendants are the ones named as the primary
beneficiary (sic) in the insurances (sic) taken by the deceased Loreto C. Maramag and there is no
showing that herein plaintiffs were also included as beneficiary (sic) therein the insurance proceeds
shall exclusively be paid to them. This is because the beneficiary has a vested right to the
indemnity, unless the insured reserves the right to change the beneficiary. (Grecio v. Sunlife
Assurance Co. of Canada, 48 Phil. [sic] 63).
Neither could the plaintiffs invoked (sic) the law on donations or the rules on testamentary
succession in order to defeat the right of herein defendants to collect the insurance indemnity. The
beneficiary in a contract of insurance is not the donee spoken in the law of donation. The rules on
testamentary succession cannot apply here, for the insurance indemnity does not partake of a
donation. As such, the insurance indemnity cannot be considered as an advance of the inheritance
which can be subject to collation (Del Val v. Del Val, 29 Phil. 534). In the case of Southern Luzon
Employees’ Association v. Juanita Golpeo, et al., the Honorable Supreme Court made the following
pronouncements[:]
"With the finding of the trial court that the proceeds to the Life Insurance Policy belongs exclusively
to the defendant as his individual and separate property, we agree that the proceeds of an
insurance policy belong exclusively to the beneficiary and not to the estate of the person whose life
was insured, and that such proceeds are the separate and individual property of the beneficiary
and not of the heirs of the person whose life was insured, is the doctrine in America. We believe
that the same doctrine obtains in these Islands by virtue of Section 428 of the Code of Commerce x
x x."
Page 8 of 53
In [the] light of the above pronouncements, it is very clear that the plaintiffs has (sic) no sufficient
cause of action against defendants Odessa, Karl Brian and Trisha Angelie Maramag for the
reduction and/or declaration of inofficiousness of donation as primary beneficiary (sic) in the
insurances (sic) of the late Loreto C. Maramag.
However, herein plaintiffs are not totally bereft of any cause of action. One of the named
beneficiary (sic) in the insurances (sic) taken by the late Loreto C. Maramag is his concubine Eva
Verna De Guzman. Any person who is forbidden from receiving any donation under Article 739
cannot be named beneficiary of a life insurance policy of the person who cannot make any
donation to him, according to said article (Art. 2012, Civil Code). If a concubine is made the
beneficiary, it is believed that the insurance contract will still remain valid, but the indemnity must
go to the legal heirs and not to the concubine, for evidently, what is prohibited under Art. 2012 is
the naming of the improper beneficiary. In such case, the action for the declaration of nullity may
be brought by the spouse of the donor or donee, and the guilt of the donor and donee may be
proved by preponderance of evidence in the same action (Comment of Edgardo L. Paras, Civil
Code of the Philippines, page 897). Since the designation of defendant Eva Verna de Guzman as
one of the primary beneficiary (sic) in the insurances (sic) taken by the late Loreto C. Maramag is
void under Art. 739 of the Civil Code, the insurance indemnity that should be paid to her must go to
the legal heirs of the deceased which this court may properly take cognizance as the action for the
declaration for the nullity of a void donation falls within the general jurisdiction of this Court. 11
Insular12 and Grepalife13 filed their respective motions for reconsideration, arguing, in the main, that
the petition failed to state a cause of action. Insular further averred that the proceeds were divided
among the three children as the remaining named beneficiaries. Grepalife, for its part, also alleged
that the premiums paid had already been refunded.
Petitioners, in their comment, reiterated their earlier arguments and posited that whether the
complaint may be dismissed for failure to state a cause of action must be determined solely on the
basis of the allegations in the complaint, such that the defenses of Insular and Grepalife would be
better threshed out during trial.1avvphi1
On June 16, 2005, the trial court issued a Resolution, disposing, as follows:
WHEREFORE, in view of the foregoing disquisitions, the Motions for Reconsideration filed by
defendants Grepalife and Insular Life are hereby GRANTED. Accordingly, the portion of the
Resolution of this Court dated 21 September 2004 which ordered the prosecution of the case
against defendant Eva Verna De Guzman, Grepalife and Insular Life is hereby SET ASIDE, and
the case against them is hereby ordered DISMISSED.
SO ORDERED.14
In granting the motions for reconsideration of Insular and Grepalife, the trial court considered the
allegations of Insular that Loreto revoked the designation of Eva in one policy and that Insular
disqualified her as a beneficiary in the other policy such that the entire proceeds would be paid to
the illegitimate children of Loreto with Eva pursuant to Section 53 of the Insurance Code. It ruled
that it is only in cases where there are no beneficiaries designated, or when the only designated
beneficiary is disqualified, that the proceeds should be paid to the estate of the insured. As to the
claim that the proceeds to be paid to Loreto’s illegitimate children should be reduced based on the
rules on legitime, the trial court held that the distribution of the insurance proceeds is governed
primarily by the Insurance Code, and the provisions of the Civil Code are irrelevant and
inapplicable. With respect to the Grepalife policy, the trial court noted that Eva was never
designated as a beneficiary, but only Odessa, Karl Brian, and Trisha Angelie; thus, it upheld the
dismissal of the case as to the illegitimate children. It further held that the matter of Loreto’s
misrepresentation was premature; the appropriate action may be filed only upon denial of the claim
of the named beneficiaries for the insurance proceeds by Grepalife.
Petitioners appealed the June 16, 2005 Resolution to the CA, but it dismissed the appeal for lack of
jurisdiction, holding that the decision of the trial court dismissing the complaint for failure to state a
cause of action involved a pure question of law. The appellate court also noted that petitioners did
not file within the reglementary period a motion for reconsideration of the trial court’s Resolution,
dated September 21, 2004, dismissing the complaint as against Odessa, Karl Brian, and Trisha
Angelie; thus, the said Resolution had already attained finality.
Hence, this petition raising the following issues:
a. In determining the merits of a motion to dismiss for failure to state a cause of action,
may the Court consider matters which were not alleged in the Complaint, particularly the
defenses put up by the defendants in their Answer?
b. In granting a motion for reconsideration of a motion to dismiss for failure to state a
cause of action, did not the Regional Trial Court engage in the examination and
determination of what were the facts and their probative value, or the truth thereof, when
it premised the dismissal on allegations of the defendants in their answer – which had
not been proven?
c. x x x (A)re the members of the legitimate family entitled to the proceeds of the
insurance for the concubine?15
In essence, petitioners posit that their petition before the trial court should not have been dismissed
for failure to state a cause of action because the finding that Eva was either disqualified as a
beneficiary by the insurance companies or that her designation was revoked by Loreto,
hypothetically admitted as true, was raised only in the answers and motions for reconsideration of
both Insular and Grepalife. They argue that for a motion to dismiss to prosper on that ground, only
the allegations in the complaint should be considered. They further contend that, even assuming
Insular disqualified Eva as a beneficiary, her share should not have been distributed to her children
with Loreto but, instead, awarded to them, being the legitimate heirs of the insured deceased, in
accordance with law and jurisprudence.
The petition should be denied.
The grant of the motion to dismiss was based on the trial court’s finding that the petition failed to
state a cause of action, as provided in Rule 16, Section 1(g), of the Rules of Court, which reads –
SECTION 1. Grounds. – Within the time for but before filing the answer to the complaint or
pleading asserting a claim, a motion to dismiss may be made on any of the following grounds:
xxxx
(g) That the pleading asserting the claim states no cause of action.
A cause of action is the act or omission by which a party violates a right of another. 16 A complaint
states a cause of action when it contains the three (3) elements of a cause of action—(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 the legal right. If any of these elements is absent, the complaint becomes
vulnerable to a motion to dismiss on the ground of failure to state a cause of action. 17
When a motion to dismiss is premised on this ground, the ruling thereon should be based only on
the facts alleged in the complaint. The court must resolve the issue on the strength of such
Page 9 of 53
allegations, assuming them to be true. The test of sufficiency of a cause of action rests on whether,
hypothetically admitting the facts alleged in the complaint to be true, the court can render a valid
judgment upon the same, in accordance with the prayer in the complaint. This is the general rule.
However, this rule is subject to well-recognized exceptions, such that there is no hypothetical
admission of the veracity of the allegations if:
1. the falsity of the allegations is subject to judicial notice;
2. such allegations are legally impossible;
3. the allegations refer to facts which are inadmissible in evidence;
4. by the record or document in the pleading, the allegations appear unfounded; or
5. there is evidence which has been presented to the court by stipulation of the parties or
in the course of the hearings related to the case.18
In this case, it is clear from the petition filed before the trial court that, although petitioners are the
legitimate heirs of Loreto, they were not named as beneficiaries in the insurance policies issued by
Insular and Grepalife. The basis of petitioners’ claim is that Eva, being a concubine of Loreto and a
suspect in his murder, is disqualified from being designated as beneficiary of the insurance
policies, and that Eva’s children with Loreto, being illegitimate children, are entitled to a lesser
share of the proceeds of the policies. They also argued that pursuant to Section 12 of the
Insurance Code,19 Eva’s share in the proceeds should be forfeited in their favor, the former having
brought about the death of Loreto. Thus, they prayed that the share of Eva and portions of the
shares of Loreto’s illegitimate children should be awarded to them, being the legitimate heirs of
Loreto entitled to their respective legitimes.
It is evident from the face of the complaint that petitioners are not entitled to a favorable judgment
in light of Article 2011 of the Civil Code which expressly provides that insurance contracts shall be
governed by special laws, i.e., the Insurance Code. Section 53 of the Insurance Code states—
SECTION 53. The insurance proceeds shall be applied exclusively to the proper interest of the
person in whose name or for whose benefit it is made unless otherwise specified in the policy.
Pursuant thereto, it is obvious that the only persons entitled to claim the insurance proceeds are
either the insured, if still alive; or the beneficiary, if the insured is already deceased, upon the
maturation of the policy.20 The exception to this rule is a situation where the insurance contract was
intended to benefit third persons who are not parties to the same in the form of favorable
stipulations or indemnity. In such a case, third parties may directly sue and claim from the insurer. 21
Petitioners are third parties to the insurance contracts with Insular and Grepalife and, thus, are not
entitled to the proceeds thereof. Accordingly, respondents Insular and Grepalife have no legal
obligation to turn over the insurance proceeds to petitioners. The revocation of Eva as a beneficiary
in one policy and her disqualification as such in another are of no moment considering that the
designation of the illegitimate children as beneficiaries in Loreto’s insurance policies remains valid.
Because no legal proscription exists in naming as beneficiaries the children of illicit relationships by
the insured,22 the shares of Eva in the insurance proceeds, whether forfeited by the court in view of
the prohibition on donations under Article 739 of the Civil Code or by the insurers themselves for
reasons based on the insurance contracts, must be awarded to the said illegitimate children, the
designated beneficiaries, to the exclusion of petitioners. It is only in cases where the insured has
not designated any beneficiary,23 or when the designated beneficiary is disqualified by law to
receive the proceeds,24 that the insurance policy proceeds shall redound to the benefit of the estate
of the insured.
In this regard, the assailed June 16, 2005 Resolution of the trial court should be upheld. In the
same light, the Decision of the CA dated January 8, 2008 should be sustained. Indeed, the
appellate court had no jurisdiction to take cognizance of the appeal; the issue of failure to state a
cause of action is a question of law and not of fact, there being no findings of fact in the first
place.25
WHEREFORE, the petition is DENIED for lack of merit. Costs against petitioners.
SO ORDERED.
G.R. No. 159912               August 17, 2007
UNITED COCONUT PLANTERS BANK, Petitioner,
vs.
SPOUSES SAMUEL and ODETTE BELUSO, Respondents.
DECISION
CHICO-NAZARIO, J.:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, which seeks to
annul the Court of Appeals Decision 1 dated 21 January 2003 and its Resolution 2 dated 9
September 2003 in CA-G.R. CV No. 67318. The assailed Court of Appeals Decision and
Resolution affirmed in turn the Decision3 dated 23 March 2000 and Order4 dated 8 May 2000 of the
Regional Trial Court (RTC), Branch 65 of Makati City, in Civil Case No. 99-314, declaring void the
interest rate provided in the promissory notes executed by the respondents Spouses Samuel and
Odette Beluso (spouses Beluso) in favor of petitioner United Coconut Planters Bank (UCPB).
The procedural and factual antecedents of this case are as follows:
On 16 April 1996, UCPB granted the spouses Beluso a Promissory Notes Line under a Credit
Agreement whereby the latter could avail from the former credit of up to a maximum amount of
₱1.2 Million pesos for a term ending on 30 April 1997. The spouses Beluso constituted, other than
their promissory notes, a real estate mortgage over parcels of land in Roxas City, covered by
Transfer Certificates of Title No. T-31539 and T-27828, as additional security for the obligation.
The Credit Agreement was subsequently amended to increase the amount of the Promissory
Notes Line to a maximum of ₱2.35 Million pesos and to extend the term thereof to 28 February
1998.
The spouses Beluso availed themselves of the credit line under the following Promissory Notes:
The three promissory notes were renewed several times. On 30 April 1997, the payment of the
principal and interest of the latter two promissory notes were debited from the spouses Beluso’s
account with UCPB; yet, a consolidated loan for ₱1.3 Million was again released to the spouses
Beluso under one promissory note with a due date of 28 February 1998.
Page 10 of 53
To completely avail themselves of the ₱2.35 Million credit line extended to them by UCPB, the
spouses Beluso executed two more promissory notes for a total of ₱350,000.00:
However, the spouses Beluso alleged that the amounts covered by these last two promissory
notes were never released or credited to their account and, thus, claimed that the principal
indebtedness was only ₱2 Million.
In any case, UCPB applied interest rates on the different promissory notes ranging from 18% to
34%. From 1996 to February 1998 the spouses Beluso were able to pay the total sum of
₱763,692.03.
From 28 February 1998 to 10 June 1998, UCPB continued to charge interest and penalty on the
obligations of the spouses Beluso, as follows:
The spouses Beluso, however, failed to make any payment of the foregoing amounts.
On 2 September 1998, UCPB demanded that the spouses Beluso pay their total obligation of
₱2,932,543.00 plus 25% attorney’s fees, but the spouses Beluso failed to comply therewith. On 28
December 1998, UCPB foreclosed the properties mortgaged by the spouses Beluso to secure their
credit line, which, by that time, already ballooned to ₱3,784,603.00.
On 9 February 1999, the spouses Beluso filed a Petition for Annulment, Accounting and Damages
against UCPB with the RTC of Makati City.
On 23 March 2000, the RTC ruled in favor of the spouses Beluso, disposing of the case as follows:
PREMISES CONSIDERED, judgment is hereby rendered declaring the interest rate used by
[UCPB] void and the foreclosure and Sheriff’s Certificate of Sale void. [UCPB] is hereby ordered to
return to [the spouses Beluso] the properties subject of the foreclosure; to pay [the spouses
Beluso] the amount of ₱50,000.00 by way of attorney’s fees; and to pay the costs of suit. [The
spouses Beluso] are hereby ordered to pay [UCPB] the sum of ₱1,560,308.00.5
On 8 May 2000, the RTC denied UCPB’s Motion for Reconsideration, 6 prompting UCPB to appeal
the RTC Decision with the Court of Appeals. The Court of Appeals affirmed the RTC Decision, to
wit:
WHEREFORE, premises considered, the decision dated March 23, 2000 of the Regional Trial
Court, Branch 65, Makati City in Civil Case No. 99-314 is hereby AFFIRMED subject to the
modification that defendant-appellant UCPB is not liable for attorney’s fees or the costs of suit. 7
On 9 September 2003, the Court of Appeals denied UCPB’s Motion for Reconsideration for lack of
merit. UCPB thus filed the present petition, submitting the following issues for our resolution:
I
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND
REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT WHICH
DECLARED VOID THE PROVISION ON INTEREST RATE AGREED UPON BETWEEN
PETITIONER AND RESPONDENTS
II
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND
REVERSIBLE ERROR WHEN IT AFFIRMED THE COMPUTATION BY THE TRIAL COURT OF
RESPONDENTS’ INDEBTEDNESS AND ORDERED RESPONDENTS TO PAY PETITIONER
THE AMOUNT OF ONLY ONE MILLION FIVE HUNDRED SIXTY THOUSAND THREE HUNDRED
EIGHT PESOS (₱1,560,308.00)
III
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND
REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT WHICH
ANNULLED THE FORECLOSURE BY PETITIONER OF THE SUBJECT PROPERTIES DUE TO
AN ALLEGED "INCORRECT COMPUTATION" OF RESPONDENTS’ INDEBTEDNESS
IV
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND
REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT WHICH
FOUND PETITIONER LIABLE FOR VIOLATION OF THE TRUTH IN LENDING ACT
V
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND
REVERSIBLE ERROR WHEN IT FAILED TO ORDER THE DISMISSAL OF THE CASE
BECAUSE THE RESPONDENTS ARE GUILTY OF FORUM SHOPPING 8
Validity of the Interest Rates
The Court of Appeals held that the imposition of interest in the following provision found in the
promissory notes of the spouses Beluso is void, as the interest rates and the bases therefor were
determined solely by petitioner UCPB:
FOR VALUE RECEIVED, I, and/or We, on or before due date, SPS. SAMUEL AND ODETTE
BELUSO (BORROWER), jointly and severally promise to pay to UNITED COCONUT PLANTERS
BANK (LENDER) or order at UCPB Bldg., Makati Avenue, Makati City, Philippines, the sum of
______________ PESOS, (P_____), Philippine Currency, with interest thereon at the rate
indicative of DBD retail rate or as determined by the Branch Head.9
UCPB asserts that this is a reversible error, and claims that while the interest rate was not
numerically quantified in the face of the promissory notes, it was nonetheless categorically fixed, at
the time of execution thereof, at the "rate indicative of the DBD retail rate." UCPB contends that
said provision must be read with another stipulation in the promissory notes subjecting to review
the interest rate as fixed:
The interest rate shall be subject to review and may be increased or decreased by the LENDER
considering among others the prevailing financial and monetary conditions; or the rate of interest
and charges which other banks or financial institutions charge or offer to charge for similar
accommodations; and/or the resulting profitability to the LENDER after due consideration of all
dealings with the BORROWER.10
In this regard, UCPB avers that these are valid reference rates akin to a "prevailing rate" or "prime
rate" allowed by this Court in Polotan v. Court of Appeals. 11 Furthermore, UCPB argues that even if
the proviso "as determined by the branch head" is considered void, such a declaration would not
Page 11 of 53
ipso facto render the connecting clause "indicative of DBD retail rate" void in view of the
separability clause of the Credit Agreement, which reads:
Section 9.08 Separability Clause. If any one or more of the provisions contained in this
AGREEMENT, or documents executed in connection herewith shall be declared invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the remaining provisions
hereof shall not in any way be affected or impaired. 12
According to UCPB, the imposition of the questioned interest rates did not infringe on the principle
of mutuality of contracts, because the spouses Beluso had the liberty to choose whether or not to
renew their credit line at the new interest rates pegged by petitioner. 13 UCPB also claims that
assuming there was any defect in the mutuality of the contract at the time of its inception, such
defect was cured by the subsequent conduct of the spouses Beluso in availing themselves of the
credit line from April 1996 to February 1998 without airing any protest with respect to the interest
rates imposed by UCPB. According to UCPB, therefore, the spouses Beluso are in estoppel. 14
We agree with the Court of Appeals, and find no merit in the contentions of UCPB.
Article 1308 of the Civil Code provides:
Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left
to the will of one of them.
We applied this provision in Philippine National Bank v. Court of Appeals, 15 where we held:
In order that obligations arising from contracts may have the force of law between the parties, there
must be mutuality between the parties based on their essential equality. A contract containing a
condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the
contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming
that the P1.8 million loan agreement between the PNB and the private respondent gave the PNB a
license (although in fact there was none) to increase the interest rate at will during the term of the
loan, that license would have been null and void for being violative of the principle of mutuality
essential in contracts. It would have invested the loan agreement with the character of a contract of
adhesion, where the parties do not bargain on equal footing, the weaker party's (the debtor)
participation being reduced to the alternative "to take it or leave it" (Qua vs. Law Union & Rock
Insurance Co., 95 Phil. 85). Such a contract is a veritable trap for the weaker party whom the
courts of justice must protect against abuse and imposition.
The provision stating that the interest shall be at the "rate indicative of DBD retail rate or as
determined by the Branch Head" is indeed dependent solely on the will of petitioner UCPB. Under
such provision, petitioner UCPB has two choices on what the interest rate shall be: (1) a rate
indicative of the DBD retail rate; or (2) a rate as determined by the Branch Head. As UCPB is given
this choice, the rate should be categorically determinable in both choices. If either of these two
choices presents an opportunity for UCPB to fix the rate at will, the bank can easily choose such an
option, thus making the entire interest rate provision violative of the principle of mutuality of
contracts.
Not just one, but rather both, of these choices are dependent solely on the will of UCPB. Clearly, a
rate "as determined by the Branch Head" gives the latter unfettered discretion on what the rate
may be. The Branch Head may choose any rate he or she desires. As regards the rate "indicative
of the DBD retail rate," the same cannot be considered as valid for being akin to a "prevailing rate"
or "prime rate" allowed by this Court in Polotan. The interest rate in Polotan reads:
The Cardholder agrees to pay interest per annum at 3% plus the prime rate of Security Bank and
Trust Company. x x x.16
In this provision in Polotan, there is a fixed margin over the reference rate: 3%. Thus, the parties
can easily determine the interest rate by applying simple arithmetic. On the other hand, the
provision in the case at bar does not specify any margin above or below the DBD retail rate. UCPB
can peg the interest at any percentage above or below the DBD retail rate, again giving it
unfettered discretion in determining the interest rate.
The stipulation in the promissory notes subjecting the interest rate to review does not render the
imposition by UCPB of interest rates on the obligations of the spouses Beluso valid. According to
said stipulation:
The interest rate shall be subject to review and may be increased or decreased by the LENDER
considering among others the prevailing financial and monetary conditions; or the rate of interest
and charges which other banks or financial institutions charge or offer to charge for similar
accommodations; and/or the resulting profitability to the LENDER after due consideration of all
dealings with the BORROWER.17
It should be pointed out that the authority to review the interest rate was given UCPB alone as the
lender. Moreover, UCPB may apply the considerations enumerated in this provision as it wishes.
As worded in the above provision, UCPB may give as much weight as it desires to each of the
following considerations: (1) the prevailing financial and monetary condition; (2) the rate of interest
and charges which other banks or financial institutions charge or offer to charge for similar
accommodations; and/or (3) the resulting profitability to the LENDER (UCPB) after due
consideration of all dealings with the BORROWER (the spouses Beluso). Again, as in the case of
the interest rate provision, there is no fixed margin above or below these considerations.
In view of the foregoing, the Separability Clause cannot save either of the two options of UCPB as
to the interest to be imposed, as both options violate the principle of mutuality of contracts.
UCPB likewise failed to convince us that the spouses Beluso were in estoppel.
Estoppel cannot be predicated on an illegal act. As between the parties to a contract, validity
cannot be given to it by estoppel if it is prohibited by law or is against public policy. 18
The interest rate provisions in the case at bar are illegal not only because of the provisions of the
Civil Code on mutuality of contracts, but also, as shall be discussed later, because they violate the
Truth in Lending Act. Not disclosing the true finance charges in connection with the extensions of
credit is, furthermore, a form of deception which we cannot countenance. It is against the policy of
the State as stated in the Truth in Lending Act:
Sec. 2. Declaration of Policy. – It is hereby declared to be the policy of the State to protect its
citizens from a lack of awareness of the true cost of credit to the user by assuring a full disclosure
of such cost with a view of preventing the uninformed use of credit to the detriment of the national
economy.19
Moreover, while the spouses Beluso indeed agreed to renew the credit line, the offending
provisions are found in the promissory notes themselves, not in the credit line. In fixing the interest
rates in the promissory notes to cover the renewed credit line, UCPB still reserved to itself the
same two options – (1) a rate indicative of the DBD retail rate; or (2) a rate as determined by the
Branch Head.
Page 12 of 53
Error in Computation Section 3.03 Application of Payment. Payments made by the CLIENT shall be applied in
accordance with the following order of preference:
UCPB asserts that while both the RTC and the Court of Appeals voided the interest rates imposed
by UCPB, both failed to include in their computation of the outstanding obligation of the spouses 1. Accounts receivable and other out-of-pocket expenses
Beluso the legal rate of interest of 12% per annum. Furthermore, the penalty charges were also
deleted in the decisions of the RTC and the Court of Appeals. Section 2.04, Article II on "Interest
2. Front-end Fee, Origination Fee, Attorney’s Fee and other expenses of collection;
and other Bank Charges" of the subject Credit Agreement, provides:

3. Penalty charges;
Section 2.04 Penalty Charges. In addition to the interest provided for in Section 2.01 of this
ARTICLE, any principal obligation of the CLIENT hereunder which is not paid when due shall be
subject to a penalty charge of one percent (1%) of the amount of such obligation per month 4. Past due interest;
computed from due date until the obligation is paid in full. If the bank accelerates teh (sic) payment
of availments hereunder pursuant to ARTICLE VIII hereof, the penalty charge shall be used on the
5. Principal amortization/Payment in arrears;
total principal amount outstanding and unpaid computed from the date of acceleration until the
obligation is paid in full.20
6. Advance interest;
Paragraph 4 of the promissory notes also states:
7. Outstanding balance; and
In case of non-payment of this Promissory Note (Note) at maturity, I/We, jointly and severally,
agree to pay an additional sum equivalent to twenty-five percent (25%) of the total due on the Note 8. All other obligations of CLIENT to the BANK, if any. 25
as attorney’s fee, aside from the expenses and costs of collection whether actually incurred or not,
and a penalty charge of one percent (1%) per month on the total amount due and unpaid from date
of default until fully paid. 21 Thus, according to UCPB, the interest charges, penalty charges, and attorney’s fees had been
erroneously excluded by the RTC and the Court of Appeals from the computation of the total
amount due and demandable from spouses Beluso.
Petitioner further claims that it is likewise entitled to attorney’s fees, pursuant to Section 9.06 of the
Credit Agreement, thus:
The spouses Beluso’s defense as to all these issues is that the demand made by UCPB is for a
considerably bigger amount and, therefore, the demand should be considered void. There being no
If the BANK shall require the services of counsel for the enforcement of its rights under this valid demand, according to the spouses Beluso, there would be no default, and therefore the
AGREEMENT, the Note(s), the collaterals and other related documents, the BANK shall be entitled interests and penalties would not commence to run. As it was likewise improper to foreclose the
to recover attorney’s fees equivalent to not less than twenty-five percent (25%) of the total amounts mortgaged properties or file a case against the spouses Beluso, attorney’s fees were not
due and outstanding exclusive of costs and other expenses.22 warranted.

Another alleged computational error pointed out by UCPB is the negation of the Compounding
Interest agreed upon by the parties under Section 2.02 of the Credit Agreement:
Section 2.02 Compounding Interest. Interest not paid when due shall form part of the principal and
shall be subject to the same interest rate as herein stipulated. 23 and paragraph 3 of the subject
promissory notes:
Interest not paid when due shall be added to, and become part of the principal and shall likewise
bear interest at the same rate.24
We agree with UCPB on this score. Default commences upon judicial or extrajudicial
demand.26 The excess amount in such a demand does not nullify the demand itself, which is valid
with respect to the proper amount. A contrary ruling would put commercial transactions in disarray,
as validity of demands would be dependent on the exactness of the computations thereof, which
are too often contested.
There being a valid demand on the part of UCPB, albeit excessive, the spouses Beluso are
considered in default with respect to the proper amount and, therefore, the interests and the
penalties began to run at that point.

As regards the award of 12% legal interest in favor of petitioner, the RTC actually recognized that
UCPB lastly avers that the application of the spouses Beluso’s payments in the disputed
said legal interest should be imposed, thus: "There being no valid stipulation as to interest, the
computation does not reflect the parties’ agreement.1avvphi1 The RTC deducted the payment
legal rate of interest shall be charged." 27 It seems that the RTC inadvertently overlooked its non-
made by the spouses Beluso amounting to ₱763,693.00 from the principal of ₱2,350,000.00. This
inclusion in its computation.
was allegedly inconsistent with the Credit Agreement, as well as with the agreement of the parties
as to the facts of the case. In paragraph 7 of the spouses Beluso’s Manifestation and Motion on
Proposed Stipulation of Facts and Issues vis-à-vis UCPB’s Manifestation, the parties agreed that The spouses Beluso had even originally asked for the RTC to impose this legal rate of interest in
the amount of ₱763,693.00 was applied to the interest and not to the principal, in accord with both the body and the prayer of its petition with the RTC:
Section 3.03, Article II of the Credit Agreement on "Order of the Application of Payments," which
provides:
12. Since the provision on the fixing of the rate of interest by the sole will of the respondent Bank is
null and void, only the legal rate of interest which is 12% per annum can be legally charged and

Page 13 of 53
imposed by the bank, which would amount to only about P599,000.00 since 1996 up to August 31, fees in favor of petitioner, we shall merely affirm the deletion of the award of attorney’s fees to the
1998. spouses Beluso.

xxxx In sum, we hold that spouses Beluso should still be held liable for a compounded legal interest of
12% per annum and a penalty charge of 12% per annum. We also hold that, instead of awarding
attorney’s fees in favor of petitioner, we shall merely affirm the deletion of the award of attorney’s
WHEREFORE, in view of the foregoing, petiitoners pray for judgment or order:
fees to the spouses Beluso.

xxxx
Annulment of the Foreclosure Sale

2. By way of example for the public good against the Bank’s taking unfair advantage of the weaker
Properties of spouses Beluso had been foreclosed, titles to which had already been consolidated
party to their contract, declaring the legal rate of 12% per annum, as the imposable rate of interest
on 19 February 2001 and 20 March 2001 in the name of UCPB, as the spouses Beluso failed to
up to February 28, 1999 on the loan of 2.350 million.28
exercise their right of redemption which expired on 25 March 2000. The RTC, however, annulled
the foreclosure of mortgage based on an alleged incorrect computation of the spouses Beluso’s
All these show that the spouses Beluso had acknowledged before the RTC their obligation to pay a indebtedness.
12% legal interest on their loans. When the RTC failed to include the 12% legal interest in its
computation, however, the spouses Beluso merely defended in the appellate courts this non-
UCPB alleges that none of the grounds for the annulment of a foreclosure sale are present in the
inclusion, as the same was beneficial to them. We see, however, sufficient basis to impose a 12%
case at bar. Furthermore, the annulment of the foreclosure proceedings and the certificates of sale
legal interest in favor of petitioner in the case at bar, as what we have voided is merely the
were mooted by the subsequent issuance of new certificates of title in the name of said bank.
stipulated rate of interest and not the stipulation that the loan shall earn interest.
UCPB claims that the spouses Beluso’s action for annulment of foreclosure constitutes a collateral
attack on its certificates of title, an act proscribed by Section 48 of Presidential Decree No. 1529,
We must likewise uphold the contract stipulation providing the compounding of interest. The otherwise known as the Property Registration Decree, which provides:
provisions in the Credit Agreement and in the promissory notes providing for the compounding of
interest were neither nullified by the RTC or the Court of Appeals, nor assailed by the spouses
Section 48. Certificate not subject to collateral attack. – A certificate of title shall not be subject to
Beluso in their petition with the RTC. The compounding of interests has furthermore been declared
collateral attack. It cannot be altered, modified or cancelled except in a direct proceeding in
by this Court to be legal. We have held in Tan v. Court of Appeals,29 that:
accordance with law.

