G.R. No. 136051 June 8, 2006
, they will cause the deposition
ALFREDO P. ROSETE, OSCAR P. MAPALO and CHITO P.
ROSETE, Petitioners,
vs.
JULIANO LIM and LILIA LIM, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a petition for review on certiorari which seeks to
set aside the Decision1 of the Court of Appeals in CA-G.R. SP
No. 45400 dated 24 August 1998 which upheld the Orders of
Branch 77 of the Regional Trial Court (RTC) of Quezon City in
Civil Case No. Q-95-25803 dated 22 July 19972 and 27 August
1997,3 allowing the taking of deposition upon oral
examination of petitioners Oscar P. Mapalo and Chito P.
Rosete, and its Resolution4 dated 19 October 1998 denying
petitioners’ Motion for Reconsideration.
Relevant to the petition are the following antecedents:
On 5 December 1995, respondents Juliano Lim and Lilia Lim
filed before Branch 77 of the RTC of Quezon City a Complaint
for Annulment, Specific Performance with Damages against
AFP Retirement and Separation Benefits System (AFP-RSBS),
Espreme Realty and Development Corporation (Espreme
Realty), Alfredo P. Rosete, Maj. Oscar Mapalo, Chito P. Rosete,
Bank of the Philippine Islands (BPI), and Register of Deeds of
the Province of Mindoro Occidental, docketed as Civil Case No.
Q-95-25803.5 It asked, among other things, that the Deed of
Sale executed by AFP-RSBS covering certain parcels of lands
in favor of Espreme Realty and the titles thereof under the
name of the latter be annulled; and that the AFP-RSBS and
Espreme Realty be ordered to execute the necessary
documents to restore ownership and title of said lands to
respondents, and that the Register of Deeds be ordered to
cancel the titles of said land under the name of Espreme
Realty and to transfer the same in the names of respondents.
On 18 January 1996, petitioners filed a Motion to Dismiss on
the grounds that the court has no jurisdiction over the subject
matter of the action or suit and that venue has been
improperly laid.6 A Supplemental Motion to Dismiss was filed
by petitioner Alfredo P. Rosete on 23 January 1996.7
Respondents opposed the Motion to Dismiss filed by
petitioners8 to which petitioners filed their Reply.9
Respondents filed a Comment on the Reply.10 AFP-RSBS,11
Espreme Realty,12 and, BPI13 filed their respective Motions to
Dismiss which respondents opposed.
In an Order dated 12 March 1996, the Motions to Dismiss filed
by all the defendants were denied.14 The Motions for
Reconsideration filed by petitioners15 and BPI,16 which
respondents opposed,17 were also denied in an Order dated
24 May 1996.18
On 6 June 1996, BPI filed its Answer with Compulsory
Counterclaim and Cross-claim19 to which respondents filed
their Reply and Answer to Counterclaim.20 Respondents also
filed a Motion21 to Serve Supplemental Allegation against BPI
and petitioner Chito Rosete which the trial court granted in an
order dated 28 July 1996.22
On 7 June 1996, petitioners manifested that on 5 June 1996,
they filed a Petition23 for Certiorari and Prohibition in the
Court of Appeals, docketed as CA-G.R. SP No. 40837,
challenging the trial court’s Orders dated 12 March 1996 and
24 May 1996 that denied their Motions to Dismiss and
Reconsideration, respectively.24 They likewise informed the
trial court that on 6 June 1996, they filed an Ex-Parte
Motion25 to Admit Answers Ex Abudanti
Cautela.26lavvphi1.net
On 7 August 1996, petitioner Chito Rosete filed a motion
asking that the order granting the Motion to Serve
Supplemental Allegation against BPI and him be reconsidered
and set aside, and that respondents be ordered to reduce
their supplemental allegations in the form and manner
required by the Rules of Court.27 Same was denied in an
order dated 12 August 1996.28 This denial was appealed to
the Court of Appeals on 26 August 1996, which was docketed
as CA-G.R. SP No. 41821.29
Petitioner Chito Rosete filed his Supplemental Answer (Ex
Abudanti Cautela) on 9 September 1996.30
On 28 May 1997, respondents filed a Notice to Take
Deposition Upon Oral Examination giving notice that on June
18 and 20, 1997 at 9:00 a.m.