Without prejudice to the provisions of Article 2212, interest due and unpaid shall not earn
The spouses Beluso retort that since they had the right to refuse payment of an excessive demand
interest. However, the contracting parties may by stipulation capitalize the interest due and unpaid,
on their account, they cannot be said to be in default for refusing to pay the same. Consequently,
which as added principal, shall earn new interest.
according to the spouses Beluso, the "enforcement of such illegal and overcharged demand
through foreclosure of mortgage" should be voided.
As regards the imposition of penalties, however, although we are likewise upholding the imposition
thereof in the contract, we find the rate iniquitous. Like in the case of grossly excessive interests,
We agree with UCPB and affirm the validity of the foreclosure proceedings. Since we already found
the penalty stipulated in the contract may also be reduced by the courts if it is iniquitous or
that a valid demand was made by UCPB upon the spouses Beluso, despite being excessive, the
unconscionable.30
spouses Beluso are considered in default with respect to the proper amount of their obligation to
UCPB and, thus, the property they mortgaged to secure such amounts may be foreclosed.
We find the penalty imposed by UCPB, ranging from 30.41% to 36%, to be iniquitous considering Consequently, proceeds of the foreclosure sale should be applied to the extent of the amounts to
the fact that this penalty is already over and above the compounded interest likewise imposed in which UCPB is rightfully entitled.
the contract. If a 36% interest in itself has been declared unconscionable by this Court, 31 what
more a 30.41% to 36% penalty, over and above the payment of compounded interest? UCPB itself
As argued by UCPB, none of the grounds for the annulment of a foreclosure sale are present in
must have realized this, as it gave us a sample computation of the spouses Beluso’s obligation if
this case. The grounds for the proper annulment of the foreclosure sale are the following: (1) that
both the interest and the penalty charge are reduced to 12%.
there was fraud, collusion, accident, mutual mistake, breach of trust or misconduct by the
purchaser; (2) that the sale had not been fairly and regularly conducted; or (3) that the price was
As regards the attorney’s fees, the spouses Beluso can actually be liable therefor even if there had inadequate and the inadequacy was so great as to shock the conscience of the court.34
been no demand. Filing a case in court is the judicial demand referred to in Article 1169 32 of the
Civil Code, which would put the obligor in delay.
Liability for Violation of Truth in Lending Act

The RTC, however, also held UCPB liable for attorney’s fees in this case, as the spouses Beluso
The RTC, affirmed by the Court of Appeals, imposed a fine of ₱26,000.00 for UCPB’s alleged
were forced to litigate the issue on the illegality of the interest rate provision of the promissory
violation of Republic Act No. 3765, otherwise known as the Truth in Lending Act.
notes. The award of attorney’s fees, it must be recalled, falls under the sound discretion of the
court.33 Since both parties were forced to litigate to protect their respective rights, and both are
entitled to the award of attorney’s fees from the other, practical reasons dictate that we set off or
compensate both parties’ liabilities for attorney’s fees. Therefore, instead of awarding attorney’s

Page 14 of 53
UCPB challenges this imposition, on the argument that Section 6(a) of the Truth in Lending Act
which mandates the filing of an action to recover such penalty must be made under the following
circumstances:
Section 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any
person any information in violation of this Act or any regulation issued thereunder shall be liable to
such person in the amount of ₱100 or in an amount equal to twice the finance charge required by
such creditor in connection with such transaction, whichever is greater, except that such liability
shall not exceed ₱2,000 on any credit transaction. Action to recover such penalty may be brought
by such person within one year from the date of the occurrence of the violation, in any court of
competent jurisdiction. x x x (Emphasis ours.)
According to UCPB, the Court of Appeals even stated that "[a]dmittedly the original complaint did
not explicitly allege a violation of the ‘Truth in Lending Act’ and no action to formally admit the
amended petition [which expressly alleges violation of the Truth in Lending Act] was made either
by [respondents] spouses Beluso and the lower court. x x x."35
UCPB further claims that the action to recover the penalty for the violation of the Truth in Lending
Act had been barred by the one-year prescriptive period provided for in the Act. UCPB asserts that
per the records of the case, the latest of the subject promissory notes had been executed on 2
January 1998, but the original petition of the spouses Beluso was filed before the RTC on 9
February 1999, which was after the expiration of the period to file the same on 2 January 1999.
UCPB’s contention that this action to recover the penalty for the violation of the Truth in Lending
Act has already prescribed is likewise without merit. The penalty for the violation of the act is ₱100
or an amount equal to twice the finance charge required by such creditor in connection with such
transaction, whichever is greater, except that such liability shall not exceed ₱2,000.00 on any credit
transaction.39 As this penalty depends on the finance charge required of the borrower, the
borrower’s cause of action would only accrue when such finance charge is required. In the case at
bar, the date of the demand for payment of the finance charge is 2 September 1998, while the
foreclosure was made on 28 December 1998. The filing of the case on 9 February 1999 is
therefore within the one-year prescriptive period.
UCPB argues that a violation of the Truth in Lending Act, being a criminal offense, cannot be
inferred nor implied from the allegations made in the complaint. 40 Pertinent provisions of the Act
read:
Sec. 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any person
any information in violation of this Act or any regulation issued thereunder shall be liable to such
person in the amount of ₱100 or in an amount equal to twice the finance charge required by such
creditor in connection with such transaction, whichever is the greater, except that such liability shall
not exceed ₱2,000 on any credit transaction. Action to recover such penalty may be brought by
such person within one year from the date of the occurrence of the violation, in any court of
competent jurisdiction. In any action under this subsection in which any person is entitled to a
recovery, the creditor shall be liable for reasonable attorney’s fees and court costs as determined
by the court.

On the matter of allegation of the violation of the Truth in Lending Act, the Court of Appeals ruled:
xxxx

Admittedly the original complaint did not explicitly allege a violation of the ‘Truth in Lending Act’ and
(c) Any person who willfully violates any provision of this Act or any regulation issued thereunder
no action to formally admit the amended petition was made either by [respondents] spouses
shall be fined by not less than ₱1,000 or more than ₱5,000 or imprisonment for not less than 6
Beluso and the lower court. In such transactions, the debtor and the lending institutions do not deal
months, nor more than one year or both.
on an equal footing and this law was intended to protect the public from hidden or undisclosed
charges on their loan obligations, requiring a full disclosure thereof by the lender. We find that its
infringement may be inferred or implied from allegations that when [respondents] spouses Beluso As can be gleaned from Section 6(a) and (c) of the Truth in Lending Act, the violation of the said
executed the promissory notes, the interest rate chargeable thereon were left blank. Thus, Act gives rise to both criminal and civil liabilities. Section 6(c) considers a criminal offense the
[petitioner] UCPB failed to discharge its duty to disclose in full to [respondents] Spouses Beluso the willful violation of the Act, imposing the penalty therefor of fine, imprisonment or both. Section 6(a),
charges applicable on their loans.36 on the other hand, clearly provides for a civil cause of action for failure to disclose any information
of the required information to any person in violation of the Act. The penalty therefor is an amount
of ₱100 or in an amount equal to twice the finance charge required by the creditor in connection
We agree with the Court of Appeals. The allegations in the complaint, much more than the title
with such transaction, whichever is greater, except that the liability shall not exceed ₱2,000.00 on
thereof, are controlling. Other than that stated by the Court of Appeals, we find that the allegation
any credit transaction. The action to recover such penalty may be instituted by the aggrieved
of violation of the Truth in Lending Act can also be inferred from the same allegation in the
private person separately and independently from the criminal case for the same offense.
complaint we discussed earlier:

In the case at bar, therefore, the civil action to recover the penalty under Section 6(a) of the Truth
b.) In unilaterally imposing an increased interest rates (sic) respondent bank has relied on the
in Lending Act had been jointly instituted with (1) the action to declare the interests in the
provision of their promissory note granting respondent bank the power to unilaterally fix the interest
promissory notes void, and (2) the action to declare the foreclosure void. This joinder is allowed
rates, which rate was not determined in the promissory note but was left solely to the will of the
under Rule 2, Section 5 of the Rules of Court, which provides:
Branch Head of the respondent Bank, x x x.37

SEC. 5. Joinder of causes of action.—A party may in one pleading assert, in the alternative or
The allegation that the promissory notes grant UCPB the power to unilaterally fix the interest rates
otherwise, as many causes of action as he may have against an opposing party, subject to the
certainly also means that the promissory notes do not contain a "clear statement in writing" of "(6)
following conditions:
the finance charge expressed in terms of pesos and centavos; and (7) the percentage that the
finance charge bears to the amount to be financed expressed as a simple annual rate on the
outstanding unpaid balance of the obligation." 38 Furthermore, the spouses Beluso’s prayer "for (a) The party joining the causes of action shall comply with the rules on joinder of parties;
such other reliefs just and equitable in the premises" should be deemed to include the civil penalty
provided for in Section 6(a) of the Truth in Lending Act.
(b) The joinder shall not include special civil actions or actions governed by special rules;

Page 15 of 53
 (c) Where the causes of action are between the same parties but pertain to different UCPB further argues that since the spouses Beluso were duly given copies of the subject
venues or jurisdictions, the joinder may be allowed in the Regional Trial Court provided promissory notes after their execution, then they were duly notified of the terms thereof, in
one of the causes of action falls within the jurisdiction of said court and the venue lies substantial compliance with the Truth in Lending Act.
therein; and
Once more, we disagree. Section 4 of the Truth in Lending Act clearly provides that the disclosure
(d) Where the claims in all the causes of action are principally for recovery of money, the statement must be furnished prior to the consummation of the transaction:
aggregate amount claimed shall be the test of jurisdiction.
SEC. 4. Any creditor shall furnish to each person to whom credit is extended, prior to the
In attacking the RTC’s disposition on the violation of the Truth in Lending Act since the same was consummation of the transaction, a clear statement in writing setting forth, to the extent applicable
not alleged in the complaint, UCPB is actually asserting a violation of due process. Indeed, due and in accordance with rules and regulations prescribed by the Board, the following information:
process mandates that a defendant should be sufficiently apprised of the matters he or she would
be defending himself or herself against. However, in the 1 July 1999 pre-trial brief filed by the
(1) the cash price or delivered price of the property or service to be acquired;
spouses Beluso before the RTC, the claim for civil sanctions for violation of the Truth in Lending
Act was expressly alleged, thus:
(2) the amounts, if any, to be credited as down payment and/or trade-in;
Moreover, since from the start, respondent bank violated the Truth in Lending Act in not informing
the borrower in writing before the execution of the Promissory Notes of the interest rate expressed (3) the difference between the amounts set forth under clauses (1) and (2)
as a percentage of the total loan, the respondent bank instead is liable to pay petitioners double
the amount the bank is charging petitioners by way of sanction for its violation. 41
(4) the charges, individually itemized, which are paid or to be paid by such person in
connection with the transaction but which are not incident to the extension of credit;
In the same pre-trial brief, the spouses Beluso also expressly raised the following issue:
(5) the total amount to be financed;
b.) Does the expression indicative rate of DBD retail (sic) comply with the Truth in Lending Act
provision to express the interest rate as a simple annual percentage of the loan? 42
(6) the finance charge expressed in terms of pesos and centavos; and

These assertions are so clear and unequivocal that any attempt of UCPB to feign ignorance of the
(7) the percentage that the finance bears to the total amount to be financed expressed
assertion of this issue in this case as to prevent it from putting up a defense thereto is plainly
as a simple annual rate on the outstanding unpaid balance of the obligation.
hogwash.

The rationale of this provision is to protect users of credit from a lack of awareness of the true cost
Petitioner further posits that it is the Metropolitan Trial Court which has jurisdiction to try and
thereof, proceeding from the experience that banks are able to conceal such true cost by hidden
adjudicate the alleged violation of the Truth in Lending Act, considering that the present action
charges, uncertainty of interest rates, deduction of interests from the loaned amount, and the like.
allegedly involved a single credit transaction as there was only one Promissory Note Line.
The law thereby seeks to protect debtors by permitting them to fully appreciate the true cost of their
loan, to enable them to give full consent to the contract, and to properly evaluate their options in
We disagree. We have already ruled that the action to recover the penalty under Section 6(a) of arriving at business decisions. Upholding UCPB’s claim of substantial compliance would defeat
the Truth in Lending Act had been jointly instituted with (1) the action to declare the interests in the these purposes of the Truth in Lending Act. The belated discovery of the true cost of credit will too
promissory notes void, and (2) the action to declare the foreclosure void. There had been no often not be able to reverse the ill effects of an already consummated business decision.
question that the above actions belong to the jurisdiction of the RTC. Subsection (c) of the above-
quoted Section 5 of the Rules of Court on Joinder of Causes of Action provides:
In addition, the promissory notes, the copies of which were presented to the spouses Beluso after
execution, are not sufficient notification from UCPB. As earlier discussed, the interest rate provision
(c) Where the causes of action are between the same parties but pertain to different venues or therein does not sufficiently indicate with particularity the interest rate to be applied to the loan
jurisdictions, the joinder may be allowed in the Regional Trial Court provided one of the causes of covered by said promissory notes.
action falls within the jurisdiction of said court and the venue lies therein.
Forum Shopping
Furthermore, opening a credit line does not create a credit transaction of loan or mutuum, since the
former is merely a preparatory contract to the contract of loan or mutuum. Under such credit line,
the bank is merely obliged, for the considerations specified therefor, to lend to the other party
amounts not exceeding the limit provided. The credit transaction thus occurred not when the credit
line was opened, but rather when the credit line was availed of. In the case at bar, the violation of
the Truth in Lending Act allegedly occurred not when the parties executed the Credit Agreement,
where no interest rate was mentioned, but when the parties executed the promissory notes, where
the allegedly offending interest rate was stipulated.

Page 16 of 53
UCPB had earlier moved to dismiss the petition (originally Case No. 99-314 in RTC, Makati City) (g) That the pleading asserting the claim states no cause of action;
on the ground that the spouses Beluso instituted another case (Civil Case No. V-7227) before the
RTC of Roxas City, involving the same parties and issues. UCPB claims that while Civil Case No.
(h) That the claim or demand set forth in the plaintiff’s pleading has been paid, waived,
V-7227 initially appears to be a different action, as it prayed for the issuance of a temporary
abandoned, or otherwise extinguished;
restraining order and/or injunction to stop foreclosure of spouses Beluso’s properties, it poses
issues which are similar to those of the present case. 43 To prove its point, UCPB cited the spouses
Beluso’s Amended Petition in Civil Case No. V-7227, which contains similar allegations as those in (i) That the claim on which the action is founded is unenforceable under the provisions of
the present case. The RTC of Makati denied UCPB’s Motion to Dismiss Case No. 99-314 for lack the statute of frauds; and
of merit. Petitioner UCPB raised the same issue with the Court of Appeals, and is raising the same
issue with us now.
(j) That a condition precedent for filing the claim has not been complied
with.44 (Emphases supplied.)
The spouses Beluso claim that the issue in Civil Case No. V-7227 before the RTC of Roxas City, a
Petition for Injunction Against Foreclosure, is the propriety of the foreclosure before the true
When an action is dismissed on the motion of the other party, it is only when the ground for the
account of spouses Beluso is determined. On the other hand, the issue in Case No. 99-314 before
dismissal of an action is found in paragraphs (f), (h) and (i) that the action cannot be refiled. As
the RTC of Makati City is the validity of the interest rate provision. The spouses Beluso claim that
regards all the other grounds, the complainant is allowed to file same action, but should take care
Civil Case No. V-7227 has become moot because, before the RTC of Roxas City could act on the
that, this time, it is filed with the proper court or after the accomplishment of the erstwhile absent
restraining order, UCPB proceeded with the foreclosure and auction sale. As the act sought to be
condition precedent, as the case may be.
restrained by Civil Case No. V-7227 has already been accomplished, the spouses Beluso had to
file a different action, that of Annulment of the Foreclosure Sale, Case No. 99-314 with the RTC,
Makati City. UCPB, however, brings to the attention of this Court a Motion for Reconsideration filed by the
spouses Beluso on 15 January 1999 with the RTC of Roxas City, which Motion had not yet been
ruled upon when the spouses Beluso filed Civil Case No. 99-314 with the RTC of Makati. Hence,
Even if we assume for the sake of argument, however, that only one cause of action is involved in
there were allegedly two pending actions between the same parties on the same issue at the time
the two civil actions, namely, the violation of the right of the spouses Beluso not to have their
of the filing of Civil Case No. 99-314 on 9 February 1999 with the RTC of Makati. This will still not
property foreclosed for an amount they do not owe, the Rules of Court nevertheless allows the
change our findings. It is indeed the general rule that in cases where there are two pending actions
filing of the second action. Civil Case No. V-7227 was dismissed by the RTC of Roxas City before
between the same parties on the same issue, it should be the later case that should be dismissed.
the filing of Case No. 99-314 with the RTC of Makati City, since the venue of litigation as provided
However, this rule is not absolute. According to this Court in Allied Banking Corporation v. Court of
for in the Credit Agreement is in Makati City.
Appeals45 :

Rule 16, Section 5 bars the refiling of an action previously dismissed only in the following
instances:
SEC. 5. Effect of dismissal.—Subject to the right of appeal, an order granting a motion to dismiss
based on paragraphs (f), (h) and (i) of section 1 hereof shall bar the refiling of the same action or
claim. (n)
Improper venue as a ground for the dismissal of an action is found in paragraph (c) of Section 1,
not in paragraphs (f), (h) and (i):
SECTION 1. Grounds.—Within the time for but before filing the answer to the complaint or
pleading asserting a claim, a motion to dismiss may be made on any of the following grounds:
(a) That the court has no jurisdiction over the person of the defending party;
(b) That the court has no jurisdiction over the subject matter of the claim;
(c) That venue is improperly laid;
In these cases, it is evident that the first action was filed in anticipation of the filing of the later
action and the purpose is to preempt the later suit or provide a basis for seeking the dismissal of
the second action.
Even if this is not the purpose for the filing of the first action, it may nevertheless be dismissed if
the later action is the more appropriate vehicle for the ventilation of the issues between the
parties. Thus, in Ramos v. Peralta, it was held:
[T]he rule on litis pendentia does not require that the later case should yield to the earlier case.
What is required merely is that there be another pending action, not a prior pending action.
Considering the broader scope of inquiry involved in Civil Case No. 4102 and the location of the
property involved, no error was committed by the lower court in deferring to the Bataan court's
jurisdiction.
Given, therefore, the pendency of two actions, the following are the relevant considerations in
determining which action should be dismissed: (1) the date of filing, with preference generally given
to the first action filed to be retained; (2) whether the action sought to be dismissed was filed
merely to preempt the later action or to anticipate its filing and lay the basis for its dismissal; and
(3) whether the action is the appropriate vehicle for litigating the issues between the parties.

(d) That the plaintiff has no legal capacity to sue;

(e) That there is another action pending between the same parties for the same cause;

(f) That the cause of action is barred by a prior judgment or by the statute of limitations;

Page 17 of 53
In the case at bar, Civil Case No. V-7227 before the RTC of Roxas City was an action for injunction
against a foreclosure sale that has already been held, while Civil Case No. 99-314 before the RTC
of Makati City includes an action for the annulment of said foreclosure, an action certainly more
proper in view of the execution of the foreclosure sale. The former case was improperly filed in
Roxas City, while the latter was filed in Makati City, the proper venue of the action as mandated by
the Credit Agreement. It is evident, therefore, that Civil Case No. 99-314 is the more appropriate
vehicle for litigating the issues between the parties, as compared to Civil Case No. V-7227. Thus,
we rule that the RTC of Makati City was not in error in not dismissing Civil Case No. 99-314.
WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED with the following
MODIFICATIONS:
1. In addition to the sum of ₱2,350,000.00 as determined by the courts a quo,
respondent spouses Samuel and Odette Beluso are also liable for the following amounts:
a. Penalty of 12% per annum on the amount due 46 from the date of demand;
and
b. Compounded legal interest of 12% per annum on the amount due 47 from
date of demand;
2. The following amounts shall be deducted from the liability of the spouses Samuel and
Odette Beluso:
a. Payments made by the spouses in the amount of ₱763,692.00. These
payments shall be applied to the date of actual payment of the following in the
order that they are listed, to wit:
i. penalty charges due and demandable as of the time of payment;
ii. interest due and demandable as of the time of payment;
iii. principal amortization/payment in arrears as of the time of
payment;
iv. outstanding balance.
b. Penalty under Republic Act No. 3765 in the amount of ₱26,000.00. This
amount shall be deducted from the liability of the spouses Samuel and Odette
Beluso on 9 February 1999 to the following in the order that they are listed, to
wit:
i. penalty charges due and demandable as of time of payment;
ii. interest due and demandable as of the time of payment;
iii. principal amortization/payment in arrears as of the time of
payment;
iv. outstanding balance.
3. The foreclosure of mortgage is hereby declared VALID. Consequently, the amounts
which the Regional Trial Court and the Court of Appeals ordered respondents to pay, as
modified in this Decision, shall be deducted from the proceeds of the foreclosure sale.
SO ORDERED.
G.R. No. 159189             February 21, 2007
THE MANILA BANKING CORPORATION, Petitioner,
vs.
UNIVERSITY OF BAGUIO, INC. and GROUP DEVELOPERS, INC., Respondents.
DECISION
QUISUMBING, J.:
On appeal is the Order1 dated April 11, 2002 of the Regional Trial Court (RTC) of Makati City,
Branch 61, in Civil Case No. 90-389, dismissing petitioner’s amended complaint for a sum of
money with application for preliminary attachment. In the appeal under Section 2, Rule 41, on a
pure question of law, petitioner alleges that the assailed Order of the RTC was manifestly not in
accord with law and jurisprudence. Also assailed is the trial court’s June 27, 2003 Order 2 denying
the motion for reconsideration.1awphi1.net
The facts are culled from the records.
On November 26, 1981, petitioner Manila Banking Corporation granted a ₱14 million credit line 3 to
respondent University of Baguio, Inc. for the construction of additional buildings and purchase of
new equipment.4 On behalf of the university, then Vice-Chairman Fernando C. Bautista, Jr. 5 signed
Promissory Note (PN) Nos. 10660, 10672, 10687, and 10708 6 and executed a continuing
suretyship agreement.7 However, Bautista, Jr. diverted the net proceeds of the loan. He endorsed
and delivered the four checks representing the net proceeds to respondent Group Developers, Inc.
(GDI).8 The loan was not paid.
On February 12, 1990, the bank filed a complaint for a sum of money with application for
preliminary attachment 9 against the university, Bautista, Jr. and his wife Milagros, before the RTC
of Makati City. Five years later, on March 31, 1995, the bank amended the complaint and
impleaded GDI as additional defendant.
In the amended complaint, 10 the bank alleged that it was unaware and did not approve the
diversion of the loan to GDI; that it granted the loan without collateral upon the university’s
undertaking that it would construct new buildings; and that GDI connived with the university and
Bautista, Jr. in fraudulently contracting the debt.
Page 18 of 53
In its Answer, the university claimed that the bank and GDI approved the diversion. Allegedly, WHEREFORE, in view of the foregoing, defendant [respondent herein] University of Baguio’s
Victor G. Puyat, then GDI’s President, and Vicente G. Puyat, then the bank’s President, decided to Motion to Dismiss Amended Complaint is herein GRANTED and this complaint for collection of
use the proceeds of the loan. The university stated that Vicente G. Puyat and Victor G. Puyat even sum of money is herein DISMISSED.
assured the university, in separate letters 11 both dated October 22, 1981, that it would be relieved
of any liability from the loan. Consequently, even if the loan was overdue, the bank did not demand
Defendant UBI [respondent university] shall file the appropriate Manifestation in Court specifying
payment until February 8, 1989. By way of cross-claim, the university prayed that GDI be ordered
the dates in June when it will be available to present evidence on its counterclaim.
to pay the university the amount it would have to pay the bank. In addition, the university filed a
third-party complaint against Victor G. Puyat and the heirs of Vicente G. Puyat.
SO ORDERED.19
On December 14, 1995, the bank and GDI executed a deed of dacion en pago.12 As attorney-in-
fact of Batulao Bio-Loop Farms, Inc., GDI ceded and transferred to the bank a parcel of land Hence, this appeal where petitioner alleges:
consisting of 210,000 square meters located in Nasugbu, Batangas and covered by Transfer
Certificate of Title No. T-70784. The dacion en pago was for a consideration of ₱78 million and in
I.
full settlement of the loan under PN Nos. 10660, 10672, 10687, and 10708, subject of Civil Case
No. 90-389.13
The RTC seriously erred in granting the Motion to Dismiss of respondent UBI on the
14 basis of a document that has already been indisputably stricken off from (sic) the records
In an Omnibus Order  dated April 21, 1997, the trial court dismissed the third-party complaint
of the case.
against the heirs of Vicente G. Puyat for being premature since the bank’s cause of action was
against the university as a "dummy" of GDI. The trial court also dismissed the case as to Fernando
Bautista, Jr. and his wife upon Fernando’s death. The trial court further ruled that the university’s ii.
motion to implead GDI as third-party defendant, and GDI’s motions to dismiss the amended
complaint and cross-claim, had been mooted by the dacion en pago.
The RTC seriously erred in granting ubi’s Motion to Dismiss when the issues raised
therein are evidentiary in nature and did not refer to the allegations in the complaint.
On March 19, 1998, the university moved to dismiss the amended complaint on the grounds that:
(1) there was "no more cause of action" against it since the loan had been settled by GDI; and (2)
the bank "failed to prosecute the action for an unreasonable length of time." 15 In an Order16 dated iii.
August 17, 1999, the trial court denied the motion since the "matters relied upon by the university
were evidentiary in nature." The RTC seriously erred in ruling, without trial, that the Deed of Dacion en
Pago between petitioner and respondent ubI [Should be gdi] has not been rescinded.
On October 14, 1999, the university moved to set the case for pre-trial on December 2, 1999. 17
iv.
On August 3, 2000, the trial court resolved GDI’s motion to resolve the motions to dismiss and
defer pre-trial; expunged from the record the deed of dacion en pago; and reinstated GDI’s motions The RTC should have denied ubi’s Manifestation (with Motion for Reconsideration) as
to dismiss the amended complaint and cross-claim on the ground that no compromise agreement the filing of the Motion to Dismiss after respondent ubi filed its Answer violated the Rules
was submitted for its approval.18 of Court.

On August 29, 2001, the university filed a manifestation with motion for reconsideration of the V.
August 17, 1999 Order denying the university’s motion to dismiss the amended complaint. The
university argued that the grounds for its motion to dismiss were not evidentiary as the deed
of dacion en pago and the bank’s judicial admission thereof were on record. The RTC, without justifiable nor legal basis, adopted different policies to parties similarly
situated.

The bank opposed the motion on the ground that the motion for reconsideration of the August 17,
1999 Order was filed after more than two years. The bank noted that it was the university which
moved to set the case for pre-trial; thus, its claim of not seeking reconsideration of the August 17,
1999 Order because of the scheduled pre-trial was preposterous. The bank concluded that the
motion to dismiss lacked basis since the deed of dacion en pago had already been expunged.
In the appealed Order of April 11, 2002, the trial court ruled that the bank had no cause of action
against the defendants because its claim for a sum of money had been paid through the dacion en
pago. The trial court noted that the bank even admitted the settlement. It disposed of the case as
follows:
vi.
The RTC, without justifiable nor legal basis, resolved for the second time a Motion to
Dismiss which it has earlier denied instead of resolving the Manifestation (with Motion for
Reconsideration of said denial) which it was being asked to resolve. 20
In essence, the issue for our resolution is, did the trial court err in dismissing the amended
complaint, without trial, upon motion of respondent university?

Page 19 of 53
Petitioner argues that the university’s motion to dismiss on alleged lack of cause of action because pleading, its Answer. Also, the motion’s merit could not be determined based solely on the
of the deed of dacion en pago, an evidence aliunde, was improper since petitioner has yet to allegations of the initiatory pleading, the amended complaint, since the motion was based on the
present its evidence. Petitioner also argues that the April 11, 2002 appealed Order was flawed deed of dacion en pago, which was not even alleged in the complaint. And since the deed of
because it was based on evidence expunged from the record. dacion en pago had been expunged from the record, the trial court erred in its finding of payment
and lack of cause of action based on the deed. In fact, on January 11, 2002 or just three months
before it dismissed the amended complaint, the trial court had even noted petitioner counsel’s
Respondent university counters that the amended complaint deserved dismissal because petitioner
manifestation regarding the parties’ initial efforts to enter into a "dacion en pago but not based on
admitted the dacion en pago and stated its lack of interest to pursue the case against respondent
the previous offer made but on a new proposal involving new properties" 29 and urged them to
university. The university contends that petitioner’s acceptance of the Batangas property, as
pursue further settlement discussions. 30
equivalent of performance, extinguished the obligation under the four promissory notes. Thus, the
university concludes that no more cause of action lies against it.
In addition, the motion alleged that petitioner had "no more cause of action" or lacked a cause of
action against the university. Following Domondon, that motion was a motion to dismiss under Rule
For its part, respondent GDI maintains that the dacion en pago has no "legal effect" but also avers
33 in the nature of demurrer to evidence and would be proper only after petitioner had presented
that the dacion en pago effectively paid the loan warranting dismissal of the complaint, cross-claim
its evidence and rested its case. In the case at bar, there had been no presentation of evidence yet
and counterclaim against it.
and petitioner had not rested its case. Therefore, the August 17, 1999 Order properly denied the
motion to dismiss for being improper under either Rule 16 or 33.
Prefatorily, we note the trial court’s inconsistent rulings in this case. To recall, the Omnibus Order
dated April 21, 1997 appeared to have considered the dacion en pago as full settlement of the
The trial court had also made a premature statement in its Omnibus Order dated April 21, 1997
case. The trial court thus ruled that the dacion en pago mooted the motion to implead GDI as third-
that the dacion en pago settled the loan and the case, even as it also stated that respondent
party defendant, and GDI’s motions to dismiss amended complaint and third-party cross-
university was used as a "dummy" of GDI. If indeed there was fraud, considering the
claim.21 Yet, in the same order, the trial court dismissed the case against the heirs of Vicente G.
uncollateralized loan, its diversion, nonpayment, absence of demand although overdue, and the
Puyat on the ground of prematurity, since petitioner’s cause of action was against respondent
dacion en pago where title of the property accepted as payment cannot be transferred, the fraud
university as "dummy" of GDI, implying that the case was not yet actually settled. Recall also that
should be uncovered to determine who are liable to pay the loan. We note too that the April 11,
the August 17, 1999 Order ruled that the payment of the loan through the dacion en pago was
2002 Order was unclear if it ruled again on the university’s March 19, 1998 motion to dismiss or
"evidentiary"22 or had to be proved. The order was silent on whether it reversed the trial court’s
acted on its August 29, 2001 manifestation with motion for reconsideration of the two-year old
earlier statement that the dacion en pago settled the loan and the case.
August 17, 1999 Order. To reiterate, the August 17, 1999 Order aptly denied the motion. Thus, we
reverse the April 11, 2002 and June 27, 2003 assailed Orders.
A year later, on August 3, 2000, the trial court expunged the deed of dacion en pago and reinstated
GDI’s motions to dismiss the amended complaint and cross-claim. 23 Then, the appealed Order of
Lastly, it must be pointed out that while the Court allows a relaxation in the application of
April 11, 2002 ruled that petitioner had "no cause of action" against the defendants since the loan
procedural rules in some instances, courts and litigants are enjoined to follow rules strictly because
was settled by the dacion en pago,24 despite the order which expunged the deed.
they are designed to facilitate the adjudication of cases. 31 Instead of rules being followed, however,
we find their misapplication in this case resulting to inconsistent rulings, confusion and delay. Had
In Domondon v. Lopez,25 we distinguished a motion to dismiss for failure of the complaint to state a the trial court exercised its inherent power to control its proceedings, 32 it would not have taken this
cause of action from a motion to dismiss based on lack of cause of action. The first is governed by long to reach pre-trial, which had been first set on December 2, 1999 through respondent
Section 1 (g),26 Rule 16, while the second by Rule 33,27 of the Rules of Court, to wit: university’s motion. Significantly, even the trial court had tentatively set the pre-trial on June 7,
200233 but erroneously dismissed the amended complaint on April 11, 2002.
. . . The first [situation where the complaint does not allege a sufficient cause of action] is raised in
a motion to dismiss under Rule 16 before a responsive pleading is filed and can be determined WHEREFORE, we GRANT the petition and SET ASIDE the trial court’s April 11, 2002 and June
only from the allegations in the initiatory pleading and not from evidentiary or other matters aliunde. 27, 2003 Orders. The trial court is ORDERED to proceed with the pre-trial and hear this case with
The second [situation where the evidence does not sustain the cause of action alleged] is raised in dispatch. No pronouncement as to costs.
a demurrer to evidence under Rule 33 after the plaintiff has rested his case and can be resolved
only on the basis of the evidence he has presented in support of his claim. The first does not
SO ORDERED.
concern itself with the truth and falsity of the allegations while the second arises precisely because
the judge has determined the truth and falsity of the allegations and has found the evidence
wanting. G.R. No. 186613               August 27, 2013

Hence, a motion to dismiss based on lack of cause of action is filed by the defendant after the ROSENDO R. CORALES, IN HIS OFFICIAL CAPACITY AS MUNICIPAL MAYOR OF
plaintiff has presented his evidence on the ground that the latter has shown no right to the relief NAGCARLAN, LAGUNA, AND DR. RODOLFO R. ANGELES, IN HIS OFFICIAL CAPACITY AS
sought. While a motion to dismiss under Rule 16 is based on preliminary objections which can be MUNICIPAL ADMINISTRATOR OF NAGCARLAN, LAGUNA, PETITIONERS,
ventilated before the beginning of the trial, a motion to dismiss under Rule 33 is in the nature of a vs.
demurrer to evidence on the ground of insufficiency of evidence and is presented only after the REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE COMMISSION ON AUDIT, AS
plaintiff has rested his case.28 (Emphasis supplied.) REPRESENTED BY PROVINCIAL STATE AUDITOR OF LAGUNA MAXIMO L.
ANDAL, RESPONDENT.
In this case, the university’s March 19, 1998 motion to dismiss the amended complaint was
improper under Rule 16 because it was filed after respondent university filed its responsive DECISION

Page 20 of 53
PEREZ, J.:
This Petition for Review on Certiorari under Rule 45 of the Rules of Court seeks to nullify the
Decision1 and Resolution2 dated 15 September 2008 and 20 February 2009, respectively, of the
Court of Appeals in CA-G.R. SP No. 101296 and, in effect, to reinstate the Petition for Prohibition
and Mandamus3 filed by herein petitioners Rosendo R. Corales (Corales) and Dr. Rodolfo R.
Angeles (Dr. Angeles) with the Regional Trial Court (RTC) of San Pablo City, Laguna. The assailed
Decision annulled and set aside the Order 4 dated 17 May 2007 of Branch 32, and the Order 5 dated
5 September 2007 of Branch 29, both of the RTC of San Pablo City, Laguna in Civil Case No. SP-
6370 (07), which respectively denied herein respondent Republic of the Philippines’ (Republic)
Motion to Dismiss petitioners’ Petition for Prohibition and the subsequent Motion for
Reconsideration thereof. The Court of Appeals thereby ordered the dismissal of petitioners’ Petition
for Prohibition with the court a quo. The questioned Resolution, on the other hand, denied for lack
of merit petitioners’ Motion for Reconsideration of the assailed Decision.
The antecedents, as culled from the records, are as follows:
Petitioner Corales was the duly elected Municipal Mayor of Nagcarlan, Laguna for three (3)
consecutive terms, i.e., the 1998, 2001 and 2004 elections. In his first term as local chief executive,
petitioner Corales appointed petitioner Dr. Angeles to the position of Municipal Administrator,
whose appointment was unanimously approved by the Sangguniang Bayan of Nagcarlan, Laguna
(Sangguniang Bayan) per Resolution No. 98-64 6 dated 22 July 1998. During his second and third
terms as municipal mayor, petitioner Corales renewed the appointment of petitioner Dr. Angeles.
But, on these times, the Sangguniang Bayan per Resolution No. 2001-078 7 dated 12 July 2001 and
26 subsequent Resolutions, disapproved petitioner Dr. Angeles’ appointment on the ground of
nepotism, as well as the latter’s purported unfitness and unsatisfactory performance. Even so,
petitioner Dr. Angeles continued to discharge the functions and duties of a Municipal Administrator
for which he received an annual salary of ₱210,012.00.8
Following an audit on various local disbursements, Maximo Andal (Andal), the Provincial State
Auditor of Laguna, issued an Audit Observation Memorandum (AOM) No. 2006-007-100 9 dated 6
October 2006 addressed to petitioner Corales who was asked to comment/reply. The aforesaid
AOM, in sum, states that: 1) petitioner Dr. Angeles’ appointment as Municipal Administrator (during
the second and third terms of petitioner Corales) was without legal basis for having been
repeatedly denied confirmation by the Sangguniang Bayan; 2) petitioner Dr. Angeles can be
considered, however, as a de facto officer entitled to the emoluments of the office for the actual
services rendered; 3) nonetheless, it is not the Municipality of Nagcarlan that should be made liable
to pay for petitioner Dr. Angeles’ salary; instead, it is petitioner Corales, being the appointing
authority, as explicitly provided for in Article 169(I) of the Rules and Regulations Implementing the
Local Government Code of 1991, 10 as well as Section 5, Rule IV of the Omnibus Rules of
Appointments and Other Personnel Actions; 11 4) a post audit of payrolls pertaining to the payment
of salaries, allowances and other incentives of petitioner Dr. Angeles from 15 July 2001 up to 31
May 200612 partially amounted to ₱1,282,829.99; and 5) in view thereof, it is recommended that an
appropriate Notice of Disallowance be issued for the payment of salary expenses incurred without
legal basis by the Municipality of Nagcarlan in the aforestated amount. 13
Instead of submitting his comment/reply thereon, petitioner Corales, together with petitioner Dr.
Angeles, opted to file a Petition for Prohibition and Mandamus against Andal and the then
members of the Sangguniang Bayan before the RTC of San Pablo City, Laguna, docketed as Civil
Case No. SP-6370 (07) and originally raffled to Branch 32. Petitioners sought, by way of
prohibition, to require the Office of the Provincial Auditor, through Andal, to recall its AOM and to
eventually desist from collecting reimbursement from petitioner Corales for the salaries paid to and
received by petitioner Dr. Angeles for the latter’s services as Municipal Administrator. Petitioners
similarly sought, by way of mandamus, to compel the then members of the Sangguniang Bayan, as
a collegial body, to recall its Resolutions denying confirmation to petitioner Dr. Angeles’
appointment as Municipal Administrator and in their stead to confirm the validity and legitimacy of
such appointment.14
In its turn, the Office of the Solicitor General (OSG), on Andal’s behalf, who was impleaded in his
official capacity, filed a Motion to Dismiss petitioners’ Petition for Prohibition and Mandamus
grounded on lack of cause of action, prematurity and non-exhaustion of administrative remedies. It
was specifically contended therein that: (1) the issuance of the AOM was merely an initiatory step
in the administrative investigation of the Commission on Audit (COA) to allow petitioner Corales to
controvert the findings and conclusions of the Sangguniang Bayan in its Resolution No. 2001-078,
as well as those of then Secretary Jose D. Lina, Jr. in Department of Interior and Local
Government (DILG) Opinion No. 124 s. 2002; (2) it was only after the completion of the said
investigation that a resolution will be issued as regards the propriety of the disbursements made by
the Municipality of Nagcarlan in the form of salaries paid to petitioner Dr. Angeles during his tenure
as Municipal Administrator; and (3) instead of resorting to judicial action, petitioner Corales should
have first responded to the AOM and, in the event of an adverse decision against him, elevate the
matter for review to a higher authorities in the COA. 15 With these, petitioners’ petition should be
dismissed, as petitioner Corales has no cause of action against Andal - his resort to judicial
intervention is premature and he even failed to avail himself of, much less exhaust, the
administrative remedies available to him.16
In its Order dated 17 May 2007, the trial court denied the said Motion to Dismiss on the ground that
Andal was merely a nominal party. 17 The subsequent motion for its reconsideration was also
denied in another Order dated 5 September 2007. 18
Respondent Republic, as represented by COA, as represented by Andal, consequently filed a
Petition for Certiorari with the Court of Appeals ascribing grave abuse of discretion amounting to
lack or excess of jurisdiction on the part of the trial court in rendering the Orders dated 17 May
2007 and 5 September 2007, as it unjustly denied respondent’s right to actively prosecute the case
through a mere declaration that it was a nominal party despite a clear showing that the Petition for
Prohibition referred to the respondent as a real party in interest. 19
On 15 September 2008, the Court of Appeals rendered its now assailed Decision granting
respondent’s Petition for Certiorari, thereby annulling and setting aside the RTC Orders dated 17
May 2007 and 5 September 2007 and, accordingly, dismissing petitioners’ Petition for Prohibition
with the court a quo.20 The Court of Appeals justified its decision in the following manner:
x x x We agree with the OSG’s contention that the [herein respondent Republic], herein
represented by the COA and specifically by Andal in the latter’s capacity as Provincial State
Auditor of Laguna, is not merely a nominal party to the petition for prohibition. x x x. That the
[respondent] naturally has an interest in the disposition/disbursement of said public funds as well
as in the recovery thereof should the ongoing investigative audit confirm the illegality thereof
cannot be gainsaid. Rather than a mere nominal party, therefore, the [respondent] is an
indispensable party to the petition for prohibition and may thus seek its dismissal, given that under
the attendant facts there is a yet no actual case or controversy calling for [therein] respondent
court’s exercise of its judicial power.
Judicial review cannot be exercised in vacuo. Thus, as a condition precedent for the exercise of
judicial inquiry, there must be an actual case or controversy, which exists when there is a conflict of
legal rights or an assertion of opposite legal claims, which can be resolved on the basis of existing
law and jurisprudence. x x x. An actual case or controversy thus means an existing case or
controversy that is appropriate or ripe for judicial determination, not conjectural or anticipatory, lest
the decision of the court would amount to an advisory opinion.
[Herein petitioners] x x x have failed to show the existence of an actual case or controversy that
would necessitate judicial inquiry through a petition for prohibition. As the OSG aptly observed, the
Page 21 of 53
issuance of the AOM is just an initiatory step in the investigative audit being then conducted by
Andal[,] as Provincial State Auditor of Laguna to determine the propriety of the disbursements
made by the Municipal Government of Nagcarlan. While Andal may have stated an opinion in the
AOM that [herein petitioner] Corales should reimburse the government treasury for the salaries
paid to [herein petitioner Dr. Angeles] in light of the repeated disapproval and/or rejection of the
latter’s appointment by the Sangguniang [Bayan] of Nagcarlan, there is no showing whatsoever of
any affirmative action taken by Andal to enforce such audit observation. What Andal did, as the
AOM unmistakably shows, was to merely request [petitioner] Corales to submit a reply/comment to
the audit observation and in the process afford the latter an opportunity to controvert not only
Andal’s opinion on salary reimbursement but the other statements therein expressed by the other
members of the audit team.
In the absence moreover of a showing that [petitioners], particularly [petitioner] Corales, sustained
actual or imminent injury by reason of the issuance of the AOM, there is no reason to allow the
continuance of the petition for prohibition which was, after all, manifestly conjectural or anticipatory,
filed for a speculative purpose and upon the hypothetical assumption that [petitioner] Corales
would be eventually compelled to reimburse the amounts paid as [petitioner Dr. Angeles’] salaries
should the audit investigation confirm the irregularity of such disbursements. This Court will not
engage in such speculative guesswork and neither should respondent court x x x. 21 (Emphasis and
italics supplied).
Disgruntled, petitioners moved for its reconsideration but it was denied for lack of merit in a
Resolution dated 20 February 2009.
Hence, this petition.
In their Memorandum, petitioners raise the following issues:
I.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED A PALPABLY ERRONEOUS
RESOLUTION OF A SUBSTANTIAL QUESTION OF LAW WHEN IT ORDERED THE DISMISSAL
OF PETITIONERS’ SUIT FOR PROHIBITION.
II.
WHETHER OR NOT THE COURT OF APPEALS ACTED UNJUSTLY AND INJUDICIOUSLY
WHEN IT HELD THAT THE FACTS AND CIRCUMSTANCES SURROUNDING THE SUIT FOR
PROHIBITION IS NOT YET RIPE FOR JUDICIAL DETERMINATION.
III.
WHETHER OR NOT THE COURT OF APPEALS COMMITTED GRAVE AND REVERSIBLE
ERROR IN THE INTERPRETATION AND RESOLUTION OF A PIVOTAL LEGAL ISSUE WHEN IT
CONCLUDED THAT THERE IS NO ACTUAL DISPUTE OR CONCRETE CONTROVERSY
WHICH MAY BE THE PROPER SUBJECT MATTER OF A SUIT FOR PROHIBITION.
IV.
WHETHER OR NOT THE COURT OF APPEALS UNJUSTIFIABLY TRANSGRESSED AND
TRAMPLED UPON A CATEGORICAL JURISPRUDENTIAL DOCTRINE WHEN IT TOOK
COGNIZANCE OF AND FAVORABLY RESOLVED THE [HEREIN RESPONDENT’S] PETITION
FOR CERTIORARI, IN BLATANT VIOLATION OF THE RULE LAID DOWN IN THE APROPOS
CASE OF CHINA ROAD AND BRIDGE CORPORATION [V.] COURT OF APPEALS (348 SCRA
401).
V.
WHETHER OR NOT THE COURT OF APPEALS OVERSTEPPED AND WENT BEYOND THE
BOUNDARIES OF ITS LEGITIMATE DISCRETION WHEN IT DEVIATED AND VEERED AWAY
FROM THE PRINCIPAL ISSUES OF THE CASE, INSTEAD OF PRONOUNCING THAT
PETITIONERS HAVE A VALID, PERFECT AND LEGITIMATE CAUSE OF ACTION FOR
PROHIBITION.22 (Italics supplied).
The Petition is bereft of merit.
The issues will be discussed in seriatim.
The first three issues concern the ripeness or prematurity of the Petition for Prohibition assailing
the AOM issued by Andal to petitioner Corales. Petitioners argue that from the tenor of the AOM it
is clear that petitioner Corales is being adjudged liable and personally accountable to pay or to
reimburse, in his private capacity, the salaries paid to and received by petitioner Dr. Angeles for the
latter’s services as Municipal Administrator, as his appointment thereto was considered invalid for
lack of necessary confirmation from the Sangguniang Bayan. It is further argued that contrary to
the claim of respondent Republic that such AOM is a mere initiatory step in the course of an
investigative auditing process, the wordings thereof unmistakably reveal that the same is a
categorical disposition and enforcement measure requiring petitioner Corales to reimburse the
money disbursed by the Municipality of Nagcarlan to pay petitioner Dr. Angeles’ salaries as
Municipal Administrator. Such AOM is a firm, clear and affirmative official action on the part of the
Provincial State Auditor to hold petitioner Corales liable for reimbursement; thus, to require the
latter to still comment or controvert the findings thereon is a mere frivolous and useless formality.
Since the requirement for petitioner Corales to pay and reimburse the salaries of petitioner Dr.
Angeles is actual, direct and forthcoming, the same may be the proper subject of an action for
prohibition. Otherwise stated, such imposition of liability for reimbursement against petitioner
Corales presents a concrete justiciable controversy and an actual dispute of legal rights.
Petitioners’ contention is unavailing.
To begin with, this Court deems it proper to quote the significant portions of the questioned AOM,
to wit:
FOR : Hon. ROSENDO R. CORALES
Municipal Mayor
Nagcarlan, Laguna
FROM : Mr. MAXIMO L. ANDAL
State Auditor IV
Audit Team Leader
May we have your comment/reply on the following audit observation. Please return the duplicate
within fifteen (15) days upon receipt by filling up the space provided for with your comments.
Page 22 of 53
AUDIT OBSERVATION
The appointment of [herein petitioner Dr. Angeles] as Municipal Administrator was
repeatedly denied not confirmed/ concurred by Sangguniang Bayan hence, the validity of
the appointment as per opinion/rulings by the then Secretary Jose D. Lina, Jr. of the DILG
in opinion No. 124 s.2002 was without legal basis.
DILG Opinion No. 124 s[.]2002 states that the continued discharge of powers by [petitioner Dr.
Angeles] as Municipal Administrator appears to have no legal basis. A person may assume
public office once his appointment is already effective. The Supreme Court in one case (Atty.
David B. Corpuz [v.] Court of Appeals, et al[.], G.R. No. 123989, 26 January 1998) held that
where the assent or confirmation of some other office or body is required, the appointment may
be complete only when such assent or confirmation is obtained. Until the process is completed,
the appointee can claim no vested right in the office nor invoke security of tenure. Since the
appointment of a Municipal Administrator requires sanggunian concurrence (Section 443 (d), RA
7160) and considering that the appointment never became effective. As such, his assumption
and continued holding of the office of the Municipal Administrator find no legal basis.
However, [petitioner Dr. Angeles] may claim salary for the services he has actually rendered. As
held in one case (Civil Liberties Union [v.] Executive Secretary, 194 SCRA 317), a de facto
officer is entitled to emoluments of the office for the actual services rendered. Here, [petitioner
Dr. Angeles] can be considered as a de facto officer. x x x, as held in the Corpuz case cited
above, the Supreme Court ruled that a public official who assumed office under an incomplete
appointment is merely a de facto officer for the duration of his occupancy of the office for the
reason that he assumed office under color of a known appointment which is void by a reason of
some defect or irregularity in its exercise.
It is worthy to emphasize along that line that while [petitioner Dr. Angeles] may be entitled to the
salary as a de facto officer, the municipality cannot be made liable to pay his salaries. Instructive
on this point is Article 169 (I) of the Rules and Regulations Implementing the Local Government
Code of 1991 which explicitly provides, thus:
"The appointing authority shall be liable for the payment of salary of the appointee for actual
services rendered if the appointment is disapproved because the appointing authority issued it in
willful violation of applicable laws, rules and regulations thereby making the appointment
unlawful."
Corollary, Section 5 of Rule IV of the Omnibus Rules of Appointments and Other Personnel
Actions provides, thus:
"The services rendered by any person who was required to assume the duties and
responsibilities of any position without appointment having been issued by the appointing
authority shall not be credited nor recognized by the Commission and shall be the personal
accountability of the person who made him assume office.
Hence, [herein petitioner Corales] shall pay the salaries of [petitioner Dr. Angeles] for the
services the latter has actually rendered.
x x x           x x x          x x x
Clearly, the appointment of [petitioner Dr. Angeles] per se was bereft of legal basis in view of the
absence of the concurrence of the legislative body thus payment of his salaries from the funds of
the Municipality for actual services rendered remained unlawful.
Further, in paragraph 4 of the letter of Mr. Allan Poe M. Carmona, Director II of the CSC dated [1
December 2004] to Mr. Ruben C. Pagaspas, OIC, Regional Cluster Director, COA, Cluster III,
Sub-Cluster VI stated that [petitioner Dr. Angeles] cannot be appointed to Municipal
Administrator without the concurrence of the Sangguniang Bayan as provided under RA 7160.
Post audit of payrolls pertaining to the payment of salaries, allowances and other incentives of
[petitioner Dr. Angeles] as Municipal Administrator for the period from [15 July 2001] up to [31
May 2006] excluding the period from [1 November 2001] to [31 December 2001], [16 March
2002] to [15 May 2002], [1-31 August 2002], [16-30 June 2003], [1-31 December 2003], [1-31
September 2004] and [1 June 2006] to [30 September 2006] were partially amounted to
₱1,282,829.99. x x x.
Issuance of Notice of Disallowance was suggested by Atty. Eden T. Rafanan, Regional Cluster
Director for [L]egal and Adjudication Office in her 2nd Indorsement dated [3 July 2006].
In view hereof, it is recommended that appropriate Notice of Disallowance be issued for the
payment of the salary expenses incurred without legal basis by the municipality in the amount
mentioned in the above paragraph.23 (Emphasis, italics and underscoring supplied).
As can be gleaned therefrom, petitioner Corales was simply required to submit his comment/reply
on the observations stated in the AOM. As so keenly observed by the Court of Appeals, any
mention in the AOM that petitioner Corales shall reimburse the salaries paid to petitioner Dr.
Angeles in light of the repeated disapproval or rejection by the Sangguniang Bayan of his
appointment as Municipal Administrator was merely an initial opinion, not conclusive, as there was
no showing that Andal had taken any affirmative action thereafter to compel petitioner Corales to
make the necessary reimbursement. Otherwise stated, it has not been shown that Andal carried
out or enforced what was stated in the AOM. On the contrary, petitioner Corales was given an
opportunity to refute the findings and observations in the AOM by requesting him to comment/reply
thereto, but he never did. More so, even though the AOM already contained a recommendation for
the issuance of a Notice of Disallowance of the payment of salary expenses, the records are bereft
of any evidence to show that a Notice of Disallowance has, in fact, been issued. Concomitantly, the
AOM did not contain any recommendation to the effect that petitioner Corales would be held
personally liable for the amount that would be disallowed. It is, therefore, incongruous to conclude
that the said AOM is tantamount to a directive requiring petitioner Corales to reimburse the salaries
paid to and received by petitioner Dr. Angeles during the latter’s stint as Municipal Administrator
after his appointment thereto was held invalid for want of conformity from the Sangguniang Bayan.
In relation thereto, as aptly observed by the OSG, to which the Court of Appeals conformed, the
issuance of the AOM is just an initiatory step in the investigative audit being conducted by Andal as
Provincial State Auditor to determine the propriety of the disbursements made by the Municipal
Government of Laguna. That the issuance of an AOM can be regarded as just an initiatory step in
the investigative audit is evident from COA Memorandum No. 2002-053 dated 26 August 2002. 24 A
perusal of COA Memorandum No. 2002-053, particularly Roman Numeral III, Letter A, paragraphs
1 to 5 and 9, reveals that any finding or observation by the Auditor stated in the AOM is not yet
conclusive, as the comment/justification 25 of the head of office or his duly authorized representative
is still necessary before the Auditor can make any conclusion. The Auditor may give due course or
find the comment/justification to be without merit but in either case, the Auditor shall clearly state
the reason for the conclusion reached and recommendation made. Subsequent thereto, the Auditor
shall transmit the AOM, together with the comment or justification of the Auditee and the former’s
Page 23 of 53
recommendation to the Director, Legal and Adjudication Office (DLAO), for the sector concerned in audit petitioners’ disbursements, conduct an investigation thereon and render a final finding and
Metro Manila and/or the Regional Legal and Adjudication Cluster Director (RLACD) in the case of recommendation thereafter. Hence, it is beyond question that in relation to his audit investigation
regions. The transmittal shall be coursed through the Cluster Director concerned and the Regional function, Andal can validly and legally require petitioners to submit comment/reply to the AOM,
Cluster Director, as the case may be, for their own comment and recommendation. The DLAO for which the latter cannot pre-empt by prematurely seeking judicial intervention, like filing an action for
the sector concerned in the Central Office and the RLACD shall make the necessary evaluation of prohibition.
the records transmitted with the AOM. When, on the basis thereof, he finds that the transaction
should be suspended or disallowed, he will then issue the corresponding Notice of Suspension
Moreover, prohibition, being a preventive remedy to seek a judgment ordering the defendant to
(NS), Notice of Disallowance (ND) or Notice of Charge (NC), as the case may be, furnishing a copy
desist from continuing with the commission of an act perceived to be illegal, may only be resorted
thereof to the Cluster Director. Otherwise, the Director may dispatch a team to conduct further
to when there is "no appeal or any other plain, speedy, and adequate remedy in the ordinary
investigation work to justify the contemplated action. If after in-depth investigation, the DLAO for
course of law."27
each sector in Metro Manila and the RLACD for the regions find that the issuance of the NS, ND,
and NC is warranted, he shall issue the same and transmit such NS, ND or NC, as the case may
be, to the agency head and other persons found liable therefor. In this case, petitioners insist that it is no longer necessary to exhaust administrative remedies
considering that there is no appeal or any other plain, speedy and appropriate remedial measure to
assail the imposition under the AOM aside from an action for prohibition.
From the foregoing, it is beyond doubt that the issuance of an AOM is, indeed, an initial step in the
conduct of an investigative audit considering that after its issuance there are still several steps to
be conducted before a final conclusion can be made or before the proper action can be had This Court finds the said contention plain self-deception.
against the Auditee. There is, therefore, no basis for petitioner Corales’ claim that his comment
thereon would be a mere formality. Further, even though the AOM issued to petitioner Corales
As previously stated, petitioners’ action for prohibition was premature. The audit investigative
already contained a recommendation for the issuance of a Notice of Disallowance, still, it cannot be
process was still in its initial phase. There was yet no Notice of Disallowance issued. And, even
argued that his comment/reply to the AOM would be a futile act since no Notice of Disallowance
granting that the AOM issued to petitioner Corales is already equivalent to an order, decision or
was yet issued. Again, the records are bereft of any evidence showing that Andal has already
resolution of the Auditor or that such AOM is already tantamount to a directive for petitioner
taken any affirmative action against petitioner Corales after the issuance of the AOM.
Corales to reimburse the salaries paid to petitioner Dr. Angeles, still, the action for prohibition is
premature since there are still many administrative remedies available to petitioners to contest the
Viewed in this light, this Court can hardly see any actual case or controversy to warrant the said AOM. Section 1, Rule V of the 1997 Revised Rules of Procedure of the COA, provides: "[a]n
exercise of its power of judicial review. Settled is the rule that for the courts to exercise the power aggrieved party may appeal from an order or decision or ruling rendered by the Auditor embodied
of judicial review, the following must be extant: (1) there must be an actual case calling for the in a report, memorandum, letter, notice of disallowances and charges, Certificate of Settlement and
exercise of judicial power; (2) the question must be ripe for adjudication; and (3) the person Balances, to the Director who has jurisdiction over the agency under audit." From the final order or
challenging must have the "standing." An actual case or controversy involves a conflict of legal decision of the Director, an aggrieved party may appeal to the Commission proper. 28 It is the
rights, an assertion of opposite legal claims, susceptible of judicial resolution as distinguished from decision or resolution of the Commission proper which can be appealed to this Court.29
a mere hypothetical or abstract difference or dispute. There must be a contrariety of legal rights
that can be interpreted and enforced on the basis of existing law and jurisprudence. Closely related
Clearly, petitioners have all the remedies available to them at the administrative level but they
thereto is that the question must be ripe for adjudication. A question is considered ripe for
failed to exhaust the same and instead, immediately sought judicial intervention. Otherwise stated,
adjudication when the act being challenged has had a direct adverse effect on the individual
the auditing process has just begun but the petitioners already thwarted the same by immediately
challenging it. The third requisite is legal standing or locus standi, which has been defined as a
filing a Petition for Prohibition. In Fua, Jr. v. COA, 30 citing Sison v. Tablang, 31 this Court declared
personal or substantial interest in the case such that the party has sustained or will sustain direct
that the general rule is that before a party may seek the intervention of the court, he should first
injury as a result of the governmental act that is being challenged, alleging more than a generalized
avail himself of all the means afforded him by administrative processes. The issues which
grievance. The gist of the question of standing is whether a party alleges "such personal stake in
administrative agencies are authorized to decide should not be summarily taken from them and
the outcome of the controversy as to assure that concrete adverseness which sharpens the
submitted to the court without first giving such administrative agency the opportunity to dispose of
presentation of issues upon which the court depends for illumination of difficult constitutional
the same after due deliberation. Also, in The Special Audit Team, Commission on Audit v. Court of
questions." Unless a person is injuriously affected in any of his constitutional rights by the
Appeals and Government Service Insurance System,32 this Court has extensively pronounced that:
operation of statute or ordinance, he has no standing. 26

If resort to a remedy within the administrative machinery can still be made by giving the
The requisites of actual case and ripeness are absent in the present case. To repeat, the AOM
administrative officer concerned every opportunity to decide on a matter that comes within his or
issued by Andal merely requested petitioner Corales to comment/reply thereto.1awp++i1 Truly, the
her jurisdiction, then such remedy should be exhausted first before the court’s judicial power can
AOM already contained a recommendation to issue a Notice of Disallowance; however, no Notice
be sought. The premature invocation of the intervention of the court is fatal to one’s cause of
of Disallowance was yet issued. More so, there was no evidence to show that Andal had already
action. The doctrine of exhaustion of administrative remedies is based on practical and legal
enforced against petitioner Corales the contents of the AOM. Similarly, there was no clear showing
reasons. The availment of administrative remedy entails lesser expenses and provides for a
that petitioners, particularly petitioner Corales, would sustain actual or imminent injury by reason of
speedier disposition of controversies. Furthermore, the courts of justice, for reasons of comity and
the issuance of the AOM. The action taken by the petitioners to assail the AOM was, indeed,
convenience, will shy away from a dispute until the system of administrative redress has been
premature and based entirely on surmises, conjectures and speculations that petitioner Corales
completed and complied with, so as to give the administrative agency concerned every opportunity
would eventually be compelled to reimburse petitioner Dr. Angeles’ salaries, should the audit
to correct its error and dispose of the case. x x x.
investigation confirm the irregularity of such disbursements. Further, as correctly pointed out by
respondent Republic in its Memorandum, what petitioners actually assail is Andal’s authority to
request them to file the desired comment/reply to the AOM, which is beyond the scope of the Moreover, courts have accorded respect for the specialized ability of other agencies of government
action for prohibition, as such request is neither an actionable wrong nor constitutive of an act to deal with the issues within their respective specializations prior to any court intervention. The
perceived to be illegal. Andal, being the Provincial State Auditor, is clothed with the authority to Court has reasoned thus:
Page 24 of 53
We have consistently declared that the doctrine of exhaustion of administrative remedies is a
cornerstone of our judicial system. The 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. The rationale for this doctrine is obvious. It entails lesser
expenses and provides for the speedier resolution of controversies. Comity and convenience also
impel courts of justice to shy away from a dispute until the system of administrative redress has
been completed.
The 1987 Constitution created the constitutional commissions as independent constitutional
bodies, tasked with specific roles in the system of governance that require expertise in certain
fields. For COA, this role involves:
The power, authority, and duty to examine, audit, and settle all accounts pertaining to the revenue
and receipts of, and expenditures or uses of funds and property, owned or held in trust by, or
pertaining to, the Government, or any of its subdivisions, agencies, instrumentalities, including
government-owned and controlled corporations with original charter. x x x.
We agree with private respondent that in a motion to dismiss due to failure to state a cause of
action, the trial court can consider all the pleadings filed, including annexes, motions and the
evidence on record. However in so doing, the trial court does not rule on the truth or falsity of such
documents. It merely includes such documents in the hypothetical admission. Any review of a
finding of lack of cause of action based on these documents would not involve a calibration of the
probative value of such pieces of evidence but would only limit itself to the inquiry of whether the
law was properly applied given the facts and these supporting documents. Therefore, what would
inevitably arise from such a review are pure questions of law, and not questions of
fact.36 (Emphasis supplied).
In the case at bench, however, the Motion to Dismiss was denied. It is well-entrenched that an
order denying a motion to dismiss is an interlocutory order which neither terminates nor finally
disposes of a case as it leaves something to be done by the court before the case is finally decided
on the merits.37 Therefore, contrary to the claim of petitioners, the denial of a Motion to Dismiss is
not appealable, not even via Rule 45 of the Rules of Court. The only remedy for the denial of the
Motion to Dismiss is a special civil action for certiorari showing that such denial was made with
grave abuse of discretion.38

As one of the three (3) independent constitutional commissions, COA has been empowered to
Taking into consideration all the foregoing, this Court finds no reversible error on the part of the
define the scope of its audit and examination and to establish the techniques and methods required
Court of Appeals in reversing the Orders of the court a quo and consequently dismissing
therefor; and to promulgate accounting and auditing rules and regulations, including those for the
petitioners’ Petition for Prohibition filed thereat.1âwphi1
prevention and disallowance of irregular, unnecessary, excessive, extravagant or unconscionable
expenditures or uses of government funds and properties.
WHEREFORE, premises considered, the Decision and Resolution dated 15 September 2008 and
20 February 2009, respectively, of the Court of Appeals in CA-G.R. SP No. 101296 are hereby
Thus, in the light of this constitutionally delegated task, the courts must exercise caution when
AFFIRMED. Costs against petitioners.
intervening with disputes involving these independent bodies, for the general rule is that before a
party may seek the intervention of the court, he should first avail of all the means afforded him by
administrative processes. The issues which administrative agencies are authorized to decide SO ORDERED.
should not be summarily taken from them and submitted to a court without first giving such
administrative agency the opportunity to dispose of the same after due deliberation. 33 (Emphasis
G.R. No. 200858               August 7, 2013
supplied).