of petitioners Oscar Mapalo and Chito Rosete.31
On 13 June 1997, petitioners filed an Urgent Ex-Parte Motion
and Objection to Take Deposition Upon Oral Examination.32
They argued that the deposition may not be taken without
leave of court as no answer has yet been served and the
issues have not yet been joined since their Answer was filed
ex abudanti cautela, pending resolution of the Petition for
Certiorari challenging the orders dated 12 March 1996 and 24
May 1996 that denied their Motions to Dismiss and for
Reconsideration, respectively. This is in addition to the fact
that they challenged via a Petition for Certiorari before the
Court of Appeals the lower court’s Orders dated 23 July 1996
and 12 August 1996 which, respectively, granted
respondents’ Motion to Serve Supplemental Allegation Against
Defendants BPI and Chito Rosete, and for the latter to plead
thereto, and denied Chito Rosete’s Motion for Reconsideration
of the order dated 23 July 1996. Moreover, they contend that
since there are two criminal cases pending before the City
Prosecutors of Mandaluyong City and Pasig City involving the
same set of facts as in the present case wherein respondent
Juliano Lim is the private complainant and petitioners are the
respondents, to permit the taking of the deposition would be
violative of their right against self-incrimination because by
means of the oral deposition, respondents would seek to
establish the allegations of fact in the complaint which are
also the allegations of fact in the complaint-affidavits in the
said criminal cases.
Respondents filed their Comment on the Objection to
Deposition Taking33 to which petitioners filed their Reply.34
In an Order dated 22 July 1997, the lower court denied
petitioners’ motion and objection to take deposition upon oral
examination, and scheduled the taking thereof.35 On 7
August 1997, petitioners filed a Motion for Reconsideration.36
They filed a Supplemental Motion for Reconsideration on 11
August 1997.37
On 13 August 1997, petitioners filed an Urgent Ex-parte
Motion to Cancel or Suspend the Taking of the Deposition
Upon Oral Examination.38
In an Order dated 27 August 1997, the lower court denied
petitioners’ Motion for Reconsideration and Supplemental
Motion for Reconsideration, and scheduled the taking of the
Deposition Upon Oral Examination.39
On 22 September1997, respondents filed an Omnibus Motion:
(1) To Strike Out Answer of Defendants Mapalo and Chito
Rosete; (2) to Declare Defendants Mapalo and Chito Rosete In
Default; and (3) For Reception of Plaintiffs’ Evidence Ex-
parte,40 which petitioners opposed.41
On 29 September 1997, petitioners filed with the Court of
Appeals a Petition for Certiorari and Prohibition (CA-G.R. SP
No. 45400) assailing the Orders of the lower court dated 22
July 1997 and 27 August 1997.42
In an Order dated 29 October 1997, the lower court: (1)
ordered the striking out from the record of the Answer ex
abudanti cautela filed by petitioners Mapalo and Chito Rosete
for their continued unjustified refusal to be sworn pursuant to
Rule 29 of the 1997 Rules of Civil Procedure; (2) declared
defendants Mapalo and Chito Rosete in default; and I allowed
plaintiffs to present their evidence ex-parte as regards the
latter.43 On 25 November 1997, petitioners filed an Urgent
Ex-parte Omnibus Motion (1) For Reconsideration; (2) To Lift
Order of Default; and (3) To Hold In Abeyance Presentation of
Plaintiffs’ Evidence Ex-parte.44 The day after, petitioners filed
an Amended Omnibus Motion.45
On 28 November 1997, respondents filed a Motion to Set Case
for Ex-parte Presentation of Evidence46 which the lower court
set for 11 December 1997.47
In an Order dated 11 December 1997, the lower court denied
petitioners’ urgent ex-parte omnibus motion.48 On even date,
the ex-parte presentation of evidence against petitioners
Mapalo and Chito Rosete was terminated.49
On 10 February 1998, petitioners filed a Petition50 for
Certiorari and Prohibition before the Court of Appeals (CA-G.R.
SP No. 46774) questioning the lower court’s Orders dated 29
October 1997 and 11 December 1997.51
On 24 August 1998, the Court of Appeals dismissed the
Petition for Certiorari and Prohibition, and upheld the Orders
of the lower court dated 22 July 1997 and 27 August 1997
(CA-G.R. SP No. 45400).52 The Motion for Reconsideration53
which was opposed54 by respondents was denied on 19
October 1998.55
Petitioners assail the ruling of the Court of Appeals via a
Petition for Review on Certiorari. They anchor their petition on
the following grounds:
I.