NATIONAL HOUSING AUTHORITY, PETITIONER,

In their futile attempt to convince this Court to rule in their favor, petitioners aver that by filing a
vs.
Motion to Dismiss on the ground of lack of cause of action, respondent Republic, in essence,
CORAZON B. BAELLO, WILHELMINA BAELLO-SOTTO, AND ERNESTO B. BAELLO,
admitted all the material averments and narration of facts stated in the Petition for Prohibition and
JR., RESPONDENTS.
Mandamus. As such, there is no longer any question of fact to speak of and what remains is a pure
question of law. The judgment, therefore, of the trial court denying the Motion to Dismiss is no
longer subject to any appeal or review by the Court of Appeals. Instead, it is already appealable DECISION
and reviewable by this Court under Rule 45 of the Rules of Court, where only pure questions of law
may be raised and dealt with. This is in line with the pronouncement in China Road and Bridge
CARPIO, J.:
Corporation v. Court of Appeals 34 (China Road Case). The Court of Appeals should have
dismissed respondent Republic’s Petition for Certiorari under Rule 65 of the Rules of Court for
being an improper and inappropriate mode of review. The Case

Petitioners’ above argument is misplaced. Before the Court is a petition for review on certiorari 1 assailing the 28 November 2011
Decision2 and the 27 February 2012 Resolution3 of the Court of Appeals in CA-G.R. CV No. 93512.
China Road Case is not at all applicable in the case at bench. Therein, the Motion to Dismiss the
Complaint was granted. As the order granting the motion to dismiss was a final, as distinguished The Antecedent Facts
from an interlocutory order, the proper remedy was an appeal in due course. 35 Thus, this Court in
China Road Case held that:
The facts, gathered from the assailed decision of the Court of Appeals, are as follows:

x x x Applying the test to the instant case, it is clear that private respondent raises pure questions
of law which are not proper in an ordinary appeal under Rule 41, but should be raised by way of a On 21 September 1951, Pedro Baello (Pedro) and Nicanora Baello (Nicanora) filed an application
petition for review on certiorari under Rule 45.1âwphi1 for registration of a parcel of land with the Court of First Instance (CFI) of Rizal, covering the land
they inherited from their mother, Esperanza Baello. The land, situated in Sitio Talisay, Municipality

Page 25 of 53
of Caloocan, had an area of 147,972 square meters. The case was docketed as LRC Case No.
520.
On 2 November 1953, the CFI of Rizal rendered its decision confirming the title of the applicants to
the land in question. The CFI of Rizal awarded the land to Pedro and Nicanora, pro indiviso. Pedro
was awarded 2/3 of the land while Nicanora was awarded 1/3. The Republic of the Philippines,
through the Director of the Bureau of Lands, did not appeal. The decision became final and
executory.
On 27 October 1954, acting on the orders of the CFI of Rizal, the Land Registration Commission
issued Decree No. 13400 in favor of "Pedro T. Baello, married to Josefa Caiña" covering the 2/3
portion of the property and in favor of "Nicanora T. Baello, married to Manuel J. Rodriguez"
covering the remaining 1/3 portion. The Register of Deeds issued Original Certificate of Title (OCT)
No. (804) 53839 in favor of Pedro and Nicanora. The property was later subdivided into two parcels
of land: Pedro’s lot was Lot A (Baello property), with an area of 98,648 square meters, and covered
by TCT No. 181493, while Nicanora’s lot was Lot B (Rodriguez property), with an area of 49,324
square meters. The subdivision plan was approved on 27 July 1971.
On 3 December 1971, Pedro died intestate, leaving 32 surviving heirs including respondents
Corazon B. Baello (Corazon), Wilhelmina Baello-Sotto (Wilhelmina), and Ernesto B. Baello,
Jr.4 (Ernesto), collectively referred to in this case as respondents. On 22 August 1975, Nicanora
died intestate. Nicanora’s husband died a few days later, on 30 August 1975.
On 30 October 1974, during the martial law regime, President Ferdinand E. Marcos issued
Presidential Decree No. 569 creating a committee to expropriate the Dagat-Dagatan Lagoon and
its adjacent areas, including the Baello and Rodriguez properties. The government wanted to
develop the properties into an industrial/commercial complex and a residential area for the
permanent relocation of families affected by the Tondo Foreshore Urban Renewal Project Team.
First Lady Imelda R. Marcos also launched the Dagat-Dagatan Project, a showcase program for
the homeless. It also covered the Baello and Rodriguez properties. The National Housing Authority
(NHA) was tasked to develop the property into a residential area, subdivide it, and award the lots to
the beneficiaries.
Thereafter, a truckload of fully-armed military personnel entered the Baello property and ejected
the family caretaker at gunpoint. The soldiers demolished the two-storey residential structure and
destroyed the fishpond improvements on the Baello property. The NHA then took possession of the
Baello and Rodriguez properties. The Baello and Rodriguez heirs, for fear of losing their lives and
those of their families, decided to remain silent and did not complain. The NHA executed separate
conditional contracts to sell subdivision lots in favor of chosen beneficiaries who were awarded 620
lots from the Baello property and 275 lots from the Rodriguez property.
On 13 April 1983, Proclamation No. 2284 was issued declaring the Metropolitan Manila, including
the Dagat-Dagatan area, as area for priority development and Urban Land Reform Zones. Again,
the Baello and Rodriguez properties were included in the areas covered by the proclamation. On
17 January 1986, Minister of Natural Resources Rodolfo P. Del Rosario issued BFD Administrative
Order No. 4-1766 declaring and certifying forestlands in Caloocan City, Malabon, and Navotas,
covering an aggregate area of 6,762 hectares, as alienable or disposable for cropland and other
purposes.
On 23 February 1987, after the EDSA People Power Revolution, the heirs of Baello executed an
extrajudicial partition of Pedro’s estate, which included the Baello property. Respondents were
issued TCT No. 280647 over an undivided portion, comprising 8,404 square meters, of the Baello
property. Corazon and Wilhelmina later sold their shares to Ernesto who was issued TCT No. C-
362547 in his name.
On 18 August 1987, the NHA filed an action for eminent domain against the heirs of Baello and
Rodriguez before the Regional Trial Court of Caloocan City, Branch 120 (RTC Branch 120). The
case was docketed as Civil Case No. C-169. The NHA also secured a writ of possession. In an
Order dated 5 September 1990, the RTC Branch 120 dismissed the complaint on the ground of res
judicata and lack of cause of action. The NHA appealed to the Court of Appeals, docketed as CA-
G.R. CV No. 29042. On 21 August 1992, the Court of Appeals affirmed the Order of the RTC
Branch 120. The NHA filed a petition for review before this Court, docketed as G.R. No. 107582. In
a Resolution dated 3 May 1993, this Court denied due course to the petition on the ground that the
Court of Appeals did not commit any reversible error in affirming the order of the RTC Branch 120.
The NHA filed a motion for reconsideration but it was denied in a Resolution dated 16 January
1993. The Clerk of Court later made an Entry of Judgment.
On 5 November 1993, the NHA filed a complaint for nullity of OCT No. (804) 53839 issued in the
names of Pedro and Nicanora. The case was raffled to the RTC of Caloocan City, Branch 128
(RTC Branch 128) and docketed as Civil Case No. C-16399. In a Resolution dated 17 October
1995, the RTC Branch 128 dismissed the complaint on grounds of estoppel and res judicata and
because the issue on the legal nature and ownership of the property covered by OCT No. (804)
53839 was already barred by a final judgment in LRC Case No. 520. The NHA appealed to the
Court of Appeals, docketed as CA-G.R. CV No. 51592. In a Decision dated 26 January 2000, the
Court of Appeals affirmed the decision of the RTC Branch 128. Again, the NHA went to this Court
to assail the decision of the Court of Appeals. The case was docketed as G.R. No. 143230. In a
Decision5 promulgated on 20 August 2004, this Court denied the NHA’s petition for lack of merit.
The Court ruled that NHA’s action was barred by the decision of the CFI of Rizal in LRC Case No.
520. This Court held that the NHA was already barred from assailing the validity of OCT No. (804)
53839 and its derivative titles based on judicial estoppel.
Meanwhile, on 30 June 1994, during the pendency of Civil Case No. C-16399, respondents filed an
action for Recovery of Possession and Damages against the NHA and other
respondents,6 docketed as Civil Case No. C-16578. NHA, in its Answer, alleged that OCT No.
(804) 53839, respondents’ derivative title, was obtained fraudulently because the land covered was
declared alienable and disposable only on 17 January 1986. The case was initially sent to
archives, upon joint motion of the parties, pending resolution by this Court of G.R. No. 143230.
Trial resumed upon the denial by this Court of the NHA’s petition in G.R. No. 143230. 7
The Decision of the Trial Court
On 13 May 2009, the Regional Trial Court of Caloocan City, Branch 128 (trial court) rendered its
Decision8 in favor of respondents. The trial court ruled that the dismissal of NHA’s complaint for
expropriation and for declaration of nullity of OCT No. (804) 53839 in the names of Pedro and
Nicanora left NHA with no right to hold possession of respondents’ property which was admittedly a
part of Pedro’s land. The trial court ruled that this Court already declared respondents as the bona
fide owners of the land and as such, their right to possession and enjoyment of the property
becomes indisputable.
The trial court further held that respondents were entitled to compensation equal to the fair rental
value of the property, as well as to moral and exemplary damages, for the period NHA was in
possession of the property.
The dispositive portion of the trial court’s decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and
against the defendant National Housing Authority as follows:
Page 26 of 53
 1. Defendant National Housing Authority and all persons and entities claiming rights
under it, is (sic) ordered to surrender and turn over possession of the land embraced in
Transfer Certificate of Title No. C-362547 to herein plaintiffs.
2. Defendant National Housing Authority is ordered to pay the plaintiffs reasonable
compensation or fair rental value for the land, starting from the date of demand on
September 21, 1993 up to the time it actually surrenders possession of the premises to
the plaintiffs at the rate of Fifty Thousand Pesos (Php50,000.00) per month.
3. The defendant National Housing Authority is likewise ordered to pay as follows:
(a) One Hundred Thousand Pesos (Php100,000.00) as moral damages.
(b) One Hundred Thousand Pesos (Php100,000.00) as exemplary damages.
(c) Fifty Thousand Pesos (Php50,000.00) as attorney’s fees.
4. The defendant National Housing Authority is ordered to pay the cost of suit.
SO ORDERED.9
The NHA appealed the trial court’s decision to the Court of Appeals.
The Decision of the Court of Appeals
In its 28 November 2011 Decision, the Court of Appeals denied the NHA’s appeal. The Court of
Appeals took judicial notice of the rulings of this Court in G.R. No. 107582 and G.R. No. 143230.
The Court of Appeals ruled that the main issue raised by the NHA, that is, the alleged nullity of
OCT No. (804) 53839 from which respondents derived their title, was already resolved by this
Court in G.R. No. 143230. This Court already declared in G.R. No. 143230 that the NHA was
judicially estopped from assailing OCT No. (804) 53839. The Court of Appeals further ruled that
this Court already declared that the NHA acted in bad faith when it took possession of respondents’
property in 1976 despite knowledge of the ownership of the Baello and Rodriguez heirs. The Court
of Appeals also sustained the findings of the trial court that respondents were entitled to moral and
exemplary damages as well as attorney’s fees.
The dispositive portion of the Court of Appeals’ decision reads:
WHEREFORE, foregoing considered, the appeal is hereby DENIED and the March 13, 2009
Decision of the Regional Trial Court of Caloocan City, Branch 128 in Civil Case No. C-16578 is
AFFIRMED in toto.
SO ORDERED.10
The NHA filed a motion for reconsideration.
In its 27 February 2012 Resolution, the Court of Appeals denied the motion.
Hence, the petition before this Court.
The Issues
The NHA raised the following issues before this Court:
(1) Whether the Court of Appeals committed a reversible error in finding that the NHA
was a builder or possessor in bad faith;
(2) Whether the Court of Appeals committed a reversible error in adopting the facts in
G.R. No. 143230 when the case was not tried on the merits; and
(3) Whether the Court of Appeals committed a reversible error in awarding damages to
respondents.
The Ruling of this Court
The petition has no merit.
The doctrine of res judicata has been explained as follows:
The rule is that when material facts or questions, which were in issue in a former action and were
admitted or judicially determined are conclusively settled by a judgment rendered therein, such
facts or questions become res judicata and may not again be litigated in a subsequent action
between the same parties or their privies regardless of the form of the latter.
Jurisprudence expounds that the concept of res judicata embraces two aspects. The first, known
as "bar by prior judgment," or "estoppel by verdict," is the effect of a judgment as a bar to the
prosecution of a second action upon the same claim, demand or cause of action. The second,
known as "conclusiveness of judgment," otherwise known as the rule of auter action pendent,
ordains that issues actually and directly resolved in a former suit cannot again be raised in any
future case between the same parties involving a different cause of action. x x x.11
The Court explained further:
Conclusiveness of judgment does not require identity of the causes of action for it to work. 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. Hence, facts and issues actually and directly
resolved in a former suit cannot again be raised in any future case between the same parties, even
if the latter suit may involve a different claim or cause of action. 12
In this case, the NHA’s petition is barred by conclusiveness of judgment which states that -
x x x any right, fact, or matter in issue directly adjudicated or necessarily involved in the
determination of an action before a competent court in which judgment is rendered on the merits is
conclusively settled by the judgment therein and cannot again be litigated between the parties and
their privies whether or not the claim, demand, purpose, or subject matter of the two actions is the
same.13
Page 27 of 53
We sustain the Court of Appeals in ruling that the main issue raised by the NHA, which it alleged in
its Answer before the trial court, is the validity of OCT No. (804) 53839. The validity of OCT No.
(804) 53839 had long been settled by this Court in G.R. No. 143230. In that case, the Court ruled
that the action to annul OCT No. (804) 53839 was barred by the decision in LRC Case No. 520.
The Court noted that the Republic did not oppose Pedro and Nicanora’s application for registration
in LRC Case No. 520, and neither did it appeal the decision. OCT No. (804) 53839 was issued by
the Register of Deeds in 1959 and the Republic did not file any action to nullify the CFI’s decision
until the NHA filed a complaint for nullity of OCT No. (804) 53839 on 5 November 1993, the case
which was the origin of G.R. No. 143230. As pointed out by this Court in G.R. No. 143230, the
NHA was already barred from assailing OCT No. (804) 53839 and its derivative titles.
The NHA further alleges that the Court of Appeals erroneously declared it as a possessor in bad
faith. The NHA alleges that this Court’s decision in G.R. No. 143230 affirmed the dismissal by the
trial court of the case but there was no proceeding that proved it acted in bad faith. The NHA
claims that there was no basis to declare it as a possessor in bad faith. The NHA wants this Court
to reverse its decision that had long become final and executory on the ground that the facts in
G.R. No. 143230 were not proven in the trial court.
The issue of whether the NHA was a builder in bad faith was one of the issues raised in G.R. No.
143230. In G.R. No. 143230, the Court categorically declared that the NHA was a builder in bad
faith. The Court extensively discussed, thus:
On the last issue, the petitioner avers that the trial and appellate courts erred in not holding that it
was a builder in good faith and the respondents as having acted in bad faith. The petitioner avers
that it believed in good faith that respondents’ property was part and parcel of the Dagat-Dagatan
Lagoon owned by the government, and acting on that belief, it took possession of the property in
1976, caused the subdivision of the property and awarded the same to its beneficiaries, in the
process spending ₱45,237,000.00. It was only in 1988 when it learned, for the first time, that the
respondents owned the property and forthwith petitioner filed its complaint for eminent domain
against them. The petitioner further avers that even assuming that it was a builder in bad faith,
since the respondents likewise acted in bad faith, the rights of the parties shall be determined in
accordance with Article 448 of the New Civil Code, and they shall be considered as both being in
good faith. The petitioner, however, posits that any award in its favor as builder in good faith would
be premature because its complaint was dismissed by the court a quo, and its consequent failure
to present evidence to prove the improvements it had made on the property and the value thereof.
The petitioner’s arguments do not persuade. In light of our foregoing disquisitions, it is evident that
the petitioner acted in gross bad faith when it took possession of the property in 1976, introduced
improvements thereon and disposed of said property despite knowledge that the ownership thereof
pertained to the respondents.
In determining whether a builder acted in good faith, the rule stated in Article 526 of the New Civil
Code shall apply.
ART. 526. He is deemed a possessor in good faith who is not aware that there exists in his title or
mode of acquisition any flaw which invalidates it.
He is deemed a possessor in bad faith who possesses in any case contrary to the foregoing.
In this case, no less than the trial court in Civil Case No. C-169 declared that the petitioner not only
acted in bad faith, but also violated the Constitution:
And the Court cannot disregard the fact that despite persistent urging by the defendants for a
negotiated settlement of the properties taken by plaintiff before the present action was filed, plaintiff
failed to give even the remaining UNAWARDED lots for the benefit of herein defendants who are
still the registered owners. Instead, plaintiff opted to expropriate them after having taken
possession of said properties for almost fourteen (14) years.
The callous disregard of the Rules and the Constitutional mandate that private property shall not be
taken without just compensation and unless it is for public use, is UNSURPRISING, considering
the catenna (sic) of repressive acts and wanton assaults committed by the Marcos Regime against
human rights and the Constitutional rights of the people which have become a legendary part of
history and mankind.
True it is, that the plaintiff may have a laudable purpose in the expropriation of the land in question,
as set forth in the plaintiff’s cause of action that – "The parcel of land as described in the paragraph
immediately preceding, together with the adjoining areas encompassed within plaintiff’s Dagat-
Dagatan Development Project, are designed to be developed pursuant to the Zonal Improvement
Program (ZIP) of the Government, as a site and services project, a vital component of the Urban III
loan package of the International Bank for Rehabilitation and Development (World Bank), which is
envisioned to provide affordable solution to the urban problems of shelter, environmental sanitation
and poverty and to absorb and ease the impact of immigration from rural areas to over-crowded
population centers of Metro Manila and resident middle income families who do not have homelots
of their own with the Metro Manila area. x x x."
But the reprehensible and scary manner of the taking of defendants’ property in 1976, which, in a
manner of speaking, was seizure by the barrel of the gun, is more aptly described by the
defendants in the following scenario of 1976, to wit:
1.01. Sometime in the mid-seventies, a truckload of fully-armed military personnel entered the
Baello property in Caloocan City [then covered by OCT No. (804) 55839] (sic) and, at gunpoint,
forcibly ejected the family’s caretaker. The soldiers, thereafter, demolished a two-storey residence
and destroyed all fishpond improvements found inside the property.
1.02. From this period up till the end of the Marcos misrule, no decree, no court order, no
ordinance was shown or made known to the defendants to justify the invasion, assault, and
occupation of their property. Worse, defendants were not even granted the courtesy of a letter or
memorandum that would explain the government’s intention on the subject property.
1.03. The military’s action, coming as it does at the height of martial law, elicited the expected
response from the defendants. Prudence dictated silence. From government news reports,
defendants gathered that their land was seized to complement the erstwhile First Lady’s Dagat-
Dagatan project. Being a pet program of the dictator’s wife, defendants realized that a legal battle
was both dangerous and pointless.
1.04. Defendants’ property thus came under the control and possession of the plaintiff. The NHA
went on to award portions of the subject property to dubious beneficiaries who quickly fenced their
designated lots and/or erected permanent structures therein. During all this time, no formal
communication from the NHA was received by the defendants. The plaintiff acted as if the
registered owners or their heirs did not exist at all.
1.05. The celebrated departure of the conjugal dictators in February 1986 kindled hopes that
justice may at least come to the Baellos. Verbal inquiries were made on how just compensation
can be obtained from the NHA considering its confiscation of the subject property. The
representations proved fruitless.
Evidently, plaintiff’s seizure of defendants’ property is an audacious infringement of their rights to
DUE PROCESS.
Page 28 of 53
The immediate taking of possession, control and disposition of property without due notice and
hearing is violative of due process (Sumulong vs. Guerrero, 154 SCRA 461).
On the matter of issuance of writ of possession, the ruling in the Ignacio case as reiterated in
Sumulong vs. Guerrero states:
"[I]t is imperative that before a writ of possession is issued by the Court in expropriation
proceedings, the following requisites must be met: (1) There must be a Complaint for expropriation
sufficient in form and in substance; (2) A provisional determination of just compensation for the
properties sought to be expropriated must be made by the trial court on the basis of judicial (not
legislative or executive) discretion; and (3) The deposit requirement under Section 2, Rule 67 must
be complied with."
Here, it is even pointless to take up the matter of said requisites for the issuance of writ of
possession considering that, as stated, NO complaint was ever filed in Court AT THE TIME of the
seizure of defendants’ properties.
Recapitulating – that the plaintiff’s unlawful taking of defendants’ properties is irretrievably
characterized by BAD FAITH, patent ARBITRARINESS and grave abuse of discretion, is non-
arguable.
The aforequoted findings of the trial court were affirmed by the Court of Appeals and by this Court
in G.R. No. 107582.14
The Court, in ruling against NHA in G.R. No. 143230, did not contrive the facts of the case but cited
exhaustively from the records, belying the NHA’s assertion that the facts have no basis at all. This
Court likewise pointed out in G.R. No. 143230 that the trial court’s findings that it cited were
affirmed by the Court of Appeals and the Supreme Court in another case, that is, in G.R. No.
107582.
The NHA asserts that respondents did not attempt to claim the property in question and that they
negligently slept on their rights. The NHA alleges that respondents justified their inaction by
creating a scenario of terror, forcible military take-over, and other falsehoods. The NHA’s allegation
cannot prevail over findings of this Court in G.R. No. 143230 on the circumstances on how
respondents lost their property: that a truckload of fully armed military personnel entered the Baello
property; that at gunpoint, the military personnel forcibly ejected the family’s caretaker; and that the
soldiers demolished the two-storey residential structure and destroyed all the fishpond
improvements on the property. It was not a "scenario of terror" created by petitioners but clearly
established facts.
The NHA likewise assails the award of damages to respondents. The NHA alleges that it is not
liable for damages because it acted in good faith. The NHA further alleges that, granting it is liable,
it should only be from the time ownership was transferred to respondents. Further, the NHA claims
that it has the right to retain the property until it is reimbursed of the expenses incurred in its
development.
Again, it was already established that the NHA acted in bad faith.1âwphi1 The NHA also raised the
same issue in G.R. No. 143230. Having established that the NHA acted in bad faith, the Court of
Appeals did not err in sustaining the award of damages and attorney’s fees to respondents.
The issue of reimbursement was also raised in G.R. No. 143230 where the NHA alleged that the
Court of Appeals gravely erred in ruling that it was a builder in bad faith and therefore, not entitled
to reimbursement of the improvement it introduced on the property. 15 Article 449 of the Civil Code
applies in this case. It states:
Art. 449. He who builds, plants or sows in bad faith on the land of another, loses what is built,
planted or sown without right of indemnity.
Thus, under Article 449 of the Civil Code, the NHA is not entitled to be reimbursed of the expenses
incurred in the development of respondents’ property.
WHEREFORE, we DENY the petition. We AFFIRM the 28 November 2011 Decision and the 27
February 2012 Resolution of the Court of Appeals in CA-G.R. CV No. 93512.
SO ORDERED.
G.R. Nos. 175277 & 175285               September 11, 2013
UNICAPITAL, INC., UNICAPITAL REALTY, INC., and JAIME J. MARTINEZ, Petitioners,
vs.
RAFAEL JOSE CONSING, JR., and THE PRESIDING JUDGE OF THE REGIONAL TRIAL
COURT OF PASIG CITY, BRANCH 168, Respondents.
DECISION
PERLAS-BERNABE, J.:
Before the Court are consolidated petitions for review on certiorari 1 assailing separate issuances of
the Court of Appeals (CA) as follows:
(a) The petitions in G.R. Nos. 175277 and 175285 filed by Unicapital, Inc., (Unicapital),
Unicapital Realty, Inc. (URI), and Unicapital Director and Treasurer Jaime J. Martirez
(Martirez)assail the CA’s Joint Decision 2 dated October 20, 2005 and Resolution 3 dated
October 25, 2006 in CA-G.R. SP Nos. 64019and 64451 which affirmed the
Resolution4 dated September 14,1999 and Order 5 dated February 15, 2001 of the
Regional Trial Court (RTC) of Pasig City, Branch 68 (RTC-Pasig City) in SCA No. 1759,
upholding the denial of their motion to dismiss; and
(b) The petition in G.R. No. 192073 filed by Rafael Jose Consing, Jr. (Consing, Jr.)
assails the CA’s Decision6 dated September 30, 2009 and Resolution 7 dated April 28,
2010 inCA-G.R. SP No. 101355 which affirmed the Orders dated July16, 2007 8 and
September 4, 20079 of the RTC of Makati City, Branch 60 (RTC-Makati City) in Civil
Case No. 99-1418,upholding the denial of his motion for consolidation.
The Facts
In 1997, Consing, Jr., an investment banker, and his mother, Cecilia Dela Cruz (Dela Cruz),
obtained an ₱18,000,000.00 loan from Unicapital,₱12,000,000.00 of which was acquired on July
24, 1997 and the remaining₱6,000,000.00 on August 1, 1997. The said loan was secured by
Promissory Notes10 and a Real Estate Mortgage 11 over a 42,443 square meter-parcel of land
located at Imus, Cavite, registered in the name of Dela Cruz as per Transfer Certificate of Title
(TCT) No. T-687599 (subject property). 12 Prior to these transactions, Plus Builders, Inc. (PBI), a
real estate company, was already interested to develop the subject property into a residential
Page 29 of 53
subdivision.13 In this regard, PBI entered into a joint venture agreement with Unicapital, through its
real estate development arm, URI. In view of the foregoing, the loan and mortgage over the subject
property was later on modified into an Option to Buy Real Property 14 and, after further negotiations,
Dela Cruz decided to sell the same to Unicapital and PBI. For this purpose, Dela Cruz appointed
Consing, Jr. as her attorney-in-fact.15
Eventually, Unicapital, through URI, purchased one-half of the subject property for a consideration
of ₱21,221,500.00 (against which Dela Cruz’s outstanding loan obligations were first offset), while
PBI bought the remaining half for the price of ₱21,047,000.00. 16 In this relation, Dela Cruz caused
TCT No. T-687599 to be divided into three separate titles as follows: (a) TCT No. T-851861 for
URI;17 (b) TCT No. T-851862 for PBI; 18 and (c)TCT No. T-51863 which was designated as a road
lot.19 However, even before URI and PBI were able to have the titles transferred to their names,
Juanito Tan Teng (Teng) and Po Willie Yu (Yu) informed Unicapital that they are the lawful owners
of the subject property as evidenced by TCT No.T-114708; 20 that they did not sell the subject
property; and that Dela Cruz’s title, i.e., TCT No. T-687599, thereto was a mere
forgery.21 Prompted by Teng and Yu’s assertions, PBI conducted further investigations on the
subject property which later revealed that Dela Cruz's title was actually of dubious origin. Based on
this finding, PBI and Unicapital sent separate demand letters 22 to Dela Cruz and Consing, Jr.,
seeking the return of the purchase price they had paid for the subject property.
From the above-stated incidents stemmed the present controversies as detailed hereunder.
The Proceedings Antecedent to G.R. Nos. 175277 & 175285
On May 3, 1999, Consing, Jr. filed a complaint, denominated as a Complex Action for Declaratory
Relief23 and later amended to Complex Action for Injunctive Relief 24 (Consing, Jr.’s complaint)
before the RTC-Pasig City against Unicapital, URI, PBI, Martirez, PBI General Manager Mariano
Martinez (Martinez), Dela Cruz and Does 1-20, docketed as SCA No. 1759. In his complaint,
Consing, Jr. claimed that the incessant demands/recovery efforts made upon him by Unicapital and
PBI to return to them the purchase price they had paid for the subject property constituted
harassment and oppression which severely affected his personal and professional life. 25 He also
averred that he was coerced to commit a violation of Batas Pambansa Blg. 22 26 as Unicapital and
PBI, over threats of filing acase against him, kept on forcing him to issue a post-dated check in the
amount sought to be recovered, notwithstanding their knowledge that he had no funds for the
same.27 He further alleged that Unicapital and URI required him to sign blank deeds of sale and
transfers without cancelling the old one sin violation of the laws on land registration and real estate
development.28 Likewise, Consing, Jr. added that Unicapital and PBI’s representatives were"
speaking of him in a manner that was inappropriate and libelous," 29 and that some John Does
"deliberately engaged in a fraudulent scheme to compromise Consing, Jr.’s honor, integrity and
fortune x x x consisting of falsifying or causing to be falsified, or attempting to present as falsified
certain transfers of Land Titles and Deeds for profit," 30 classifying the foregoing as ultra vires acts
which should warrant sanctions under the corporation law, Revised Securities Act and related
laws.31 Accordingly, Consing, Jr. prayed that: (a) he be declared as a mere agent of Dela Cruz, and
as such, devoid of any obligation to Unicapital, URI, and PBI for the transactions entered into
concerning the subject property; (b) Unicapital, URI, and PBI be enjoined from harassing or
coercing him, and from speaking about him in a derogatory fashion; and (c) Unicapital, URI, and
PBI pay him actual and consequential damages in the amount of ₱2,000,000.00, moral damages
of at least ₱1,000,000.00, exemplary damages of ₱1,000,000.00, all per month, reckoned from
May 1, 1999 and until the controversy is resolved, and attorney's fees and costs of suit.32
For their part, Unicapital, URI, and Martirez (Unicapital, et al.) filed separate Motions to
Dismiss33 Consing, Jr.’s complaint (Unicapital, et al.’s motion to dismiss) on the ground of failure to
state a cause of action, considering that: (a) no document was attached against which Consing, Jr.
supposedly derived his right and against which his rights may be as certained; (b) the demands to
pay against Consing, Jr. and for him to tender post-dated checks to cover the amount due were
well within the rights of Unicapital as an unpaid creditor, as Consing, Jr. had already admitted his
dealings with them; (c) the utterances purportedly constituting libel were not set out in the
complaint; and (d) the laws supposedly violated were not properly identified. Moreover, Unicapital,
et al. posited that the RTC-PasigCity did not acquire jurisdiction over the case given that Consing,
Jr. failed to pay the proper amount of docket fees. In the same vein, they maintained that the RTC-
Pasig City had no jurisdiction over their supposed violations of the Corporation Code and Revised
Securities Act, which, discounting its merits, should have been supposedly lodged with the
Securities and Exchange Commission. Finally, they pointed out that Consing, Jr.’s complaint
suffers from a defective verification and, thus, dismissible.34
Similar to Unicapital et al.’s course of action, PBI and its General Manager, Martinez (Unicapital
and PBI, et al.), sought the dismissal of Consing, Jr.’s complaint on the ground that it does not
state a cause of action. They also denied having singled out Consing, Jr. because their collection
efforts were directed at both Consing, Jr. and Dela Cruz, which should be deemed as valid and,
therefore, should not be restrained. 35
On September 14, 1999, the RTC-Pasig City issued a Resolution 36 denying the above mentioned
motions to dismiss, holding that Consing, Jr.’s complaint sufficiently stated a cause of action for tort
and damages pursuant to Article 19 of the Civil Code. It ruled that where there is abusive behavior,
a complainant, like Consing, Jr., has the right to seek refuge from the courts. It also noted that the
elements of libel in a criminal case are not the same as those for a civil action founded on the
provisions of the Civil Code, and therefore, necessitates a different treatment. It equally refused to
dismiss the action on the ground of non-payment of docket fees, despite Consing, Jr.’s escalated
claims for damages therein, as jurisdiction was already vested in it upon the filing of the original
complaint. Moreover, it resolved to apply the liberal construction rule as regards the subject
complaint’s verification and certification, despite its improper wording, considering further that such
defect was not raised at the first opportunity. Consequently, it ordered Unicapital and PBI, et al. to
file their Answer and, in addition, to submit" any Comment or Reaction within five (5) days from
receipt hereof on the allegations of Consing, Jr. in his rejoinder of September 9, 1999regarding the
supposed filing of an identical case in Makati City," 37 i.e., Civil Case No. 99-1418. Unperturbed,
Unicapital and PBI, et al. moved for reconsideration therefrom which was, however, denied by the
RTC-Pasig City in an Order 38 dated February 15, 2001 for lack of merit. Aggrieved, they elevated
the denial of their motions to dismiss before the CA via a petition for certiorari and
prohibition,39 docketed as CA-G.R. SP Nos. 64019 and 64451.
On October 20, 2005, the CA rendered a Joint Decision 40 holding that no grave abuse of discretion
was committed by the RTC-Pasig City in refusing to dismiss Consing, Jr.'s complaint. 1âwphi1 At
the outset, it ruled that while the payment of the prescribed docket fee is a jurisdictional
requirement, its non-payment will not automatically cause the dismissal of the case. In this regard,
it considered that should there be any deficiency in the payment of such fees, the same shall
constitute a lien on the judgment award. 41 It also refused to dismiss the complaint for lack of proper
verification upon a finding that the copy of the amended complaint submitted to the RTC-Pasig City
was properly notarized. 42 Moreover, it upheld the order of the RTC-Pasig City for Unicapital and
PBI, et al. to submit their comment due to the alleged existence of a similar case filed before the
RTC-Makati City.43
Anent the substantive issues of the case, the CA concurred with the RTC-Pasig City that Consing
Jr.'s complaint states a cause of action. It found that Unicapital and PBI, et al.’s purportedly
abusive manner in enforcing their claims against Consing, Jr. was properly constitutive of a cause
of action as the same, if sufficiently proven, would have subjected him to "defamation of his name
in business circles, the threats and coercion against him to reimburse the purchase price, fraud
and falsification and breach of fiduciary obligation." It also found that the fact that Consing Jr.'s
complaint contains "nebulous" allegations will not warrant its dismissal as any vagueness therein
can be clarified through a motion for a bill of particulars." 44 Furthermore, it noted that Consing, Jr.
does not seek to recover his claims against any particular provision of the corporation code or the
securities act but against the actions of Unicapital and PBI, et al.; hence, Consing, Jr.’s complaint
Page 30 of 53
was principally one for damages over which the RTC has jurisdiction, and, in turn, there lies no
misjoinder of causes of action. 45
Dissatisfied, only Unicapital, et al. sought reconsideration therefrom but the same was denied by
the CA in a Resolution 46 dated October 25,2006. Hence, the present petitions for review on
certiorari in G.R. Nos.175277 and 175285.
The Proceedings Antecedent to G.R. No. 192073
The Proceedings Before the Court
After the filing of the foregoing cases, the parties were required to file their respective comments
and replies. Further, considering that G.R. No.192073 (Makati case) involves the same parties and
set of facts with those in G.R. Nos. 175277 & 175285 (Pasig case), these cases were ordered
consolidated per the Court's Resolution59 dated November 17, 2010. On March 9, 2011, the Court
resolved to give due course to the instant petitions and required the parties to submit their
respective memoranda.60

The Issues Before the Court

On the other hand, on August 4, 1999, Unicapital filed a complaint 47 for sum of money with
damages against Consing, Jr. and Dela Cruz before the RTC-Makati City, docketed as Civil Case
No. 99-1418, seeking to recover (a) the amount of ₱42,195,397.16, representing the value of their The essential issues in these cases are as follows: (a) in G.R. Nos.175277 and 175285, whether or
indebtedness based on the Promissory Notes (subject promissory notes) plus interests; (b) not the CA erred in upholding the RTC-Pasig City’s denial of Unicapital, et al.’s motion to dismiss;
₱5,000,000.00 as exemplary damages; (c) attorney's fees; and (d) costs of suit.48 and (b) in G.R. No. 192073, whether or not the CA erred in upholding the RTC-Makati City’s denial
of Consing, Jr.’s motion for consolidation.
PBI also filed a complaint for damages and attachment against Consing, Jr. and Dela Cruz before
the RTC of Manila, Branch 12, docketed as Civil Case No. 99-95381, also predicated on the same The Court’s Ruling
set of facts as above narrated. 49 In its complaint, PBI prayed that it be allowed to recover the
following: (a) ₱13,369,641.79, representing the total amount of installment payments made as
A. Propriety of the denial of
actual damages plus interests; (b) ₱200,000.00 as exemplary damages; (c) ₱200,000.00 as moral
Unicapital, et al.’s motion to
damages; (d) attorney's fees; and (e) costs of suit. 50 Civil Case No. 99-95381 was subsequently
dismiss and ancillary issues.
consolidated with SCA No. 1759 pending before the RTC-Pasig City. 51

A cause of action is defined as the act or omission by which a party violates a right of another. 61 It
For his part, Consing, Jr. filed a Motion to Dismiss Civil Case No. 99-1418 which was, however,
is well-settled that the existence of a cause of action is determined by the allegations in the
denied by the RTC-Makati City in an Order 52 dated November 16, 1999. Thereafter, he filed a
complaint.62 In this relation, a complaint is said to sufficiently assert a cause of action if, admitting
Motion for Consolidation53 (motion for consolidation) of Civil Case No. 99-1418 with his own
what appears solely on its face to be correct, the plaintiff would be entitled to the relief prayed
initiated SCA No. 1759 pending before the RTC-Pasig City.
for.63 Thus, if the allegations furnish adequate basis by which the complaint can be maintained,
then the same should not be dismissed, regardless of the defenses that may be averred by the
In an Order54 dated July 16, 2007, the RTC-Makati City dismissed Consing, Jr.’s motion for defendants.64 As edified in the case of Pioneer Concrete Philippines, Inc. v. Todaro, 65 citing
consolidation and, in so doing, ruled that the cases sought to be consolidated had no identity of Hongkong and Shanghai Banking Corporation, Limited. v. Catalan 66 (HSBC):
rights or causes of action and the reliefs sought for by Consing, Jr. from the RTC-Pasig City will not
bar Unicapital from pursuing its money claims against him. Moreover, the RTC-Makati City noted
The elementary test for failure to state a cause of action is whether the complaint alleges facts
that Consing, Jr. filed his motion only as an after thought as it was made after the mediation
which if true would justify the relief demanded. Stated otherwise, may the court render a valid
proceedings between him and Unicapital failed. Consing, Jr.'s motion for reconsideration therefrom
judgment upon the facts alleged therein? The inquiry is into the sufficiency, not the veracity of the
was denied in an Order55 dated September 4, 2007. Hence, he filed a petition for certiorari before
material allegations. If the allegations in the complaint furnish sufficient basis on which it can be
the CA, docketed as CA-G.R. SP No. 101355, ascribing grave abuse of discretion on the part of
maintained, it should not be dismissed regardless of the defense that may be presented by the
the RTC-Makati City in refusing to consolidate Civil Case No. 99-1418 with SCA No. 1759 in Pasig
defendants.67 (Emphasis supplied)
City.

Stated otherwise, the resolution on this matter should stem from an analysis on whether or not the
On September 30, 2009, the CA rendered a Decision 56 sustaining the Orders dated July 16, 2007
complaint is able to convey a cause of action; and not that the complainant has no cause of action.
and September 4, 2007 of the RTC-Makati City which denied Consing, Jr.’s motion for
Lest it be misunderstood, failure to state a cause of action is properly a ground for a motion to
consolidation. It held that consolidation is a matter of sound discretion on the part of the trial court
dismiss under Section 1(g), Rule 1668 of the Rules of Court(Rules), while the latter is not a ground
which could be gleaned from the use of the word "may" in Section 1, Rule38 of the Rules of Court.
for dismissal under the same rule.
Considering that preliminary steps (such as mediation) have already been undertaken by the
parties in Civil Case No.99-1418 pending before the RTC-Makati City, its consolidation with SCA
No. 1759 pending before the RTC-Pasig City "would merely result in complications in the work of In this case, the Court finds that Consing, Jr.’s complaint in SCA No.1759 properly states a cause
the latter court or squander the resources or remedies already utilized in the Makati of action since the allegations there insufficiently bear out a case for damages under Articles 19
case."57 Moreover, it noted that the records of the consolidated Pasig and Manila cases, i.e., SCA and 26 of the Civil Code.
No. 1759 and Civil Case No. 99-95381, respectively, had already been elevated to the Court, that
joint proceedings have been conducted in those cases and that the pre-trial therein had been
Records disclose that Consing, Jr.’s complaint contains allegations which aim to demonstrate the
terminated as early as October 23, 2007.Therefore, due to these reasons, the consolidation prayed
abusive manner in which Unicapital and PBI, et al. enforced their demands against him. Among
for would be impracticable and would only cause a procedural faux pas. Undaunted, Consing, Jr.
others, the complaint states that Consing, Jr. "has constantly been harassed and bothered by
filed a motion for reconsideration therefrom but was denied by the CA in a Resolution 58 dated April
Unicapital and PBI, et al.; x x x besieged by phone calls from them; x x x has had constant
28, 2010. Hence, the present petition for review on certiorari in G.R. No. 192073.
meetings with them variously, and on a continuing basis, such that he is unable to attend to his

Page 31 of 53
work as an investment banker." 69 In the same pleading, he also alleged that Unicapital and PBI, et
al.’s act of "demanding a postdated check knowing fully well that he does not have the necessary
funds to cover the same, nor is he expecting to have them is equivalent to asking him to commit a
crime under unlawful coercive force." 70 Accordingly, these specific allegations, if hypothetically
admitted, may result into the recovery of damages pursuant to Article 19 of the Civil Code which
states that "every person must, in the exercise of his rights and in the performance of his duties,
act with justice, give everyone his due, and observe honesty and good faith." As explained in the
HSBC case:
When a right is exercised in a manner which does not conform with the norms enshrined in Article
19 and results in damage to another, a legal wrong is thereby committed for which the wrongdoer
must beheld responsible. But a right, though by itself legal because it is recognized or granted by
law as such, may nevertheless become the source of some illegality. A person should be protected
only when he acts in the legitimate exercise of his right, that is, when he acts with prudence and in
good faith; but not when he acts with negligence or abuse. There is an abuse of right when it is
exercised for the only purpose of prejudicing or injuring another. The exercise of a right must be in
accordance with the purpose for which it was established, and must not be excessive or unduly
harsh; there must be no intention to injure another.71 (Emphasis supplied)
Likewise, Consing, Jr.’s complaint states a cause of action for damages under Article 26 of the Civil
Code which provides that:
Article 26. Every person shall respect the dignity, personality, privacy and peace of mind of his
neighbors and other persons. The following and similar acts, though they may not constitute a
criminal offense, shall produce a cause of action for damages, prevention and other relief:
(1) Prying into the privacy of another's residence;
(2) Meddling with or disturbing the private life or family relations of another;
(3) Intriguing to cause another to be alienated from his friends;
(4) Vexing or humiliating another on account of his religious beliefs, lowly station in life,
place of birth, physical defect, or other personal condition.
The rationale therefor was explained in the case of Manaloto v. Veloso III, 72 citing Concepcion v.
CA,73 to wit:
The philosophy behind Art. 26 underscores the necessity for its inclusion in our civil law. The Code
Commission stressed in no uncertain terms that the human personality must be exalted. The
sacredness of human personality is a concomitant consideration of every plan for human
amelioration. The touchstone of every system of law, of the culture and civilization of every country,
is how far it dignifies man. If the statutes insufficiently protect a person from being unjustly
humiliated, in short, if human personality is not exalted - then the laws are indeed defective. Thus,
under this article, the rights of persons are amply protected, and damages are provided for
violations of a person's dignity, personality, privacy and peace of mind.74
To add, a violation of Article 26 of the Civil Code may also lead to the payment of moral damages
under Article 2219(10)75 of the Civil Code.
Records reveal that Consing, Jr., in his complaint, alleged that "he has come to discover that
Unicapital and PBI, et al. are speaking of him in a manner that is inappropriate and libelous; and
that they have spread their virulent version of events in the business and financial community such
that he has suffered and continues to suffer injury upon his good name and reputation which, after
all, is the most sacred and valuable wealth he possesses - especially considering that he is an
investment banker."76 In similar regard, the hypothetical admission of these allegations may result
into the recovery of damages pursuant to Article 26, and even Article2219(10), of the Civil Code.
Corollary thereto, Unicapital, et al.’s contention 77 that the case should be dismissed on the ground
that it failed to set out the actual libelous statements complained about cannot be given credence.
These incidents, as well as the specific circumstances surrounding the manner in which Unicapital
and PBI, et al. pursued their claims against Consing, Jr. may be better ventilated during trial. It is a
standing rule that issues that require the contravention of the allegations of the complaint, as well
as the full ventilation, in effect, of the main merits of the case, should not be within the province of a
mere motion to dismiss,78 as in this case. Hence, as what is only required is that the allegations
furnish adequate basis by which the complaint can be maintained, the Court – in view of the above-
stated reasons – finds that the RTC-Pasig City’s denial of Unicapital, et al.’s motion to dismiss on
the ground of failure to state a cause of action was not tainted with grave abuse of discretion which
would necessitate the reversal of the CA’s ruling. Verily, for grave abuse of discretion to exist, the
abuse of discretion must be patent and gross so as to amount to an evasion of a positive duty or a
virtual refusal to perform a duty enjoined by law, or to act at all in contemplation of law. 79 This the
Court does not perceive in the case at bar.
Further, so as to obviate any confusion on the matter, the Court equally finds that the causes of
action in SCA No. 1759 were not – as Unicapital, et al. claim – misjoined even if Consing, Jr.
averred that Unicapital and PBI, et al. violated certain provisions of the Corporation Law and the
Revised Securities Act.80
The rule is that a party’s failure to observe the following conditions under Section 5, Rule 2 of the
Rules results in a misjoinder of causes of action: 81
SEC. 5. Joinder of causes of action . - A party may in one pleading assert, in the alternative or
otherwise, as many causes of action as he may have against an opposing party, subject to the
following conditions:
(a) The party joining the causes of action shall comply with the rules on joinder of parties;
(b) The joinder shall not include special civil actions governed by special rules;
(c) Where the causes of action are between the same parties but pertain to different
venues or jurisdictions, the joinder may be allowed in the Regional Trial Court provided
one of the causes of action falls within the jurisdiction of said court and the venue lies
therein; and
(d) Where the claims in all the causes of action are principally for recovery of money the
aggregate amount claimed shall be the test of jurisdiction. (Emphasis supplied)
A careful perusal of his complaint discloses that Consing, Jr. did not seek to hold Unicapital and
PBI, et al. liable for any specific violation of the Corporation Code or the Revised Securities Act.
Rather, he merely sought damages for Unicapital and PBI, et al.’s alleged acts of making him sign
numerous documents and their use of the same against him. In this respect, Consing, Jr. actually
advances an injunction and damages case 82 which properly falls under the jurisdiction of the RTC-
Pasig City.83 Therefore, there was no violation of Section 5, Rule 2 of the Rules, particularly,
paragraph (c) thereof. Besides, even on the assumption that there was a misjoinder of causes of
action, still, such defect should not result in the dismissal of Consing, Jr.’s complaint. Section 6,
Rule 2 of the Rules explicitly states that a "misjoinder of causes of action is not a ground for
Page 32 of 53
dismissal of an action" and that "a misjoined cause of action may, on motion of a party or on the
initiative of the court, be severed and proceeded with separately."
Neither should Consing, Jr.’s failure to pay the required docket fees lead to the dismissal of his
complaint.1âwphi1 It has long been settled that while the court acquires jurisdiction over any case
only upon the payment of the prescribed docket fees, its non-payment at the time of the filing of the
complaint does not automatically cause the dismissal of the complaint provided that the fees are
paid within a reasonable period. 84 Consequently, Unicapital, et al.’s insistence that the stringent
rule on non-payment of docket fees enunciated in the case of Manchester Development
Corporation v. CA85 should be applied in this case cannot be sustained in the absence of proof that
Consing, Jr. intended to defraud the government by his failure to pay the correct amount of filing
fees. As pronounced in the case of Heirs of Bertuldo Hinog v. Hon. Melicor:86
Plainly, while the payment of the prescribed docket fee is a jurisdictional requirement, even its
non-payment at the time of filing does not automatically cause the dismissal of the case, as long as
the fee is paid within the applicable prescriptive or reglementary period, more so when the party
involved demonstrates a willingness to abide by the rules prescribing such payment.
Thus, when insufficient filing fees were initially paid by the plaintiffs and there was no intention to
defraud the government, the Manchester rule does not apply. 87 (Emphasis and italics in the
original)
Indeed, while the Court acknowledges Unicapital, et al.'s apprehension that Consing, Jr.'s
"metered" claim for damages to the tune of around ₱2,000,000.00 per month 88 may balloon to a
rather huge amount by the time that this case is finally disposed of, still, any amount that may by
then fall due shall be subject to assessment and any additional fees determined shall constitute as
a lien against the judgment as explicitly provided under Section 2,89 Rule 141 of the Rules.
Finally, on the question of whether or not Consing, Jr.'s complaint was properly verified, suffice it to
state that since the copy submitted to the trial court was duly notarized by one Atty. Allan B. Gepty
and that it was only Unicapital, et al.’s copy which lacks the notarization, then there was sufficient
compliance with the requirements of the rules on pleadings. 90
In fine, the Court finds no reversible error on the part of the CA in sustaining the RTC-Pasig City’s
denial of Unicapital et al.’s motion to dismiss. As such, the petitions in G.R. Nos. 175277 and
175285 must be denied.
B. Propriety of the denial of
Consing, Jr.’s motion for
consolidation.
The crux of G.R. No. 192073 is the propriety of the RTC-Makati City’s denial of Consing, Jr.’s
motion for the consolidation of the Pasig case, i.e., SCA No. 1759, and the Makati case, i.e., Civil
Case No. 99-1418.Records show that the CA upheld the RTC-Makati City’s denial of the foregoing
motion, finding that the consolidation of these cases was merely discretionary on the part of the
trial court. It added that it was "impracticable and would cause a procedural faux pas
"if it were to "allow the RTC-Pasig City to preside over the Makati case."91
The CA’s ruling is proper.
It is hornbook principle that when or two or more cases involve the same parties and affect closely
related subject matters, the same must be consolidated and jointly tried, in order to serve the best
interest of the parties and to settle the issues between them promptly, thus, resulting in a speedy
and inexpensive determination of cases. In addition, consolidation serves the purpose of avoiding
the possibility of conflicting decisions rendered by the courts in two or more cases, which otherwise
could be disposed of in a single suit. 92 The governing rule is Section 1, Rule 31 of the Rules which
provides:
SEC. 1. Consolidation. - When actions involving a common question of law or fact are pending
before the court, it may order a joint hearing or trial of any or all the matters in issue in the actions;
it may order all the actions consolidated; and it may make such orders concerning proceedings
therein as may tend to avoid unnecessary costs or delay.
In the present case, the Court observes that the subject cases, i.e., SCA No. 1759 and Civil Case
No. 99-1418, although involving the same parties and proceeding from a similar factual milieu,
should remain unconsolidated since they proceed from different sources of obligations and, hence,
would not yield conflicting dispositions. SCA No. 1759 is an injunction and damages case based on
the Civil Code provisions on abuse of right and defamation, while Civil Case No. 99-1418 is a
collection and damages suit based on actionable documents, i.e., the subject promissory notes. In
particular, SCA No. 1759 deals with whether or not Unicapital and BPI, et al, abused the manner in
which they demanded payment from Consing, Jr., while Civil Case No. 99-1418 deals with whether
or not Unicapital may demand payment from Consing, Jr. based on the subject promissory notes.
Clearly, a resolution in one case would have no practical effect as the core issues and reliefs
sought in each case are separate and distinct from the other.
Likewise, as the CA correctly pointed out, the RTC-Makati City could not have been failured in
retaining Civil Case No. 99-1418 in its dockets since pre-trial procedures have already been
undertaken therein and, thus, its consolidation with SCA No. 1759 pending before the RTC-Pasig
City would merely result in complications on the part of the latter court or squander the resources
or remedies already utilized in Civil Case No. 99-1418. 93 In this light, aside from the perceived
improbability of having conflicting decisions, the consolidation of SCA No. 1759 and Civil Case No.
99-1418 would, contrary to its objective, only delay the proceedings and entail unnecessary costs.
All told, the Court finds the consolidation of SCA No. 1759 and Civil Case No. 99-1418 to be
improper, impelling the affirmance of the CA’s ruling. Consequently, the petition in G.R. No.
192073 must also be denied.
WHEREFORE, the petitions in G.R. Nos. 175277, 175285 and 192073 are DENIED. Accordingly,
the Court of Appeals’ Joint Decision dated October 20, 2005 and Resolution dated October 25,
2006 in CA-G.R. SP Nos. 64019 and 64451 and the Decision dated September 30, 2009 and
Resolution dated April 28, 2010 in CA-G.R. No. 101355 are hereby AFFIRMED.
G.R. No. 190814               October 9, 2013
MICHELLE LANA BROWN- ARANETA, for herself and representing her minor daughters,
ARABELLA MARGARITA B. ARANET A and A V ANGELINAMYKAELA B.
ARANETA, Petitioners,
vs.
JUAN IGNACIO ARANETA, Respondent.
DECISION
VELASCO, J.:
Page 33 of 53
The Case
Assailed and sought to be set aside in this Petition for Review on Certiorari under Rule 45 are the
May 11, 2009 Decision1 of the Court of Appeals (CA) in CA-G .R. SP No. 105442 and its
Resolution2 of December28, 2009 denying petitioner's motion for reconsideration of said decision.
The assailed decision ordered the dismissal of Civil Case No. 08-023 of the Regional Trial Court
(RTC), Branch 207 in Muntinlupa City and nullified all the issuances it made in that case, a petition
for protection order under Republic Act No. (RA) 9262, otherwise known as the Anti-Violence
Against Women and Their Children Act of 2004, commenced by petitioner Michelle Lana Brown-
Araneta (Michelle) against respondent Juan Ignacio Araneta (Juan Ignacio) before that court.
The facts
On April 14, 2000, Juan Ignacio and Michelle were married in Las Vegas, Nevada, USA. The union
produced two (2) children, namely: Arabella Margarita (Ara) and Avangelina Mykaela (Ava), born
on February 22, 2003 and April 15, 2005, respectively. After a little over seven years of
disharmonious relationship, husband and wife separated. Since the couple’s estrangement and de
facto separation, Ara and Ava have remained in Michelle’s custody.
In November 2007 before the RTC of Makati City, Juan Ignacio filed, pursuant to A.M. No. 03-04-
04-SC3 or The Rule on Custody of Minors and Writ of Habeas Corpus in Relation to Custody of
Minors (Rule on Custody of Minors), a Petition for the Custody of the Minors Arabella Margarita
Araneta and Avangelina Mykaela Araneta (Petition for Custody), with prayer for visitation rights
against Michelle and her mother, Glenda B. Santos (Santos). Docketed as SP PROC. Case No. M-
6543, this petition was eventually raffled to Branch 60 of the Makati City RTC (Makati RTC),
presided over by Judge Marissa Macaraig-Guillen (Judge Macaraig-Guillen).
1. Immediately issue a Provisional Order granting [him]visitation rights with respect to the
minors [Ava and Ara] x x x during the pendency of these proceedings;
2. Immediately issue an ex parte Hold Departure Order preventing the departure of [both]
minors x x x from the country; and
3. After appropriate proceedings, render judgment granting him joint custody, or
alternatively, granting him permanent visitation rights, over both his legitimate children x
x x.4
To facilitate service of summons, Juan Ignacio, via a Motion and Urgent Manifestation of
November 27, 2007, would inform the Makati RTC that Michelle and Santos may have transferred
to No. 408 Anonas Street, Ayala Alabang Village, Muntinlupa City (Anonas residence), an address
different from what he provided in his basic petition, referring to the Molave Drive residence in the
same village. In her Officer’s Return dated December 10, 2007, 5 process server Linda Fallorin
stated the following: (1) she initially attempted to serve the summons upon Michelle and Santos on
December 7,2007 at the Anonas residence, only to be told by one Roberto Anonas, who refused to
receive the summons, that both were out at that time; and (2) on December 10, 2007, she was
finally able to serve the summons upon Michelle and Santos by substituted service through the
driver of Santos’ husband.
On December 18, 2007, Juan Ignacio moved for the issuance of provisional visitorial order. After a
hearing on this motion, the Makati RTC issued on December 21, 2007 an Order 7 allowing Juan
Ignacio to visit her daughters on Christmas Day and New Year’s Day. The visiting grant came after
the court, taking stock of the Officer’s Return, declared that it has acquired jurisdiction over the
person of Michelle, but despite being given the opportunity to file a responsive pleading, she has
failed to do so.
Christmas and New Year’s Day 2008 came and went, but Juan Ignacio was unable to see his little
girls in those days for reasons of little materiality to this narration.
On January 2, 2008, Michelle filed in SP PROC. Case No. M-6543 a Motion to Admit Answer and
an Answer (with Affirmative Defenses and With Very Urgent Ex-Parte Motion for Issuance of
Protection Order).8
In her Motion to Admit Answer, Michelle acknowledged learning from her mother about the delivery
of the summons and a copy of the petition for custody to their Anonas Residence. She, however,
disregarded said summons thinking, so she claimed, that it was improperly served upon her
person. It was, she added, only upon learning of the issuance of the provisional order of visitation
rights that she gathered enough courage to come out to present her side. 9
In her Answer, on the other hand, Michelle owned up sole responsibility for the decision not to
allow her husband to see their daughters. In support of her plea for the dismissal of his petition for
custody, the denial of visitation rights pendente lite, and in the meanwhile the ex parte issuance in
her favor of a temporary protection order (TPO), 10 she recounted in lurid details incidents
characterizing the painful life she and her children allegedly had to endure from her husband whom
she tagged as a drug user, sexual pervert, emotionally unstable and temperamental, among other
names. In her words, Juan Ignacio’s "wild, decadent, irresponsible lifestyle makes him unfit to
exercise parental authority and even enjoy visitation rights." 11
During the January 4, 2008 hearing on Michelle’s prayer for a TPO, Judge Macaraig-Guillen
expressed her bent to maintain her jurisdiction over SP PROC. Case No. M-6543 and her
disinclination to issue the desired TPO. In her Order of even date, she directed that the ensuing
observations she earlier made be entered into the records:
1. She is not inclined to issue a [TPO] in favor of respondent at this time because she
initially questioned the jurisdiction of this Court over her person and only resorted to this
Urgent Ex-Parte Motion for a Protective Order after she realized that the Court had every
intention of maintaining jurisdiction over this case x x x. It was emphasized that the Court
does not issue Protective Orders over a person who has not bothered to appear in Court
x x x. Until the respondent herself shows up in order to recognize the jurisdiction of this
Court over her and in order to substantiate the allegations in her Urgent Motion, there is
no basis for this Court to address the matters contained in the said Urgent Ex-Parte
Motion.
2. Secondly, x x x even assuming for the sake of argument that the petitioner is, as
respondent described him to be, temperamental, violent, a habitual drug user and a
womanizer, these qualities cannot, per se, prevent him from exercising visitation rights
over his children because these are rights due to him inherently, he being their biological
father.12
During the same hearing, the Makati RTC granted Juan Ignacio visitation rights on one (1)
Saturday and Sunday in January 2008 considering that he was unable to see his children on the
days granted under the December 21, 2007 Order.
Subsequently, by its Order of January 21, 2008, as would later be effectively reiterated by another
Order 13 of March 7, 2008, the Makati RTC resolved to deny admission of Michelle’s answer to the
petition for custody and declared her in default, pertinently disposing thusly:
Page 34 of 53
WHEREFORE, in view of the foregoing, respondent Araneta’s Motion to Admit Answer of January
2, 2008 is herein DENIED for lack of merit.
Because of respondent Araneta’s failure to file her responsive pleading within the reglementary
period, x x x respondent Araneta isherein declared in DEFAULT in this proceedings.
As a consequence of this ruling, x x x the petitioner is allowed to present evidence ex-parte to
substantiate the allegation in his Petition x x x.14
On January 21, 2008 also, Michelle interposed a Motion to Withdraw Urgent Ex-Parte Motion for
Protective Order, there pointing out that no right of Juan Ignacio, if any, will be affected if the said
urgent motion is withdrawn or expunged from her answer. And obviously to sway the Makati RTC’s
mind of the resulting insignificance of such withdrawal, if approved, Michelle cited the ensuing
observation thus made by the court during the hearing on January 4, 2008:
COURT:
Well, I agree, she should really appear but whether or not she should really appear here and
substantiate her allegations for the issuance of a protective order as far as I am concerned is
irrelevant insofar as the enforcement of petitioner’s visitation rights are concerned, this case is for
custody, this is not a case for the issuance of protective orders that is only a counter manifestation
that she is seeking.15
It is upon the foregoing set of events and proceedings that Michelle, on March 25, 2008, instituted,
pursuant to RA 9262, a Petition For Temporary and Permanent Protection Order 16 (Petition for
Protection Order) before the RTC in Muntinlupa City, docketed as Civil Case No. 08-023.Thereat,
Michelle claimed, among other things, that in the course of their marriage, Juan Ignacio made her
and their children engage in sexual acts inimical to their emotional, physical and psychological
development and well-being; that he engaged in perverted sexual acts with friends, victimizing her
and the children; that he has consistently failed and refused to support their family; and that he has
a violent temper and was consistently harassing and threatening her to get sole custody of the
children. Michelle volunteered the information that, per her therapist, she is suffering from Battered
Woman’s Syndrome.17
In the verification portion of her petition for protection order, Michelle stated that "there is x x x a
pending petition for the custody of our children in the [RTC] Br. 60, Makati City, x x x Civil Case No.
M-6543."18
The following events and proceedings then transpired:
1. On March 31, 2008, the Muntinlupa RTC granted Michelle’s prayer for a TPO which,
at its most basic, ordered Juan Ignacio (1) to stay away at a specified distance from
Michelle and the children, inclusive of their present residence and other places they
frequent; and (2) to desist from calling or otherwise communicating with Michelle.
(2) On April 14, 2008, Juan Ignacio filed in Civil Case No. M-6543 a "Motion to Dismiss
Petition with Prayer to Lift [TPO]" 19 anchored on several grounds, foremost of which are
the following: (a) litis pendentia, Juan Ignacio noting in this regard that the Makati RTC is
competent to grant in its SP PROC. Case No. M-6543 the very same reliefs Michelle
seeks in Civil Case No. M-6543, pursuant to Sections 17 and 18 of the Rule on Custody
of Minors;20 (b) in view of item (a) above, the Makati RTC, having first assumed
jurisdiction over identical subject matters, issues and parties, does so to the exclusion of
the Muntinlupa RTC; and (c) Michelle’s act of filing her petition for protection order before
the Muntinlupa RTC constitutes, under the premises, forum shopping, a practice
proscribed owing to the possibility of different courts arriving at conflicting decisions.
Juan Ignacio would in fact stress that the TPO thus issued by the Muntinlupa RTC
directing him to stay at least a kilometer away from his children already conflicted with
the Makati RTC-issued provisional orders granting him visitation rights over them.
(3) By Order of May 12, 2008, the Muntinlupa RTC, conceding the exclusionary effect of
the assumption at the first instance by the Makati RTC of jurisdiction on the issue of
custody on Ava and Ara and the likelihood of the issuance by either court of clashing
decisions, partially granted Juan Ignacio’s motion to dismiss and accordingly modified
the TPO issued on March 31, 2008. As thus modified, the protection order, or to be
precise, the reliefs provided in favor of Michelle in said TPO shall exclude from its
coverage the orders issued by the Makati RTC in the exercise of its jurisdiction on the
pending custody case.
In another Order of June 30, 2008, the Muntinlupa RTC denied Juan Ignacio’s Motion for
Reconsideration of the earlier May 12, 2008 Order on the ground that such a motion is a
prohibited pleading.21
(4) Meanwhile, Michelle, in connection with certain orders of the Makati RTC in the
custody case, denying her motion to admit answer and its jurisdictional issue
pronouncements, went to the CA on certiorari via a petition docketed as CA-G.R. SP No.
103392.
On August 28, 2008, in CA-G.R. SP No. 103392, the CA rendered a judgment finding partly for
Michelle, as petitioner, it being the appellate court’s determination that the substituted service of
summons upon her in the custody suit was defective and irregular. Accordingly, the period within
which Michelle was to file an answer, so the CA declared, did not start to run and, hence, the
denial by the Makati RTC of her motion to admit answer in the custody case and corollarily, its
holding that she is in default, by virtue of its Orders dated January 21, 2008 and March 7, 2008,
were unwarranted and ought to be nullified. Neither of the parties appealed the foregoing Decision.
The CA Decision, thus, became final. The fallo of the said CA Decision reads:
WHEREFORE, the foregoing considered, the instant petition is hereby PARTLY GRANTED.
Accordingly, the assailed Orders of 21January 2008 and 7 March 2008 are REVERSED and SET
ASIDE while the Orders of 29 February 2008 and 31 March 2008, in so far as the denial of
petitioner’s Motion for Inhibition is concerned, are AFFIRMED. No costs.
SO ORDERED.22
Partly, the CA wrote:
x x x The pivotal issue x x x is whether the Makati RTC had acquired jurisdiction over the person of
the petitioner, and if so, whether the disposition of the respondent Makati RTC judge in declaring
her in default has factual and legal basis. Admittedly, the summons and the copy of the petition
were not personally served upon the petitioner as explicitly required under Section 5 of A.M. No.
03-04-04-SC x x x.
Indeed, the records would show that the summons and the petition were served upon the petitioner
x x x by substituted service as they were received by x x x a certain Nilo Santos at said Anonas
residence, an address belatedly supplied by private respondent himself. However, x x x petitioner
had actually been informed of such substituted service sometime in the second week of December
2007 and that she had opted to simply disregard the same since she had thought that such service
is invalid x x x.
Page 35 of 53
Despite the fact that she had known of the existence of the petition a quo and the fact that the
service of summons had been made upon her by substituted service, petitioner made a decision
whether it be an informed one or not, not to move for its dismissal on the ground of lack of
jurisdiction over her person x x x. It was only upon the issuance of the Provisional Order that she
had opted to participate in the proceeding by filing her responsive pleading to the petition.
Unfortunately though, the respondent Makati RTC judge denied her motion to admit and declared
her in default on the basis of its disquisition that the failure of the petitioner to file her responsive
pleading is not due to excusable negligence or other circumstances beyond her control.
Still and all, it cannot be denied that the trial court, previous to or at the time the petitioner had filed
her responsive pleading, has yet to acquire jurisdiction over the person of the latter. The Rule on
Custody of Minors specifically requires that service of summons be made personally on the
respondent and yet the trial court served the same upon the person of the petitioner by substituted
service without proof of exhaustion of means to personally serve the same or the impossibility
thereof to warrant the extraordinary method of substituted service.
Surely, while the Rule on Custody of Minors provides that the Rules of Court shall apply
suppletorily in custody proceedings, the express provision requiring personal service and the very
nature of custody cases should have caused the respondent judge x x x to adhere to the evident
intention of the rules, that is to have both parties in a custody case participate therein.
Regrettably, the respondent judge, relying on the Officer’s Return x x x, precipitately declared x x x
that the trial court had already acquired jurisdiction over the person of the petitioner. x x x
Sadly though, respondent judge, in grave abuse of discretion, assumed jurisdiction over the person
of the petitioner and proceeded to act on the petition. Worse, x x x the respondent judge denied the
motion to admit filed by the petitioner and declared the latter in default. While the petitioner had
already submitted herself to the jurisdiction of the trial court by way of her voluntary act of filing a
responsive pleading to the petition a quo, the period to file said responsive pleading, as already
stated, in so far as the petitioner is concerned has yet to commence, and thus, the filing of her
motion to admit answer cannot plausibly be considered as to have been filed beyond the
reglementary period. In this light, the denial of said motion and the issuance of the default order are
unwarranted and are reversible errors of jurisdiction x x x.23 (Emphasis added.)
(5) From the adverse May 12, 2008 and June 30, 2008 Orders of the Muntinlupa RTC in Civil Case
No. M-6543, Juan Ignacio also repaired to the CA on a petition for certiorari. Docketed as CA-G.R.
SP. No. 105442, the petition prayed that the Muntinlupa RTC be enjoined from further taking
cognizance of Michelle’s protection order petition as the said case will infringe or intrude upon the
Makati RTC’s disposition of the custody case. 24
Michelle opposed and sought the dismissal of the certiorari petition on the ground that it is a
prohibited pleading under Sec. 22(j) of RA 9262.
Eventually, the CA issued, on May 11, 2009, the assailed Decision which, on one hand, found
Michelle guilty of forum shopping, a sufficient cause for summary dismissal of a case, but viewed,
on the other, Juan Ignacio’s petition for certiorari as a prohibited pleading which, ordinarily, would
then render it dismissible. In the veritable clash under the premises of the effects of forum
shopping and the rule on prohibited pleading, the CA nonetheless ruled for Juan Ignacio, as
petitioner, pertinently disposing as follows:
ACCORDINGLY, the petition is GIVEN DUE COURSE. Civil Case No. 08-023 is ORDERED
DISMISSED and all issuances made by RTC, Branch 207, Muntinlupa City, are declared void. The
RTC Branch 60, Makati City is DIRECTED to proceed with the case with dispatch. 25
The CA extricated itself from the foregoing legal bind on the basis of the following ratiocination and
the plausible suppositions interjected thereat:
In resolving the present petition, the Court had to consider two (2) things. First, pursuant to Section
22 (j) of A.M. No. 04-10-11-SC, a petition for certiorari against any interlocutory order issued by a
family court is a prohibited pleading. Accordingly, if this Court were to strictly follow [said] Section
22 (j) x x x, then the present petition for certiorari must be dismissed. Second, the Private
Respondent had first moved that the Makati RTC issue a TPO and that when her motion was
denied, she filed a petition before the Muntinlupa RTC asking that the said court issue a TPO. In
short, the Private Respondent committed forum-shopping. And when forum-shopping is committed,
the case(s) must be dismissed with prejudice.
Thus, it falls upon this Court to balance the conflict.
This Court notes that the Muntinlupa RTC tried to balance out the conflicting jurisdictional issues
with the Makati RTC by stating in its first assailed Order that the reliefs provided in favor of herein
private respondent in the TPO x x x are modified, to exclude from its coverage those Orders issued
by the Makati Court in the exercise of its jurisdiction on the pending custody case. Be that as it
may, the Muntinlupa RTC itself recognized the jurisdiction of the Makati RTC and that the case
before it would, in fact, impinge upon the jurisdiction of the latter court when it stated that the
disposition on the matter by this Court may result in the possibility of conflicting decisions/orders. In
short, the Muntinlupa RTC itself acknowledges the fact that any future issuances, including its
eventual decision on the petition before it, would affect the custody case pending before the Makati
RTC and might even result to conflicting decisions.
Thus, in the interest of judicial stability, it is incumbent upon this Court to ensure that this
eventuality will not come to pass.
xxxx
To test the argument that a petition for certiorari is an absolutely prohibited pleading, let us push
the present case to its logical extreme.
What if a woman claiming to be a battered wife leaves one of her children with her parents and
another with a sibling of hers? She then went to another place, transferred residency, and filed a
petition for TPO. Her parents and sibling, who reside in another locality, likewise files a petition for
TPO in behalf of the grandchild and nephew/niece entrusted]in their custody. x x x What if the
family courts refuse consolidation? Is the man devoid of any remedy and would have to spend his
time shuttling between three (3) localities since a petition for certiorari is a prohibited pleading?
What if the woman went to another locality purposely in order to find a friendly venue x x x? Again,
if we are to strictly construe Section22 (j) of A.M. No. 04-10-11-SC that man would just have to
bear the consequences since he cannot seek the extraordinary writ of certiorari. Or, what if both of
the spouses do not reside within the court’s jurisdiction, but the judge refuses to grant a motion to
dismiss due to his zeal? What remedy would a man have since he cannot resort to a petition for
certiorari?
The rules are not sacrosanct. If they go in the way of the smooth and orderly administration of
justice, then magistrates should apply their best judgment. If not, courts would be so hideously
bound or captives to the stern and literal provisions of the law that they themselves would, wittingly
or otherwise, become administrators of injustice.
Page 36 of 53
On the one hand, this Court hereby notes that Private Respondent herself recognizes the
jurisdiction of the Makati RTC to issue a TPO. It was only after the Makati RTC denied her prayer
for a TPO when she filed a petition before the Muntinlupa RTC asking for the issuance of a TPO. It
is thus highly disturbing that the Private Respondent sought another forum in order to try to obtain
a favorable judgment. Thus, as aptly pointed out by the Petitioner, some sort of forum-shopping
was committed.
On the other hand, if the Court were to dismiss the present petition on the ground that a petition for
certiorari is a prohibited pleading, it would have to close its eyes to the fact that the Private
Respondent willfully committed forum-shopping. To dismiss the present petition would, in effect,
"reward" her for this negative act. This, the Court cannot countenance.
xxxx
Accordingly, x x x Civil Case No. 08-023 must not be allowed to proceed any further. Imperatively,
to ensure that the jurisdiction of the Makati RTC remains unshackled, all of the issuances of the
Muntinlupa RTC should, by all means, be nullified.26 (Emphasis added.)
The CA denied Michelle’s motion for reconsideration per its equally assailed Resolution of
December 28, 2009.
Aggrieved, Michelle, for herself and for her minor daughters, filed the instant recourse, her
submissions revolving on the twin issues of forum shopping and the prohibition under Sec. 22 of
the Rule on Violence Against Women and Children 27 against the filing of petitions for certiorari to
defeat TPOs issued to promote the protection of victims of violence against women and their
children.
Michelle presently argues that the assailed Decision of the CA is based on an erroneous
appreciation of the facts of the case. To her, there was no forum shopping when she filed her
Petition for Protection Order in the Muntinlupa RTC while the custody case was pending in the
Makati RTC. Her stated reason: the absence in both cases of identity of parties and rights
asserted, on top of which the reliefs sought and prayed for are different and not founded on the
same set of facts.
To downplay the application of the litis pendentia principle, she argues that it was impossible for
her to apply for and secure a protective order under RA 9262 in the custody case before the Makati
RTC being, first, a respondent, not a petitioner in the Makati case; and second, the venue for an
application for protection order is, under RA 9262, the place where the woman or the offended
party resides, which in her case is Muntinlupa. 28
Michelle would invite attention to her having withdrawn her motion for protective order in the
custody case before the Makati RTC before she filed her Petition for Protective Order with the
Muntinlupa RTC. Additionally, she points to the CA’s Decision of August 28, 2008 in CA-G.R. SP
No. 103392 (2008 CA Decision), which held that the Makati RTC did not acquire jurisdiction over
her so that all issuances of the Makati RTC were void. All these, Michelle claims, argue against the
existence of litis pendentia.
The Issue
The issue to be resolved in this case is whether or not petitioner, in filing her Petition for Protection
Order before the Muntinlupa RTC, violated the rule on forum shopping, given the pendency of the
respondent’s Petition for Custody before the Makati RTC and considering incidentally that she filed
said petition for protection order after the Makati RTC had denied her application for protection
order in the custody case.
The Court’s Ruling
Before anything else, however, the Court wishes to point out disturbing developments in this
proceeding which ought not to be swept under the rug on the simplistic pretext that they may not
be determinative of the outcome of this case. But first, some basic premises on record.
First, as correctly stated in this petition, Michelle withdrew her Ex Parte Motion for Issuance of
Protective Order in the custody case prior to her filing of her Petition for Protection Order with the
Muntinlupa RTC. It should be made clear, however, that she filed said motion to withdraw on
January 21, 2008, or after the Makati RTC, in its Order dated January 4,2008, had, for all intents
and purposes, denied the said ex parte motion. To recapitulate, the Makati RTC judge made it of
record that she was not inclined to issue a protective order in favor of a person, i.e., petitioner
Michelle, who has not bothered to appear in court, even assuming, she adds, that the person
against whom the protection order is directed, i.e., Juan Ignacio, is prone to violence, a drug user
and a womanizer.
Second, there is absolutely nothing in the 2008 CA Decision declaring that all issuances of the
Makati RTC were void. In order to bolster her position that the rule against forum shopping was not
breached in this case, Michelle matter-of-factly alleged in this recourse that since in the 2008 CA
Decision it was ruled that the Makati RTC did not acquire jurisdiction over her person due to the
irregularity in the service of summons, then "all the issuances or orders of the Makati RTC in the
custody case were void;"29 and "therefore, there was no litis pendentia to begin with since the RTC
of Makati City Branch 60 had no jurisdiction from the start." 30
For perspective, the 2008 CA Decision did not rule that the Makati RTC did not acquire jurisdiction
over Michelle. Quite the contrary. As a matter of record, the CA in that disposition found and thus
declared Michelle to have voluntarily submitted herself to the jurisdiction of the Makati RTC when
she filed her Answer in SP. PROC. Case No. 6543 on January 2, 2008.But to be precise about
things, the CA in that 2008 Decision found, as having been tainted with of grave abuse of
discretion, only that part of the Makati RTC’s disposition denying Michelle’s motion to admit answer
for belated filing and the consequent default order. Along this line, the CA merely nullified the
Makati RTC’s Orders dated January 21, 2008 and March 7, 2008 which declared Michelle in
default and denied her motion for reconsideration, respectively. The ensuing excerpts of the 2008
CA Decision speak for themselves:
Sadly though, respondent judge, in grave abuse of discretion, assumed jurisdiction over the person
of the petitioner and proceeded to act on the petition. Worse, without due regard to the plain
intention of the rule in ensuring the adjudication of the controversy surrounding a custody case
based on its merits, the respondent judge denied the motion to admit filed by the petitioner and
declared the latter in default. While the petitioner had already submitted herself to the jurisdiction of
the trial court by way of her voluntary act of filing a responsive pleading to the petition a quo, the
period to file said responsive pleading, as already stated, in so far as the petitioner is concerned
has yet to commence, and thus, the filing of her motion to admit answer cannot plausibly be
considered as to have been filed beyond the reglementary period. In this light, the denial of said
motion and the issuance of the default order are unwarranted and are reversible errors of
jurisdiction, therefore correctible by a writ of certiorari. (Emphasis supplied.)
xxxx
WHEREFORE, the foregoing considered, the instant petition is hereby PARTLY GRANTED.
Accordingly, the assailed Orders of 21January 2008 and 7 March 2008 are REVERSED and SET
Page 37 of 53
ASIDE while the Orders of 29 February 2008 and 31 March 2008, in so far as the denial of
petitioner’s Motion for Inhibition is concerned, are AFFIRMED. No costs.
SO ORDERED.31
Withal, the Court finds it downright offensive and utterly distasteful that petitioner raised the
following as one of the issues in this appellate proceeding:
Whether or not the petitioners are guilty of forum-shopping when the Petition for Custody of private
respondent Araneta was dismissed by the Court of Appeals on the ground that the RTC of Makati
City Branch60 did not acquire jurisdiction because the summons was not served personally upon
herein Petitioner Michelle Lana Brown Araneta. 32 (Emphasis supplied.)
Petitioner’s above posture smacks of bad faith, taken doubtless to deceive and mislead the Court.
Indeed, nothing in either the body or the fallo of the 2008 CA Decision would yield the conclusion
that the petition for custody is being dismissed, as petitioner unabashedly would have the Court
believe.
Was there forum shopping? Did petitioner forum shop?
A circumstance of forum shopping occurs when, as a result or in anticipation of an adverse
decision in one forum, a party seeks a favorable opinion in another forum through means other
than appeal or certiorari by raising identical causes of action, subject matter and issues. Stated a
bit differently, forum shopping is the institution of two or more actions involving the same parties for
the same cause of action, either simultaneously or successively, on the supposition that one or the
other court would come out with a favorable disposition. 33 An indicium of the presence of, or the
test for determining whether a litigant violated the rule against, forum shopping is where the
elements of litis pendentia are present or where a final judgment in one case will amount to res
judicata in the other case.34
Litis pendentia,35 as a ground for the dismissal of a civil suit, refers to that situation wherein another
action is pending between the same parties for the same cause of action, such that the second
action becomes vexatious and unnecessary. 36 For the bar of litis pendentia to be invoked, the
concurring requisites must be present: (1) identity of parties, or at least such parties as represent
the same interests in both actions; (2) identity of rights asserted and relief prayed for, the relief
being founded on the same facts; and (3) the identity of the two preceding particulars is such that
any judgment rendered in the pending case, regardless of which party is successful would amount
to res judicata in the other.37
Thus, it has been held that there is forum shopping (1) whenever as a result of an adverse decision
in one forum, a party seeks a favorable decision (other than by appeal or certiorari) in another; or
(2) if, after he has filed a petition before the Supreme Court, a party files another before the CA
since in such case said party deliberately splits appeals "in the hope that even as one case in
which a particular remedy is sought is dismissed, another case(offering a similar remedy) would
still be open"; or (3) where a party attempts to obtain a preliminary injunction in another court after
failing to obtain it from the original court.38
The evil sought to be avoided by the rule against forum shopping is the rendition by two competent
tribunals of two separate and contradictory decisions. Unscrupulous party litigants, taking
advantage of a variety of competent tribunals, may repeatedly try their luck in several different fora
until a favorable result is reached. To avoid the resultant confusion, the Court adheres to the rules
against forum shopping, and a breach of these rules results in the dismissal of the case. 39
Considering the above doctrinal pronouncements on forum shopping, We find all the badges of this
deplorable, docket-clogging practice present in this case.
As a result or in anticipation of an adverse ruling of the Makati RTC,
petitioner sought the favorable opinion of the Muntinlupa RTC
As discussed above, the presiding judge of the Makati RTC, in the custody case, made of record
that she was not inclined to issue a protection order in favor of Michelle because she did not bother
to appear in Court and that the allegations against Juan Ignacio cannot, per se, prevent him from
exercising visitation rights over his children. After this adverse ruling, Michelle sought the favorable
opinion of the Muntinlupa RTC by filing an independent Petition for Protection Order.
The cases have identical parties
Clearly, the Petition for Custody and the Petition for Protection Order have the same parties who
represent the same interests. The fact that Avaand Ara, who are parties in the Petition for
Protection Order, are not impleaded in the Petition for Custody is of no moment because they are
precisely the very subjects of the Petition for Custody and their respective rights are represented
by their mother, Michelle. In a long line of cases on forum shopping, the Court has held that
absolute identity of the parties is not required, it being enough that there is substantial identity of
the parties40 or at least such parties represent the same interests in both actions. It does not
matter, as here, that in the Petition for Custody, Juan Ignacio is the petitioner and Michelle is the
respondent while in the Petition for Protection Order, their roles are reversed. That a party is the
petitioner in one case and at the same time, the respondent in the other case does not, without
more, remove the said cases from the ambit of the rules on forum shopping. So did the Court hold,
for example in First Philippine International Bank v. Court of Appeals, that forum shopping exists
even in cases like this where petitioners or plaintiffs in one case were impleaded as respondents or
defendants in another. 41 Moreover, this Court has constantly held that the fact that the positions of
the parties are reversed, i.e., the plaintiffs in the first case are the defendants in the second case or
vice versa, does not negate the identity of parties for purposes of determining whether the case is
dismissible on the ground of litis pendentia.42
The rights asserted and reliefs prayed for are based on the same facts
Further, the rights asserted and reliefs prayed for in Civil Case No. 08-023 are practically based on
the same facts and are so intertwined with that in SP. PROC. Case No. 6543, such that any
judgment rendered in the pending cases, regardless of which party is successful, will amount to res
judicata.
In the custody case, Juan Ignacio mainly asserted his right, as father, to visit his children and enjoy
joint custody over them. He prayed for a judgment granting him joint custody, or alternatively,
permanent visitation rights over Ava and Ara.
In disposing of the custody case, the Makati RTC is expected, following the rationale behind the
issuance of the Rule on Custody of Minors, to consider, among others, the best interest of the
children,43 any threat or danger of physical, mental, sexual or emotional violence which endangers
their safety and best interest, their health, safety and welfare, 44 any history of child or spousal
abuse by the person seeking custody, 45 habitual use of alcohol, dangerous drugs or regulated
substances,46 marital misconduct,47 and the most suitable physical, emotional, spiritual,
psychological and educational environment for the holistic development and growth of the minor. 48
Michelle’s answer and motion for issuance of protection order in the custody case contained
allegations of psychological, sexual, emotional and economic abuse she and her children suffered
at the hands of Juan Ignacio to defeat his asserted right to have joint custody over Ava and Ara
Page 38 of 53
and as argument that the grant of visitation rights in his favor will not be in the best interest of the matter of custody pendente lite including visitation, should not and can not be resolved by this
children. These allegations of abuse were in substance the very same ones she made in her Honorable Court without conflicting with the Temporary Protection Order of a co-equal court, the
Petition for Protection Order. RTC of Muntinlupa City. x x xx

Juan Ignacio’s rights and reliefs prayed for are dependent on and, to be sure, would be predicated xxx
on the question of whether or not granting him the desired custody or at least visitations rights over
the children are in their best interest. In deciding this issue, the Makati RTC will definitely have to
If the petitioner is granted visitation rights, the Honorable Court, with due respect would be allowing
reckon with and make a finding on Michelle’s allegations of psychological, sexual, emotional and
him to violate the TPO against him; the Honorable Court would then be rendering a conflicting
economic abuse.
decision.50 (Emphasis supplied.)

Similarly, the Muntinlupa RTC must necessarily consider and make a determination based on the
No less than the Muntinlupa RTC itself recognized the resulting aberration of its orders conflicting
very same facts and allegations on whether or not Michelle shall be entitled to the relief she prayed
with that/those of the Makati RTC. As it were, the former, in its Order of May 12, 2008, resolving
for in her own petition, in particular, a permanent protection order against Juan Ignacio.
Juan Ignacio’s Motion to Dismiss with Prayer to Lift Temporary Protection Order, categorically
stated that there may be orders in the protection order case that would possibly conflict with the
Elements of litis pendentia are present and any judgment orders issued by the Makati RTC in the custody case. So it was that to address these possible
in the pending cases would amount to res judicata conflicts, the Muntinlupa RTC partially granted Juan Ignacio’s Motion to Dismiss by modifying the
reliefs provided under the TPO by excluding from its coverage those orders issued by the Makati
RTC in the exercise of its jurisdiction over the custody case. Pursuant to the foregoing Order of the
Any judgment rendered in the pending cases, regardless of which party is successful, would
Muntinlupa RTC, the December 21, 2007 and January 4, 2008 Orders of the Makati RTC, granting
amount to res judicata. Consider: If the Makati RTC were to grant Juan Ignacio’s petition for
Juan Ignacio visitation rights on Christmas Day and New Year’s Day and one (1) Saturday and
custody, this would necessarily mean that it would be in the best interest of the children if he were
Sunday in January 2008, are not covered by the reliefs under the TPO. Hence, despite the TPO
allowed to visit and spend time with them and that granting Juan Ignacio visitation rights would not
directing Juan Ignacio to stay at least one (1) kilometer away from Ava and Ara, Juan Ignacio
pose any danger or threat to the children.
would still have the right to see his children by virtue of the orders issued by the Makati RTC
granting him temporary visitation rights. The said Muntinlupa RTC Order reads:
On the other hand, a grant by the Muntinlupa RTC of Michelle’s prayer for a permanent protection
order would presuppose at the minimum that it would be to the children’s best interest if Juan
Based on the pleadings filed, this (Muntinlupa) Court holds that since the Makati Court first
Ignacio is directed to keep away from them, necessary implying that he is unfit even to visit Araand
acquired jurisdiction over the issue of custody, the latter continues to exercise it, so that any
Ava. Conversely, if Juan Ignacio’s Petition for Custody were denied, then it would mean that the
disposition on the matter by this Court may result in the possibility of conflicting decisions/orders.
Makati RTC gave weight and credence to Michelle’s allegations of abuse and found them to be in
the best interest of the children to bar Juan Ignacio from visiting them. Thus, the Muntinlupa RTC
should have no ground to deny Michelle’s Petition for Protection Order pending before it. Wherefore, this Court partially grants respondent’s Motion to Dismiss insofar as those matters
covered by A.M. No. 03-04-04-SC, Rule on Custody of Minors and Writ of Habeas corpus in
Relation to Custody of Minors are concerned, which are within the jurisdiction of the Makati Court,
The evil sought to be avoided by the rule against
but continues to take cognizance on matters not included therein (A.M. No. 03-04-04-SC) but
forum shopping is present in this case
within the protective mantle of R.A. No. 9262.

The grave mischief sought to be avoided by the rule against forum shopping, i.e., the rendition by
Consequently, the reliefs provided in favor of the petitioner in the Temporary Protection Order
two competent tribunals of two separate and contradictory decisions, is well-nigh palpable in this
dated March 31, 2008 are modified, to exclude from its coverage those Orders issued by the
case. If the Muntinlupa RTC were to rule that Michelle was entitled to a Protection Order, this
Makati Court in the exercise of its jurisdiction on the pending custody case.
would necessarily conflict with any order or decision from the Makati RTC granting Juan Ignacio
visitation rights over Ava and Ara. As aptly pointed out by Juan Ignacio in his Comment such a
conflict had already occurred, as the TPO issued by the Muntinlupa RTC actually conflicted with The motions to lift the temporary protection order (except on those matter stated above) and to cite
the Orders issued by the Makati RTC granting Juan Ignacio temporary visitation rights over his petitioner in contempt of court are denied for lack of merit.51 (Emphasis supplied.)
children. There now exists an Order from the Muntinlupa RTC which, among others, directed Juan
Ignacio to stay at least one (1) kilometer away from Ava and Ara, even as the Makati RTC
Verily, the Muntinlupa RTC was aware that its issuances and its eventual final disposition on the
recognized, in two (2) separate Orders, that he had the right, albeit temporarily to see his
Petition for Protection Order would affect the custody case before the Makati RTC, if not totally
children.49
clash with the latter court’s decision. We agree with the CA’s ensuing observation:

In fact, Michelle was very much aware of the possible conflicts between the orders of Makati RTC
and Muntinlupa RTC. In her Opposition (to Urgent Motion for Immediate Enforcement of Visitation
Orders dated December 21, 2007 and January 4, 2008), she recognized that the granting of
visitation rights in favor of Juan Ignacio would conflict the TPO and, therefore, the Makati Court
would be rendering a conflicting decision with that of the Muntinlupa RTC, viz:
x x x There is therefore, no conflict of jurisdiction in this case but since the petitioner filed a Petition
for Certiorari in the Court of Appeals, which includes the issue of custody, we submit that the
This Court notes that the Muntinlupa RTC tried to balance out the conflicting jurisdictional issues
with the Makati RTC by stating in its first assailed Order that the reliefs provided in favor of herein
private respondent in the TPO dated March 31, 2008 are modified, to exclude from its coverage
those Orders issued by the Makati Court in the exercise of its jurisdiction on the pending custody
case. Be that as it may, the Muntinlupa RTC itself recognized the jurisdiction of the Makati RTC
and that the case before it would, in fact, impinge upon the jurisdiction of the latter court when it
stated that the disposition on the matter by this Court may result in the possibility of conflicting
decisions/orders. In short, the Muntinlupa RTC itself acknowledges the fact that
Page 39 of 53
any future issuances, including its eventual decision on the petition before it, would affect the
custody case pending before the Makati RTC and might even result to conflicting decisions. Thus,
in the interest of judicial stability, it is incumbent upon this Court to ensure that this eventuality will
not come to pass.52
Civil Case No. 08-023 should, thus, be dismissed with prejudice for being a clear case of forum
shopping.
WHEREFORE, premises considered, the appealed May 11, 2009Decision and the December 28,
2009 Resolution of the Court of Appeals in C A-G.R. SP. No. 105442, particularly insofar as these
ordered the dismissal or subject Civil Case No. 08-023 and the nullification of the orders made in
that case, are hereby AFFIRMED.
No costs.
SO ORDERED.
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,
vs.
CESAR B. QUIAZON, AMANDA QUIAZON, JOSE B. QUIAZON AND REYNALDO B. QUIAZON,
represented by JAIME B. QUIAZON, Respondents.
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.
The Facts
On December 16, 2005, a complaint 3 for Annulment and Quieting of Title was filed before the RTC-
Branch59 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
AmeliaNaguit 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.
Page 40 of 53
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.
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

In their formal offer of evidence, 7 respondents offered the following documents: (1) the June 28,
Ruling of the CA
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. In the assailed Decision, dated March 13, 2012, the CA dismissed petitioners’ appeal. It explained
5487, without prejudice; and (8) the July 29, 1916 Decision in Expediente No. 132, G.L.R.O. that under Section 6, Rule 16 of the Rules of Court, a court is allowed to conduct a preliminary
Record No. 11958 and its English translation. 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
In their comment/opposition8 to the formal offer of evidence, petitioners argued (1) that the claims
under the rules which were pleaded as affirmative defenses in the responsive pleading. Thus, it
of Epifanio Makam and Severina Bautista, their predecessors-in-interest, were not adjudicated in
held that the trial court might consider other evidence aside from the averments in the complaint in
the June 28, 1919 decision and, thus, res judicata was inapplicable; (2) that Civil Case No. 5487
determining the sufficiency of the cause of action. The CA explained:
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 in defeasibility of respondents’ title were
matters of evidence to be resolved in a full-blown trial and the trial court was only confined to the But as shown in the foregoing rule, the holding of a preliminary hearing on any of the grounds for a
allegations in the complaint; (4) that their action was not barred by prescription because an action motion to dismiss which is pleaded as an affirmative defense is within the full discretion of the trial
toquiet title did not prescribe if the plaintiffs were in possession of the subject property and that court. The rule speaks of affirmative defenses that are grounds for a motion to dismiss. Indubitably,
they had been in possession in the concept of owner for more than 100 years; and (5) that lack of cause of action or failure to state a cause of action, being one of the grounds for a motion to
respondents were guilty of laches having taken more than 80 years to attempt to enforce their dismiss, is included thereby.
claimed title to the property.
Since the rule allows the trial court to conduct a preliminary hearing on this kind of an affirmative
Ruling of the RTC 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
On July 14, 2008, the RTC-Br. 59 issued the Order dismissing petitioners’ complaint. It found that
should be dismissed or not. To rule otherwise would render nugatory the provision of Section 6,
based on the decision, dated June 28, 1919, in Cadastral Case No. 5, the Baluyut siblings,
Rule 16 and would make the holding of a preliminary hearing a plain exercise in futility. No well-
respondents’ predecessors-in-interest, were declared the absolute owners of the subject property,
meaning judge would hold a preliminary hearing and receive evidence only to disregard later the
over the claim of Jose Makam, the predecessor-in-interest of petitioners, who was one of the
evidence gathered in the course thereof. If the intention of the rule is for the trial court to confine
oppositors in the said case. From this decision, OCT No. RO-1138 (11376) was derived, which
itself to the allegations in the complaint in determining the sufficiency of the cause of action, as the
later became the subject of a project of partition and deed of agreement among the Baluyut
plaintiffs-appellants would want to impress upon this Court, then it should have been so expressly
siblings, dated January 2, 1972, which, in turn, was annotated on the OCT as Entry No. 8132. TCT
stated by barring the court from conducting a preliminary hearing based on the said ground. The
No. 213777-R, covering the subject lot, was later derived from the partition. The RTC-Br. 59 also
fact, however, that the said rule speaks in general terms, it is its manifest intention to apply it in all
noted that it was stated in the said decision that in 1907, a warehouse was constructed on the
grounds for a motion to dismiss under the rules which are pleaded as an affirmative defense in the
subject lot by virtue of an agreement between the Chairman of Magalang and Enrique Baluyut, with
responsive pleading. Thus, we find that that trial court did not err in considering the evidence
no objection from the Makams. It was further noted that the deed of sale being asserted by
already presented and in not confining itself to the allegations in the plaintiffs-appeallants’
petitioners was not mentioned in the 1919 decision despite the claim of their predecessors-in-
complaint.11
interest.

The CA gave credence to the evidence presented by respondents and noted that, except for
The RTC-Br. 59, thus, ruled that the deed of sale had become invalid by virtue of the June 28,
petitioners’ bare allegation that respondents’ title was invalid, there was nothing more to support
1919 decision. It held that although the deed of sale dated, April 20, 1894, was never challenged, it
the same. It further noted that the deed of sale was written in a local dialect without the translation
was nevertheless unenforceable by virtue of the June 28, 1919 decision. It found that petitioners
and with no ascertainable reference to the area of the property being conveyed. The CA, therefore,
had lost whatever right they had on the property from the moment the said decision was rendered
found that petitioners did not have the title required to avail of the remedy of quieting of title, while
and an OCT was issued. Finding that petitioners were not holders of any legal title over the
respondents had sufficiently proven the validity of their Torrens title. Hence, the subject petition.
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. ISSUE

Anent petitioners’ argument that only the complaint may be considered in determining the Whether the CA erred in affirming the dismissal of
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
petitioners’ complaint on the ground of lack of cause of
be had at the discretion of the court, during which the parties could present their arguments and
their evidence.
Page 41 of 53
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:
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
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:
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,20 to wit:
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:
"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
Page 42 of 53
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
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 plaintiff’s 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:
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 in operativeness 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:
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
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:
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:
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.1âwphi1 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. 28 Second, 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
Page 43 of 53
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:
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:
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 x x x x (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,46 both 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.
Page 44 of 53
Fourth, Tanruled 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.
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.
G.R. No. 158245               June 30, 2005
MIGUELITO B. LIMACO, ROGELIO LIMACO, JR., and ISIDRO LIMACO, petitioners,
vs.
SHONAN GAKUEN CHILDREN'S HOUSE PHILIPPINES, INC., respondent.
DECISION
PUNO, J.:
Petitioners Miguelito, Rogelio, Jr., and Isidro, all surnamed Limaco, are the registered owners of
three (3) parcels of agricultural land situated in Bay, Laguna, covered by Transfer Certificates of
Title Nos. 22709 and 22710 of the land records of Laguna, with a total area of 313,293 square
meters. On May 19, 1988, petitioners, as vendors, entered into a Contract of Sale with respondent
Shonan Gakuen Children's House Philippines, Inc., a domestic corporation represented by its
Chairman Tsutomu Masamura and General Manager and Treasurer Jose P. Catindig, as vendee,
over the subject lots, for the consideration of ₱12,531,720.00. The parties agreed that respondent
corporation shall pay ₱1,200,000.00 upon the signing of the contract and the balance of
₱11,331,720.00 in seven (7) equal installments. They further stipulated, "in the event that the
parties herein are unable to effect the transfer and sale of the said properties in whole or in part in
favor of the VENDEES, all the paid-in amounts shall be applied to another similar property also
owned by the VENDORS in substitution of the above-described properties."
Pursuant to the contract, respondent corporation paid the down payment of ₱1,200,000.00.
However, it refused to remit any monthly installment due to petitioners' failure to obtain a clearance
and/or approval of the sale of the subject land from the Department of Agrarian Reform (DAR).
Respondent demanded that petitioners either solve the problem with the land tenants or substitute
the lots with another acceptable, suitable and untenanted land, pursuant to their agreement. 1
Petitioners responded by informing respondent that they were ready to finalize the transaction in
accordance with the legal opinion of the DAR 2 which stated that the subject properties should first
be donated by the tenant farmers to the municipality of Bay, Laguna, which, in turn, would donate
them to respondent. Thereafter, the DAR will order the Registry of Deeds of Laguna to register the
subject land in the name of respondent corporation.
In a letter dated December 21, 1988, 3 respondent informed petitioners that the scheme proposed in
the DAR Opinion was "far from acceptable." Respondent offered to purchase the property for the
agreed price of ₱13,000,000.00 on a direct sale basis. Respondent expressed its concern that in a
donation, the present and future administrations of the municipality might feel that the foundation
would always be "beholden to it." Moreover, the supporters of the project in Japan might question
what happened to the ₱13,000,000.00 allotted for the acquisition of the property. Hence,
respondent proposed that "[s]ince it is now clear that the property cannot be conveyed to the
foundation (respondent) in the manner specified … due to a possible violation of existing law, we
(respondent) now request you (petitioners) to substitute the same with another [land] which is
untenanted and the size, location and type of terrain of which [are] acceptable and suitable for the
purpose of the foundation."
Petitioners did not respond to respondent's reply. Hence, respondent corporation, through counsel,
requested the return of its ₱1,200,000.00 down payment. As petitioners did not acquiesce,
respondent, on January 19, 1989, filed a complaint for rescission with damages with the Regional
Trial Court (RTC) of Makati. The case was docketed as Civil Case No. 89-2939 and raffled to
Branch 132.4
As a countermove, on February 1, 1989, petitioners and the tenant farmers of the property, as
plaintiffs, filed the instant case for specific performance with the RTC of Laguna, Branch 25,
docketed as Civil Case No. 25.5
Respondent filed a motion to dismiss6 Civil Case No. 25 on the ground of litis
pendentia. Petitioners opposed,7 contending that the instant complaint for specific performance
was served on respondent ahead of the service of the complaint for rescission on petitioners.
Later, however, respondent withdrew its motion to dismiss in view of the order of the RTC of Makati
dismissing the complaint for rescission. 8
In its Answer with Counterclaim,9 respondent alleged by way of affirmative defense that "[s]pecific
performance is not possible because the defendant (respondent) had already bought another
property which is untenanted, devoid of any legal complications and now converted from
agricultural to non-agricultural purpose in accordance with DAR Administrative Order No. 15." By
way of counterclaim, respondent alleged as follows:
1. That in view of the failure of the plaintiff-landowners to comply with the Contract of
Sale, the same should be rescinded, and they should be ordered to refund the sum of
₱1,200,000.00 paid by the defendant under the Contract of Sale with bank rate of
interest per annum from date of receipt until fully repaid;
Page 45 of 53
 2. That also by reason thereof, the project of the defendant has been delayed for seven
months for which reason said plaintiff-landowners should be liable for damages
amounting to ₱500,000.00 to the defendant, with the same rate of interest;
3. That because of the plaintiffs' refusal to comply with the demand to refund the amount
paid by the defendant, it was constrained to engage the services of the undersigned
counsel not only to recover the amount paid but to defend itself against the vexatious,
malicious, unfounded, and unjustified complaint of the plaintiff, for which it agreed to pay
attorney's fees in the sum of ₱75,000.00 of which ₱30,000.00 had already been paid,
plus ₱1,000.00 appearance fee for each day he is in attendance in this case.10
It appears that sometime during trial on the merits, the parties were able to agree on a compromise
in which petitioners were to return only fifty percent (50%) of the down payment amounting to
₱600,000.00. Unfortunately, petitioners only remitted ₱487,000.00 to respondent, leaving a
balance of ₱113,000.00 which petitioners failed to settle. Thus, the trial of the case proceeded.
On July 9, 1996, petitioners filed a Motion to Withdraw Complaint 11 considering respondent's
special defense that specific performance was no longer possible. They prayed that their
complaint and respondent's counterclaim be ordered withdrawn or dismissed, arguing that
respondent's counterclaim would have no leg to stand on as it was compulsory in nature.
Respondent objected. It argued that under the Rules of Court, "[i]f a counterclaim has been
pleaded by a defendant prior to the service upon him of the plaintiff's motion to dismiss, the action
shall not be dismissed against the defendant's objection unless the counterclaim can remain
pending for independent adjudication by the court." Moreover, it contended that the dismissal of the
counterclaim would operate to its "extreme prejudice" considering that: (a) its complaint for
rescission with the RTC of Makati involving the same subject matter and relief was dismissed to
give way to the instant case; (b) petitioners were already about to present their second witness and
dismissing the complaint would result in the starting all over again of the case; and (c) respondent
had spent considerable expenses for attorney's fees, acceptance fees and litigation expenses for
the past six (6) years that the case was pending.
In its Order dated July 30, 1996, the trial court denied petitioners' motion. 12 On January 23, 1997,
petitioners' counsel, Atty. Santos V. Pampolina, Jr., prayed that he be allowed to withdraw as
counsel for the tenant farmers.13 In response, respondent suggested that the names of the tenant
farmers be removed from the list of plaintiffs, considering that they were not privy to the contract
between petitioners and respondent.
On February 25, 1997, the trial court dismissed "the complaint of said plaintiffs-tenants farmers and
the counterclaim of defendant (respondent) against them." Trial proceeded with respect to
petitioners. Petitioners, through counsel, manifested that they were no longer presenting evidence,
hence, respondent began its presentation of evidence. 14 After presenting its last witness,
respondent submitted its formal Offer of Evidence,15 and petitioners filed their comment
thereto.16 Thereafter, both parties filed their respective memoranda.17
On January 26, 1998, the trial court rendered a decision, the dispositive portion of which states:
WHEREFORE, judgment is hereby rendered ordering plaintiffs-landowners to pay defendant the
aforesaid sum of ₱113,000.00 with legal interests thereon from the filing of the Complaint.
SO ORDERED.18
The trial court ruled that the conveyance of private agricultural land is null and void pursuant to
Section 21, Article II of the 1987 Constitution declaring as a state policy the promotion of a
comprehensive agrarian reform program. Section 6 of the Comprehensive Agrarian Reform Law
(CARL) which took effect after the subject contract of sale was executed, decrees that any sale of
private agricultural lands prior to its effectivity shall be valid only when registered with the Register
of Deeds within a period of three (3) months after the law's effectivity. As the subject contract was
not so registered, it is null and void by express provision of law. It also held that the provision of the
contract for an alternative recourse was not legally demandable under Article 1479 of the Civil
Code as the substitute property was not ascertained by the parties. Since the contract of sale was
void, the trial court found both parties in pari delicto. Be that as it may, the trial court recognized
that the parties have made an "equitable arrangement" under which petitioners are to return to
respondent the amount of ₱600,000.00. Hence, the trial court ruled that both are "in estoppel to
assert contrary stances." Petitioners were therefore obliged to remit to respondent the balance of
₱113,000.00 from the ₱600,000.00 demanded by respondent but cannot demand more than said
balance.19 Respondent’s Motion for Reconsideration20 for the return of the balance of the entire
down payment in the amount of ₱717,000.00,21 with interest, and to pay exemplary damages
and/or attorney's fees proved futile.22
Respondent appealed to the Court of Appeals (CA), which found the appeal partially meritorious.
The CA held that the trial court erred in declaring the contract void under Section 21, Article II of
the Constitution as such provision is merely a statement of state principle and is not self-executing.
Nevertheless, the CA upheld the trial court's ruling that the subject contract was void under Section
6 of the CARL for lack of proof that the contract was registered within the period provided by law.
Since the contract was void, its provision on substitution for another suitable land cannot be
enforced. The CA, however, disagreed with the ruling of the trial court that the parties were  in pari
delicto. It held that the fault on both sides is not, more or less, equivalent. Petitioner pointed out
that the Limacos belonged to a family of lawyers and are more knowledgeable of the law than the
respondent, a Japanese group seeking to establish an orphanage in the country. The CA further
held that pursuant to the principle against unjust enrichment, petitioners should return to
respondent the balance of the ₱1,200,000.00 down payment in the amount of ₱713,000.00, with
legal interest. It reasoned that the compromise agreement between the parties was cancelled when
petitioners reneged on their obligation to remit the full balance of the agreed amount. It also noted
that the compromise agreement submitted to the court was not binding for not having been signed
by the petitioners. The CA, however, denied respondent's prayer for the payment of exemplary
damages and attorney's fees.
Petitioners filed a Motion for Reconsideration, 23 arguing that the tenant farmers received the down
payment of ₱1,200,000.00, hence, should be the ones made to return the sum of ₱713,000.00.
They also revived their argument that respondent's compulsory counterclaim should have been
dismissed in view of the dismissal of their complaint. The CA denied petitioners' motion. 24
Hence, this petition where petitioners contend:
A. THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION AKIN TO
EXCESS OF JURISDICTION WHEN IT WILLFULLY AND PATENTLY DISREGARDED THE
EVIDENCE ON RECORD CONCERNING [DOWN PAYMENT]. 25
B. THE COURT OF APPEALS COMMITTED A REVERSIBLE LEGAL ERROR IN HOLDING
PETITIONERS LIABLE TO PRIVATE RESPONDENT FOR P713,000.00.
C. THE COURT OF APPEALS COMMITTED AN ERROR OF LAW IN NOT DISMISSING
PRIVATE RESPONDENT'S COMPULSORY COUNTERCLAIM AS IT ARISES OUT OF OR IS
NECESSARILY CONNECTED WITH THE TRANSACTION THAT IS THE SUBJECT MATTER OF
PETITIONERS' COMPLAINT.26
Page 46 of 53
The issues to be resolved are: (a) whether respondent's counterclaim should be dismissed; (b)
whether petitioners are liable to respondent; and (c) in the affirmative, the extent of their liability.
We shall first resolve the procedural issue.
Petitioners submit that the CA erred in not dismissing respondent's compulsory counterclaim. They
point out that on July 9, 1996, they filed a Motion to Withdraw Complaint. They contend that with
the withdrawal of their complaint, respondent's compulsory counterclaim for the return of
₱1,200,000.00 had no leg to stand on pursuant to Section 2, Rule 17, of the Rules of Court. They
maintain that respondent's counterclaim is "inextricably linked and utterly dependent upon
petitioners' complaint and from its very nature, it cannot 'remain pending for independent
adjudication by the court.'"27
Petitioners' arguments fail to impress.
The applicable provisions are Sections 1 and 2, Rule 17, of the old Rules of Court, viz:
Sec. 1. Dismissal by the plaintiff.-- An action may be dismissed by the plaintiff without order of
court by filing a notice of dismissal at any time before service of the answer or of a motion for
summary judgment. x x x
Sec. 2. Dismissal by order of the court.-- Except as provided in the preceding section, an action
shall not be dismissed at the plaintiff's instance save upon order of the court and upon such terms
and conditions as the court deems proper. If a counterclaim has been pleaded by a defendant prior
to the service upon him of the plaintiff's motion to dismiss, the action shall not be dismissed against
the defendant's objection unless the counterclaim can remain pending for independent adjudication
by the court. Unless otherwise specified in the order, a dismissal under this paragraph shall be
without prejudice.
Thus, there are two ways by which an action may be dismissed upon the instance of the plaintiff.
First, dismissal is a matter of right when a notice of dismissal is filed by the plaintiff before an
answer or a motion for summary judgment has been served on him by the defendant. Second,
dismissal is discretionary on the court when the motion for the dismissal of the action is filed by the
plaintiff at any stage of the proceedings other than before service of an answer or a motion for
summary judgment. While the dismissal in the first mode takes effect upon the mere notice of
plaintiff without need of a judicial order, 28 the second mode requires the authority of the court
before dismissal of the case may be effected. This is so because in the dismissal of an action, the
effect of the dismissal upon the rights of the defendant should always be taken into consideration. 29
In the case at bar, it is undisputed that petitioners filed a Motion to Withdraw Complaint after
respondent already filed its answer with counterclaim. In fact, the reason for their motion for
withdrawal was the special defense of respondent in its answer that substitution was no longer
possible as it already bought another property in lieu of the subject lots under the contract. It is,
therefore, inexplicable how petitioners could argue that their complaint was successfully withdrawn
upon the mere filing of a Motion to Withdraw Complaint when they themselves alleged in this
petition that "[p]rivate respondent objected to [the] withdrawal and the Trial Court sustained the
objection."30
More important, the old Rules of Court provided that "[i]f a counterclaim has been pleaded by a
defendant prior to the service upon him of the plaintiff's motion to dismiss,  the action shall not be
dismissed against the defendant's objection unless the counterclaim can remain pending
for independent adjudication by the court" (emphasis supplied). What may invariably remain for
independent adjudication are permissive counterclaims as compared to compulsory counterclaims
which generally necessitate a simultaneous adjudication with the complaint itself. 31 In the case at
bar, respondent's counterclaim is compulsory in nature, hence, cannot remain for independent
adjudication.
We shall now proceed to the substantive issue: whether petitioners are liable to respondent; in the
affirmative, the extent of their liability.
Petitioners contend that the decision of the CA "lacked legal and factual basis when it ordered
petitioners to pay private respondent the sum of ₱713,000.00 considering that the plaintiff-tenants
were the ones who actually received and took hold of the down payment of ₱1,200,000.00."
Allegedly, respondent's own evidence, particularly the testimony of its adverse witness, petitioner
Rogelio, Jr., shows that the down payment of ₱1,200,000.00 was given to the tenant farmers,
hence, the tenant farmers should be the ones made to return the down payment. They argue that
"it would be the height of injustice and inequity to require petitioners to pay ₱713,000.00 to the
private respondent when they (petitioners) did not receive even a centavo of the down payment."
They further contend that "respondent should suffer the inevitable consequences of its own lapses"
when it "untimely and unseasonably withdrew its counterclaim against the plaintiff-tenants," thus,
preventing it from retrieving the money from the latter.32
We reject petitioners’ submission.
Both the trial court and the appellate court found that "[u]pon the execution of the contract of
sale, defendant (respondent) remitted to plaintiffs-landowners (petitioners) a downpayment
of ₱1,200,000.00"33 (emphasis supplied). This factual finding is amply supported by the evidence
on record. The contract itself provides that the ₱1,200,000.00 forms part of the purchase price of
the described properties. The contract states that said amount shall be paid "simultaneous[ly] with
the signing of [the] Contract corresponding to the full payment of an area equivalent to three
(3) hectares of the aforesaid property" (emphasis supplied). Also, the stipulation in the contract
that in the event that the sale of the described lots does not push through, "all the paid-in amounts
shall be applied to another similar property also owned by the VENDORS" is incompatible with
petitioners' claim that the ₱1,200,000.00 down payment was actually for the benefit of the tenant
farmers of the described lots.
Petitioners' attempt to shift the liability to the tenant farmers is based solely on the testimony of
petitioner Rogelio, Jr., who was presented by respondent as an adverse witness.
To be sure, the transcript of stenographic notes reveals that the claim that petitioners "did not
receive even a single centavo" from respondent's down payment of ₱1,200,000.00 did not come
straight from the horse's mouth, so to speak, but from the misleading question of petitioners'
counsel on cross-examination, to wit:
q - So, the one million two as initial down payment went all to the tenants in
consideration of their cession of work over the land which was the subject matter of [the]
sale?
a - Nearly all the money went to the expenses in arranging the meeting of the
tenants because that was only an initial down payment.
q - Now according to you the tenants were requested to stop working. Did they stop
working?
a - Yes, sir.
Page 47 of 53
 q - In consideration for stopping planting the land was there any agreement as to money
between Shonan and the tenants?
a - Shonan said that they will push through with the purchase provided the tenants will
stop planting, sir.
q - So the Limacos plaintiffs as landowners did not receive even a single centavo
of that one million two because according to you all went to the tenants so that
they will stop planting?
xxx
a - Yes, sir. That was given to the tenants. 34 (emphases supplied)
When asked during direct examination if he had receipts to show that the tenant farmers actually
received money from petitioners, Rogelio, Jr., declared that petitioners had none. 35 The absence of
receipts lays serious doubt on petitioners' claim. If they really gave the money to the tenant farmers
as they claim, it is hard to believe that a family of lawyers would be less than zealous in protecting
their interests by not demanding proof of payment, especially since the amount at stake is quite
substantial.
In ruling for the return of the amount of ₱713,000.00, we quote with approval the decision of the
CA, viz:
With respect to the amount paid by the appellant as [down payment] for the subject land, its return
must be decreed. This is in view of the rule that no one should enrich himself at the expense of
another. Although the appellant agreed to the restitution of only a half of said [down payment],
payable in monthly installments during the course of the trial, this agreement was cancelled
because the Limacos reneged on their obligation to remit the balance. Besides, the agreement has
no binding effect on both parties due to the failure of the Limacos to affix their signatures to the
compromise agreement. (citation omitted)
However, the appellant admits receipt of the amount of ₱487,000.00 from the Limacos resulting
from the amicable settlement. This amount should be deducted from the [down payment] of
₱1,200,000.00 appellant seeks as a refund. To rule otherwise would result in the unjust enrichment
of appellant. Thus, the Limacos are obliged to return the sum of ₱713,000.00.36
IN VIEW WHEREOF, the petition is denied. The Decision and Resolution of the Court of Appeals
dated January 23, 2003 and May 5, 2003, respectively, in CA-G.R. CV No. 63017, are affirmed.
Costs against petitioners.
SO ORDERED.
G.R. No. 170354             June 30, 2006
EDGARDO PINGA, Petitioner,
vs.
THE HEIRS OF GERMAN, SANTIAGO represented by FERNANDO SANTIAGO, Respondents.
DECISION
TINGA, J.:
The constitutional faculty of the Court to promulgate rules of practice and procedure 1 necessarily
carries the power to overturn judicial precedents on points of remedial law through the amendment
of the Rules of Court. One of the notable changes introduced in the 1997 Rules of Civil Procedure
is the explicit proviso that if a complaint is dismissed due to fault of the plaintiff, such dismissal is
"without prejudice to the right of the defendant to prosecute his counterclaim in the same or in a
separate action."2 The innovation was instituted in spite of previous jurisprudence holding that the
fact of the dismissal of the complaint was sufficient to justify the dismissal as well of the
compulsory counterclaim.3
In granting this petition, the Court recognizes that the former jurisprudential rule can no longer
stand in light of Section 3, Rule 17 of the 1997 Rules of Civil Procedure.
The relevant facts are simple enough. Petitioner Eduardo Pinga was named as one of two
defendants in a complaint for injunction 4 filed with Branch 29 of the Regional Trial Court (RTC) 5 of
San Miguel, Zamboanga del Sur, by respondent Heirs of German Santiago, represented by
Fernando Santiago. The Complaint 6 dated 28 May 1998 alleged in essence that petitioner and co-
defendant Vicente Saavedra had been unlawfully entering the coco lands of the respondent,
cutting wood and bamboos and harvesting the fruits of the coconut trees therein. Respondents
prayed that petitioner and Saavedra be enjoined from committing "acts of depredation" on their
properties, and ordered to pay damages.
In their Amended Answer with Counterclaim, 7 petitioner and his co-defendant disputed
respondents’ ownership of the properties in question, asserting that petitioner’s father, Edmundo
Pinga, from whom defendants derived their interest in the properties, had been in possession
thereof since the 1930s. 8 They alleged that as far back as 1968, respondents had already been
ordered ejected from the properties after a complaint for forcible entry was filed by the heirs of
Edmundo Pinga. It was further claimed that respondents’ application for free patent over the
properties was rejected by the Office of the President in 1971. Defendants in turn prayed that
owing to respondents’ forcible re-entry in the properties and the irresponsible and reckless filing of
the case, they be awarded various types of damages instead in amounts totaling P2,100,000 plus
costs of suit.9
By July of 2005, the trial of the case had not yet been completed. Moreover, respondents, as
plaintiffs, had failed to present their evidence. It appears that on 25 October 2004, the RTC already
ordered the dismissal of the complaint after respondents’ counsel had sought the postponement of
the hearing scheduled then.10 However, the order of dismissal was subsequently reconsidered by
the RTC in an Order dated 9 June 2005, which took into account the assurance of respondents’
counsel that he would give priority to that case.11
At the hearing of 27 July 2005, plaintiffs’ counsel on record failed to appear, sending in his stead a
representative who sought the postponement of the hearing. Counsel for defendants (who include
herein petitioner) opposed the move for postponement and moved instead for the dismissal of the
case. The RTC noted that it was obvious that respondents had failed to prosecute the case for an
unreasonable length of time, in fact not having presented their evidence yet. On that ground, the
complaint was dismissed. At the same time, the RTC allowed defendants "to present their
evidence ex-parte."12
Respondents filed a Motion for Reconsideration 13 of the order issued in open court on 27 July
2005, opting however not to seek that their complaint be reinstated, but praying instead that the
entire action be dismissed and petitioner be disallowed from presenting evidence ex-parte.
Respondents claimed that the order of the RTC allowing petitioner to present evidence ex-
parte was not in accord with established jurisprudence. They cited cases, particularly City of
Page 48 of 53
Manila v. Ruymann14 and Domingo v. Santos,15 which noted those instances in which a
counterclaim could not remain pending for independent adjudication.
On 9 August 2005, the RTC promulgated an order granting respondents’ Motion for
Reconsideration and dismissing the counterclaim, citing as the only ground therefor that "there is
no opposition to the Motion for Reconsideration of the [respondents]." 16 Petitioner filed a Motion for
Reconsideration, but the same was denied by the RTC in an Order dated 10 October
2005.17 Notably, respondents filed an Opposition to Defendants’ Urgent Motion for
Reconsideration, wherein they argued that the prevailing jurisprudential rule 18 is that "compulsory
counterclaims cannot be adjudicated independently of plaintiff’s cause of action," and "a conversu,
the dismissal of the complaint carries with it the dismissal of the compulsory counterclaims." 19
The matter was elevated to this Court directly by way of a Petition for Review under Rule 45 on a
pure question of law, the most relevant being whether the dismissal of the complaint necessarily
carries the dismissal of the compulsory counterclaim.
We hold that under Section 3, Rule 17 of the 1997 Rules of Civil Procedure, the dismissal of the
complaint due to the fault of plaintiff does not necessarily carry with it the dismissal of the
counterclaim, compulsory or otherwise. In fact, the dismissal of the complaint is without prejudice
to the right of defendants to prosecute the counterclaim.
On a prefatory note, the RTC, in dismissing the counterclaim, did not expressly adopt respondents’
argument that the dismissal of their complaint extended as well to the counterclaim. Instead, the
RTC justified the dismissal of the counterclaim on the ground that "there is no opposition to
[plaintiff’s] Motion for Reconsideration [seeking the dismissal of the counterclaim]." 20 This
explanation is hollow, considering that there is no mandatory rule requiring that an opposition be
filed to a motion for reconsideration without need for a court order to that effect; and, as posited by
petitioner, the "failure to file an opposition to the Plaintiff’s Motion for Reconsideration is definitely
not one among the established grounds for dismissal [of the counterclaim]." 21 Still, the dismissal of
the counterclaim by the RTC betrays at very least a tacit recognition of respondents’ argument that
the counterclaim did not survive the dismissal of the complaint. At most, the dismissal of the
counterclaim over the objection of the defendant (herein petitioner) on grounds other than the
merits of the counterclaim, despite the provisions under Rule 17 of the 1997 Rules of Civil
Procedure, constitutes a debatable question of law, presently meriting justiciability through the
instant action. Indeed, in reviewing the assailed orders of the RTC, it is inevitable that the Court
consider whether the dismissal of the complaint, upon motion of the defendant, on the ground of
the failure to prosecute on plaintiff’s part precipitates or carries with it the dismissal of the pending
counterclaims.
Our core discussion begins with Section 3, Rule 17 of the 1997 Rules of Civil Procedure, which
states:
SEC. 3. Dismissal due to fault of plaintiff.—If, for no justifiable cause, the plaintiff fails to appear on
the date of the presentation of his evidence in chief on the complaint, or to prosecute his action for
an unreasonable length of time, or to comply with these Rules or any order of the court, the
complaint may be dismissed upon motion of defendant or upon the court's own motion, without
prejudice to the right of the defendant to prosecute his counterclaim in the same or in a separate
action. This dismissal shall have the effect of an adjudication upon the merits, unless otherwise
declared by the court.
The express qualification in the provision that the dismissal of the complaint due to the plaintiff’s
fault, as in the case for failure to prosecute, is without prejudice to the right of the defendant to
prosecute his counterclaim in the same or separate action. This stands in marked contrast to the
provisions under Rule 17 of the 1964 Rules of Court which were superseded by the 1997
amendments. In the 1964 Rules, dismissals due to failure to prosecute were governed by Section
3, Rule 17, to wit:
SEC. 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 court’s own motion. This
dismissal shall have the effect of an adjudication upon the merits, unless otherwise provided by
court.
Evidently, the old rule was silent on the effect of such dismissal due to failure to prosecute on the
pending counterclaims. As a result, there arose what one authority on remedial law characterized
as "the nagging question of whether or not the dismissal of the complaint carries with it the
dismissal of the counterclaim."22 Jurisprudence construing the previous Rules was hardly silent on
the matter.
In their arguments before the RTC on the dismissal of the counterclaim, respondents cited in
support City of Manila v.
Ruymann,23 Domingo v. Santos,24 Belleza v. Huntington, 25 and Froilan v. Pan Oriental Shipping
Co.,26 all of which were decided more than five decades ago. Notably though, none of the
complaints in these four cases were dismissed either due to the fault of the plaintiff or upon the
instance of the defendant.27
The distinction is relevant, for under the previous and current incarnations of the Rules of Civil
Procedure, it is Section 3, Rule 17 that governs the dismissals due to the failure of the plaintiff to
prosecute the complaint, as had happened in the case at bar. Otherwise, it is Section 2, Rule 17,
which then, and still is now, covered dismissals ordered by the trial court upon the instance of the
plaintiff.28 Yet, as will be seen in the foregoing discussion, a discussion of Section 2 cannot be
avoided as the postulate behind that provision was eventually extended as well in cases that
should have properly been governed by Section 3.
Even though the cases cited by respondents involved different factual antecedents, there exists
more appropriate precedents which they could have cited in support of their claim that the
counterclaim should have been dismissed even if the dismissal of the complaint was upon the
defendants’ motion and was predicated on the plaintiff’s fault. BA Finance Corp. v. Co29 particularly
stands out in that regard, although that ruling is itself grounded on other precedents as well.
Elucidation of these cases is in order.
On the general effect of the dismissal of a complaint, regardless of cause, on the pending
counterclaims, previous jurisprudence laid emphasis on whether the counterclaim was compulsory
or permissive in character. The necessity of such distinction was provided in the 1964 Rules itself,
particularly Section 2, Rule 17, which stated that in instances wherein the plaintiff seeks the
dismissal of the complaint, "if a counterclaim has been pleaded by a defendant prior to the service
upon him of the plaintiff’s motion to dismiss, the action shall not be dismissed against the
defendant’s objection unless the counterclaim can remain pending for independent adjudication by
the court."30 The
vaunted commentaries of Chief Justice Moran, remarking on Section 2, Rule 17, noted that "[t]here
are instances in which a counterclaim cannot remain pending for independent adjudication, as,
where it arises out of, or is necessarily connected with, the transaction or occurrence which is the
subject matter of the opposing party’s claim."31
This view expressed in Moran’s Commentaries was adopted by the Court in cases where the
application of Section 2, Rule 17 of the 1964 Rules of Court was called for, such as in Lim Tanhu
Page 49 of 53
v. Ramolete,32 and Dalman v. City Court of Dipolog City.33 The latter case warrants brief noted that the counterclaim was indeed compulsory in nature, and as such, was auxiliary to the
elaboration. Therein, the plaintiff in a civil case for damages moved for the withdrawal of her own proceeding in the original suit and derived its jurisdictional support therefrom. 42 It was further
case on the ground that the dispute had not been referred to the barangay council as required by explained that the doctrine was in consonance with the primary objective of a counterclaim, which
law. Over the objection of the defendant, who feared that her own counterclaim would be was to avoid and prevent circuitry of action by allowing the entire controversy between the parties
prejudiced by the dismissal, plaintiff’s motion was granted, the complaint and the counterclaim to be litigated and finally determined in one action, and to discourage multiplicity of suits. 43 Also,
accordingly dismissed by the trial court. The Court refused to reinstate the counterclaim, opining the Court noted that since the complaint was dismissed for lack of jurisdiction, it was as if no claim
without elaboration, "[i]f the civil case is dismissed, so also is the counterclaim filed therein." 34 The was filed against the defendant, and there was thus no more leg for the complaint to stand on. 44
broad nature of that statement gave rise to the notion that the mandatory
In International Container, the defendant filed a motion to dismiss which was granted by the trial
dismissal of the counterclaim upon dismissal of the complaint applied regardless of the cause of court. The defendant’s counterclaim was dismissed as well. The Court summarized the key
the complaint’s dismissal.35 question as "what is the effect of the dismissal of a complaint ordered at the instance of the
defendant upon a compulsory counterclaim duly raised in its answer." 45 Then it ruled that the
counterclaim did not survive such dismissal. After classifying the counterclaim therein as
Notably, the qualification concerning compulsory counterclaims was provided in Section 2, Rule 17
compulsory, the Court noted that "[i]t is obvious from the very nature of the counterclaim that it
of the 1964 Rules, the provision governing dismissals by order of the court, and not Section 3, Rule
could not remain pending for independent adjudication, that is, without adjudication by the court of
17. As stated earlier, Section 3, which covered dismissals for failure to prosecute upon motion of
the complaint itself on which the counterclaim was based." 46
the defendant or upon motu proprio action of the trial court, was silent on the effect on the
counterclaim of dismissals of such nature.
Then in 1993, a divided Court ruled in BA Finance that the dismissal of the complaint for
nonappearance of plaintiff at the pre-trial, upon motion of the defendants, carried with it the
Spouses Sta. Maria, Jr. v. Court of Appeals,36 decided in 1972, ostensibly supplied the gap on the
dismissal of their compulsory counterclaim. 47 The Court reiterated the rule that "a compulsory
effect on the counterclaim of complaints dismissed under Section 3. The defendants therein
counterclaim cannot remain pending for independent adjudication by the court… as it is auxiliary to
successfully moved before the trial court for the dismissal of the complaint without prejudice and
the proceeding in the original suit and merely derives its jurisdictional support therefrom." 48 Express
their declaration in default on the counterclaim after plaintiffs therein failed to attend the pre-trial.
reliance was made on Metals, International Container, and even Dalman in support of the
After favorable judgment was rendered on the counterclaim, plaintiffs interposed an appeal, citing
majority’s thesis. BA Finance likewise advised that the proper remedy for defendants desirous that
among other grounds, that the counterclaim could no longer have been heard after the dismissal of
their counterclaims not be dismissed along with the main complaint was for them to move to
the complaint. While the Court noted that the adjudication of the counterclaim in question "does not
declare the plaintiffs to be "non-suited" on their complaint and "as in default" on their compulsory
depend upon the adjudication of the claims made in the complaint since they were virtually
counterclaim, instead of moving for the dismissal of the complaint.49
abandoned by the non-appearance of the plaintiffs themselves," it was also added that "[t]he
doctrine invoked is not available to plaintiffs like the petitioners, who prevent or delay the hearing of
their own claims and allegations."37 The Court, through Justice JBL Reyes, noted: Justice Regalado, joined by Chief Justice Narvasa, registered a strong objection to the theory of
the majority. They agreed that the trial court could no longer hear the counterclaim, but only on the
ground that defendant’s motion to be allowed to present evidence on the counterclaim was filed
The doctrine that the complaint may not be dismissed if the counterclaim cannot be
after the order dismissing the complaint had already become final. They disagreed however that
independently adjudicated is not available to, and was not intended for the benefit of, a
the compulsory counterclaim was necessarily dismissed along with the main complaint, pointing
plaintiff who prevents or delays the prosecution of his own complaint. Otherwise, the trial of
out that a situation wherein the dismissal of the complaint was occasioned by plaintiff’s failure to
counterclaims would be made to depend upon the maneuvers of the plaintiff, and the rule would
appear during pre-trial was governed under Section 3, Rule 17, and not Section 2 of the same rule.
offer a premium to vexing or delaying tactics to the prejudice of the counterclaimants. It is in the
Justice Regalado, who ironically penned the decision in Metals cited by the majority, explained:
same spirit that we have ruled that a complaint may not be withdrawn over the opposition of the
defendant where the counterclaim is one that arises from, or is necessarily connected with, the
plaintiff’s action and cannot remain pending for independent adjudication. 38 Turning back to Rule 17, it is readily apparent that Sections 2 and 3 thereof envisage different
factual and adjective situations. The dismissal of the complaint under Section 2 is at the instance of
plaintiff, for whatever reason he is minded to move for such dismissal, and, as a matter of
There is no doubt that under the 1964 Rules, the dismissal of a complaint due to the failure of the
procedure, is without prejudice unless otherwise stated in the order of the court or, for that matter,
plaintiff to appear during pre-trial, as what had happened in Sta. Maria, fell within the coverage of
in plaintiff's motion to dismiss his own complaint. By reason thereof, to curb any dubious or
Section 3, Rule 17. On the other hand, Section 2 was clearly limited in scope to those dismissals
frivolous strategy of plaintiff for his benefit or to obviate possible prejudice to defendant, the former
sustained at the instance of the plaintiff.39 Nonetheless, by the early 1990s, jurisprudence was
may not dismiss his complaint over the defendant's objection if the latter has a compulsory
settling on a rule that compulsory counterclaims were necessarily terminated upon the dismissal of
counterclaim since said counterclaim would necessarily be divested of juridical basis and
the complaint not only if such dismissal was upon motion of the plaintiff, but at the instance of the
defendant would be deprived of possible recovery thereon in that same judicial proceeding.
defendant as well. Two decisions from that period stand out in this regard,  Metals Engineering
Resources Corp. v. Court of Appeals 40 and International Container Terminal Services v. Court of
Appeals.41 Section 3, on the other hand, contemplates a dismissal not procured by plaintiff, albeit justified by
causes imputable to him and which, in the present case, was petitioner's failure to appear at the
pre-trial. This situation is also covered by Section 3, as extended by judicial interpretation, and is
In Metals, the complaint was expunged from the record after the defendant had filed a motion for
ordered upon motion of defendant or motu proprio by the court. Here, the issue of whether
reconsideration of a trial court order allowing the filing of an amended complaint that corrected a
defendant has a pending counterclaim, permissive or compulsory, is not of determinative
jurisdictional error in the original complaint pertaining to the specification of the amount of damages
significance. The dismissal of plaintiff's complaint is evidently a confirmation of the failure of
sought. When the defendant was nonetheless allowed to present evidence on the counterclaim,
evidence to prove his cause of action outlined therein, hence the dismissal is considered, as a
the plaintiff assailed such allowance on the ground that the counterclaim was compulsory and
matter of evidence, an adjudication on the merits. This does not, however, mean that there is
could no longer remain pending for independent adjudication. The Court, in finding for the plaintiff,
likewise such absence of evidence to prove defendant's counterclaim although the same arises out
Page 50 of 53
of the subject matter of the complaint which was merely terminated for lack of proof. To hold
otherwise would not only work injustice to defendant but would be reading a further provision into
Section 3 and wresting a meaning therefrom although neither exists even by mere implication.
Thus understood, the complaint can accordingly be dismissed, but relief can nevertheless be
granted as a matter of course to defendant on his counterclaim as alleged and proved, with or
without any reservation therefor on his part, unless from his conduct, express or implied, he has
virtually consented to the concomitant dismissal of his counterclaim.50
Justice Regalado also adverted to Sta. Maria and noted that the objections raised and rejected by
the Court therein were the same as those now relied upon by the plaintiff. He pointed out
that Dalman and International Container, both relied upon by the majority, involved the application
of Section 2, Rule 17 and not Section 3, which he insisted as the applicable provision in the case at
bar.51
The partial dissent of Justice Regalado in BA Finance proved opportune, as he happened then to
be a member of the Rules of Court Revision Committee tasked with the revision of the 1964 Rules
of Court. Just a few months after BA Finance was decided, Justice Regalado proposed before the
Committee an amendment to Section 3, Rule 17 that would explicitly provide that the dismissal of
the complaint due to the fault of the plaintiff shall be "without prejudice to the right of the defendant
to prosecute his counterclaim in the same or in a separate action." The amendment, which was
approved by the Committee, is reflected in the minutes of the meeting of the Committee held on 12
October 1993:
[Justice Regalado] then proposed that after the words "upon the court’s own motion" in the 6th line
of the draft in Sec. 3 of Rule 17, the following provision be inserted: "without prejudice to the
right of the defendant to prosecute his counterclaim in the same or in a separate action."
The Committee agreed with the proposed amendment of Justice Regalado.
Justice Herrera observed that under Secs. 1 to 3 of Rule 17, it is not the action that is dismissed
but the complaint. He asked whether there is any distinction between "complaint" and "action."
Justice Regalado opined that the action of the plaintiff is initiated by his complaint.
Justice Feria then suggested that the dismissal be limited to the complaint[.] Thus, in the
1st line of Sec. 1, the words "An action" will be changed to "a complaint"; in the 2nd line of
Sec. 2, the words "an action" will be changed to "a complaint" and in Sec. 3, the word
"action" on the 5th line of the draft will be changed to "complaint." The Committee agreed
with Justice Feria’s suggested amendments.
CA Paño believed that there is a need to clarify the counterclaim that the defendant will
prosecute, whether it is permissive or compulsory or all kinds of counterclaims.
Justice Regalado opined that there is no need of making a clarification because it is already
understood that it covers both counterclaims. 52
It is apparent from these minutes that the survival of the counterclaim despite the dismissal of the
complaint under Section 3 stood irrespective of whether the counterclaim was permissive or
compulsory. Moreover, when the Court itself approved the revisions now contained in the 1997
Rules of Civil Procedure, not only did Justice Regalado’s amendment to Section 3, Rule 17 remain
intact, but the final version likewise eliminated the qualification formerly offered under Section 2 on
"counterclaims that can remain pending for independent adjudication by the court." 53 At present,
even Section 2, concerning dismissals on motion of the plaintiff, now recognizes the right of the
defendant to prosecute the counterclaim either in the same or separate action notwithstanding the
dismissal of the complaint, and without regard as to the permissive or compulsory nature of the
counterclaim.
In his commentaries on the 1997 Rules of Civil Procedure, Justice Regalado expounds on the
effects of the amendments to Section 2 and 3 of Rule 17:
2. Under this revised section [2], where the plaintiff moves for the dismissal of his complaint to
which a counterclaim has been interposed, the dismissal shall be limited to the complaint. Such
dismissal shall be without prejudice to the right of the defendant to either prosecute his
counterclaim in a separate action or to have the same resolved in the same action. Should he opt
for the first alternative, the court should render the corresponding order granting and reserving his
right to prosecute his claim in a separate complaint. Should he choose to have his counterclaim
disposed of in the same action wherein the complaint had been dismissed, he must manifest such
preference to the trial court within 15 days from notice to him of plaintiff’s motion to dismiss. These
alternative remedies of the defendant are available to him regardless of whether his
counterclaim is compulsory or permissive. A similar alternative procedure, with the same
underlying reason therefor, is adopted in Sec. 6, Rule 16 and Sec. 3 of this Rule, wherein the
complaint is dismissed on the motion of the defendant or, in the latter instance, also by the
court motu proprio.
xxxx
2. The second substantial amendment to [Section 3] is with respect to the disposition of the
defendant’s counterclaim in the event the plaintiff’s complaint is dismissed. As already observed,
he is here granted the choice to prosecute that counterclaim in either the same or a separate
action. x x x x
3. With the aforestated amendments in Secs. 2 and 3 laying down specific rules on the
disposition of counterclaims involved in the dismissal actions, the controversial doctrine
in BA Finance Corporation vs. Co, et al., (G.R. No. 105751, June 30, 1993) has been
abandoned, together with the apparent confusion on the proper application of said Secs. 2
and 3. Said sections were distinguished and discussed in the author’s separate opinion in that
case, even before they were clarified by the present amendments x x x.54
Similarly, Justice Feria notes that "the present rule reaffirms the right of the defendant to move for
the dismissal of the complaint and to prosecute his counterclaim, as stated in the separate opinion
[of Justice Regalado in BA Finance.]"55 Retired Court of Appeals Justice Herrera pronounces that
the amendment to Section 3, Rule 17 settles that "nagging question" whether the dismissal of the
complaint carries with it the dismissal of the counterclaim, and opines that by reason of the
amendments, the rulings in Metals Engineering, International Container, and BA Finance "may be
deemed abandoned."56 On the effect of amendment to Section 3, Rule 17, the commentators are in
general agreement,57 although there is less unanimity of views insofar as Section 2, Rule 17 is
concerned.58
To be certain, when the Court promulgated the 1997 Rules of Civil Procedure, including the
amended Rule 17, those previous jural doctrines that were inconsistent with the new rules
incorporated in the 1997 Rules of Civil Procedure were implicitly abandoned insofar as incidents
arising after the effectivity of the new procedural rules on 1 July 1997. BA Finance, or even the
doctrine that a counterclaim may be necessarily dismissed along with the complaint, clearly
conflicts with the 1997 Rules of Civil Procedure. The abandonment of BA Finance as doctrine
extends as far back as 1997, when the Court adopted the new Rules of Civil Procedure. If, since
then, such abandonment has not been affirmed in jurisprudence, it is only because no proper case
has arisen that would warrant express confirmation of the new rule. That opportunity is here and
now, and we thus rule that the dismissal of a complaint due to fault of the plaintiff is without
prejudice to the right of the defendant to prosecute any pending counterclaims of whatever nature
in the same or separate action. We confirm that BA Finance and all previous rulings of the Court
that are inconsistent with this present holding are now abandoned.
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Accordingly, the RTC clearly erred when it ordered the dismissal of the counterclaim, since Section
3, Rule 17 mandates that the dismissal of the complaint is without prejudice to the right of the
defendant to prosecute the counterclaim in the same or separate action. If the RTC were to dismiss
the counterclaim, it should be on the merits of such counterclaim. Reversal of the RTC is in order,
and a remand is necessary for trial on the merits of the counterclaim.
It would be perfectly satisfactory for the Court to leave this matter at that. Still, an explanation of the
reason behind the new rule is called for, considering that the rationale behind the previous rule was
frequently elaborated upon.
Under Act No. 190, or the Code of Procedure in Civil Actions promulgated in 1901, it was
recognized in Section 127(1) that the plaintiff had the right to seek the dismissal of the complaint at
any time before trial, "provided a counterclaim has not been made, or affirmative relief sought by
the cross-complaint or answer of the defendant." 59 Note that no qualification was made then as to
the nature of the counterclaim, whether it be compulsory or permissive. The protection of the
defendant’s right to prosecute the counterclaim was indeed unqualified. In City of Manila, decided
in 1918, the Court explained:
By paragraph 1 [of Section 127], it will be seen that, where the defendant has interposed a
counterclaim, or is seeking affirmative relief by a cross-complaint, that then, and in that case, the
plaintiff cannot dismiss the action so as to affect the right of the defendant in his counterclaim or
prayer for affirmative relief. The reason for that exception is clear. When the answer sets up an
independent action against the plaintiff, it then becomes an action by the defendant against
the plaintiff, and, of course, the plaintiff has no right to ask for a dismissal of
the defendant’s action.60
Nonetheless, a new rule was introduced when Act No. 190 was replaced by the 1940 Rules of
Court. Section 2, Rule 30 of the 1940 Rules specified that if a counterclaim is pleaded by a
defendant prior to the service of the plaintiff’s motion to dismiss, the action shall not be dismissed
against the defendant’s objection unless the counterclaim can remain pending for independent
adjudication by the court. This qualification remained intact when the 1964 Rules of Court was
introduced.61 The rule referred only to compulsory counterclaims, or counterclaims which arise out
of or are necessarily connected with the transaction or occurrence that is the subject matter of the
plaintiff’s claim, since the rights of the parties arising out of the same transaction should be settled
at the same time.62 As was evident in Metals, International Container and BA Finance, the rule was
eventually extended to instances wherein it was the defendant with the pending counterclaim, and
not the plaintiff, that moved for the dismissal of the complaint.
We should not ignore the theoretical bases of the rule distinguishing compulsory counterclaims
from permissive counterclaims insofar as the dismissal of the action is concerned. There is a
particular school of thought that informs the broad proposition in Dalman that "if the civil case is
dismissed, so also is the counterclaim filed therein,"63 or the more nuanced discussions offered
in Metals, International Container, and BA Finance. The most potent statement of the theory may
be found in Metals,64 which proceeds from the following fundamental premises—a compulsory
counterclaim must be set up in the same proceeding or would otherwise be abated or barred in a
separate or subsequent litigation on the ground of auter action pendant, litis pendentia or res
judicata; a compulsory counterclaim is auxiliary to the main suit and derives its jurisdictional
support therefrom as it arises out of or is necessarily connected with the transaction or occurrence
that is the subject matter of the complaint; 65 and that if the court dismisses the complaint on the
ground of lack of jurisdiction, the compulsory counterclaim must also be dismissed as it is merely
ancilliary to the main action and no jurisdiction remained for any grant of relief under the
counterclaim.
The first point is derived from Section 4, Rule 9, of the 1964 Rules of Court, while the two latter
points are sourced from American jurisprudence. There is no disputing the theoretical viability of
these three points. In fact, the requirement that the compulsory counterclaim must be set up in the
same proceeding remains extant under the 1997 Rules of Civil Procedure. 66 At the same time,
other considerations rooted in actual practice provide a counterbalance to the above-cited
rationales.
Whatever the nature of the counterclaim, it bears the same integral characteristics as a complaint;
namely a cause (or causes) of action constituting an act or omission by which a party violates the
right of another. The main difference lies in that the cause of action in the counterclaim is
maintained by the defendant against the plaintiff, while the converse holds true with the complaint.
Yet, as with a complaint, a counterclaim without a cause of action cannot survive.
It would then seemingly follow that if the dismissal of the complaint somehow eliminates the
cause(s) of the counterclaim, then the counterclaim cannot survive. Yet that hardly is the case,
especially as a general rule. More often than not, the allegations that form the counterclaim
are rooted in an act or omission of the plaintiff other than the plaintiff’s very act of filing the
complaint. Moreover, such acts or omissions imputed to the plaintiff are often claimed to
have occurred prior to the filing of the complaint itself. The only apparent exception to this
circumstance is if it is alleged in the counterclaim that the very act of the plaintiff in filing
the complaint precisely causes the violation of the defendant’s rights. Yet even in such an
instance, it remains debatable whether the dismissal or withdrawal of the complaint is
sufficient to obviate the pending cause of action maintained by the defendant against the
plaintiff.67
These considerations persist whether the counterclaim in question is permissive or compulsory. A
compulsory counterclaim arises out of or is connected with the transaction or occurrence
constituting the subject matter of the opposing party’s claim, does not require for its adjudication
the presence of third parties, and stands within the jurisdiction of the court both as to the amount
involved and the nature of the claim.68 The fact that the culpable acts on which the counterclaim is
based are founded within the same transaction or occurrence as the complaint, is insufficient
causation to negate the counterclaim together with the complaint. The dismissal or withdrawal of
the complaint does not traverse the boundaries of time to undo the act or omission of the plaintiff
against the defendant, or vice versa. While such dismissal or withdrawal precludes the pursuit of
litigation
by the plaintiff, either through his/her own initiative or fault, it would be iniquitous to similarly
encumber the defendant who maintained no such initiative or fault. If the defendant similarly moves
for the dismissal of the counterclaim or neglects to timely pursue such action, let the dismissal of
the counterclaim be premised on those grounds imputable to the defendant, and not on the
actuations of the plaintiff.
The other considerations supplied in Metals are anchored on the premise that the jurisdictional
foundation of the counterclaim is the complaint itself. The theory is correct, but there are other
facets to this subject that should be taken into account as well. On the established premise that a
counterclaim involves separate causes of action than the complaint even if derived from the same
transaction or series of transactions, the counterclaim could have very well been lodged as a
complaint had the defendant filed the action ahead of the complainant. 69 The terms "ancillary" or
"auxiliary" may mislead in signifying that a complaint innately possesses more credence than a
counterclaim, yet there are many instances wherein the complaint is trivial but the counterclaim is
meritorious. In truth, the notion that a counterclaim is, or better still, appears to be merely
"ancillary" or "auxiliary" is chiefly the offshoot of an accident of chronology, more than anything
else.
The formalistic distinction between a complaint and a counterclaim does not detract from the fact
that both of them embody causes of action that have in their end the vindication of rights. While the
distinction is necessary as a means to facilitate order and clarity in the rules of procedure, it should
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be remembered that the primordial purpose of procedural rules is to provide the means for the
vindication of rights. A party with a valid cause of action against another party cannot be denied the
right to relief simply because the opposing side had the good fortune of filing the case first. Yet this
in effect was what had happened under the previous procedural rule and correspondent doctrine,
which under their final permutation, prescribed the automatic dismissal of the compulsory
counterclaim upon the dismissal of the complaint, whether upon the initiative of the plaintiff or of
the defendant.

Thus, the present rule embodied in Sections 2 and 3 of Rule 17 ordains a more equitable
disposition of the counterclaims by ensuring that any judgment thereon is based on the merit of the
counterclaim itself and not on the survival of the main complaint. Certainly, if the counterclaim is
palpably without merit or suffers jurisdictional flaws which stand independent of the complaint, the
trial court is not precluded from dismissing it under the amended rules, provided that the judgment
or order dismissing the counterclaim is premised on those defects. At the same time, if the
counterclaim is justified, the amended rules now unequivocally protect such counterclaim from
peremptory dismissal by reason of the dismissal of the complaint.

WHEREFORE, the petition is GRANTED. The Orders dated 9 August 2005 and 10 October 2005
of Branch 29, Regional Trial Court of San Miguel, Zamboanga del Sur in Civil Case No. 98-012 are
SET ASIDE. Petitioner’s counterclaim as defendant in Civil Case. No. 98-012 is REINSTATED.
The Regional Trial Court is ORDERED to hear and decide the counterclaim with deliberate
dispatch.

SO ORDERED.

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