THE TRIAL COURT ERRED AND ACTED IN GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OF OR IN
EXCESS OF JURISDICTION IN DECLARING IN ITS ORDER DATED
AUGUST 27, 1997 THAT THE CONSTITUTIONAL RIGHT
AGAINST SELF INCRIMINATION OF OSCAR MAPALO AND CHITO
ROSETE WOULD NOT BE VIOLATED BY THE TAKING OF THEIR
DEPOSITION IN THE CIVIL CASE FILED IN THE LOWER COURT
ALTHOUGH THEY ARE ALSO RESPONDENTS OR DEFENDANTS
IN THE AFOREMENTIONED CRIMINAL CASES FILED BY HEREIN
PRIVATE RESPONDENT JULIANO LIM INVOLVING THE SAME OR
IDENTICAL SET OF FACTS; AND
II.
THE TRIAL COURT ERRED AND ACTED IN GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OF OR IN
EXCESS OF JURISDICTION IN DECLARING IN ITS ORDER DATED
JULY 22, 1997 THAT (A) THE NOTICE TO TAKE DEPOSITION
UPON ORAL EXAMINATION NEED NOT BE WITH LEAVE OF
COURT BECAUSE AN ANSWER EX ABUDANTE CAUTELA HAS
BEEN FILED; AND (B) JOINDER OF ISSUES IS NOT REQUIRED IN
ORDER THAT THE SECTION 1, RULE 2356 OF THE RULES OF
CIVIL PROCEDURE MAY BE AVAILED OF.
Petitioners argue that the Court of Appeals gravely erred
when it found that the trial court did not abuse its discretion
when it refused to recognize petitioners Oscar Mapalo and
Chito Rosete’s constitutional right against self-incrimination
when, through its Orders dated 22 July 1997 and 27 August
1997, it allowed and scheduled the taking of their depositions
by way of oral examination. They explain they refuse to give
their depositions due to the pendency of two criminal cases
against them, namely, Batasan Pambansa Blg. 22 and Estafa,
because their answers would expose them to criminal action
or liability since they would be furnishing evidence against
themselves in said criminal cases. They allege there can be no
doubt that the questions to be asked during the taking of the
deposition would revolve around the allegations in the
complaint in the civil case which are identical to the
allegations in the complaint-affidavits in the two criminal
cases, thus, there is a tendency to incriminate both Oscar
Mapalo and Chito Rosete. Moreover, they explain that while
an ordinary witness may be compelled to take the witness
stand and claim the privilege against self-incrimination as
each question requiring an incriminating answer is shot at
him, an accused may altogether refuse to answer any and all
questions because the right against self-incrimination includes
the right to refuse to testify.
In short, petitioners Mapalo and Chito Rosete refuse to have
their depositions taken in the civil case because they
allegedly would be incriminating themselves in the criminal
cases because the testimony that would be elicited from them
may be used in the criminal cases. As defendants in the civil
case, it is their claim that to allow their depositions to be
taken would violate their constitutional right against self-
incrimination because said right includes the right to refuse to
take the witness stand.
In order to resolve this issue, we must determine the extent of
a person’s right against self-incrimination. A person’s right
against self-incrimination is enshrined in Section 17, Article III
of the 1987 Constitution which reads: "No person shall be
compelled to be a witness against himself."
The right against self-incrimination is accorded to every
person who gives evidence, whether voluntary or under
compulsion of subpoena, in any civil, criminal or
administrative proceeding. The right is not to be compelled to
be a witness against himself. It secures to a witness, whether
he be a party or not, the right to refuse to answer any
particular incriminatory question, i.e., one the answer to
which has a tendency to incriminate him for some crime.
However, the right can be claimed only when the specific
question, incriminatory in character, is actually put to the
witness. It cannot be claimed at any other time. It does not
give a witness the right to disregard a subpoena, decline to
appear before the court at the time appointed, or to refuse to
testify altogether. The witness receiving a subpoena must
obey it, appear as required, take the stand, be sworn and
answer questions. It is only when a particular question is
addressed to which may incriminate himself for some offense
that he may refuse to answer on the strength of the
constitutional guaranty.57
As to an accused in a criminal case, it is settled that he can
refuse outright to take the stand as a witness. In People v.
Ayson,58 this Court clarified the rights of an accused in the
matter of giving testimony or refusing to do so. We said:
An accused "occupies a different tier of protection from an
ordinary witness." Under the Rules of Court, in all criminal
prosecutions the defendant is entitled among others—
1) to be exempt from being a witness against himself, and
2) to testify as witness in his own behalf; but if he offers
himself as a witness he may be cross-examined as any other
witness; however, his neglect or refusal to be a witness shall
not in any manner prejudice or be used against him.
The right of the defendant in a criminal case "to be exempt
from being a witness against himself" signifies that he cannot
be compelled to testify or produce evidence in the criminal
case in which he is the accused, or one of the accused. He
cannot be compelled to do so even by subpoena or other
process or order of the Court. He cannot be required to be a
witness either for the prosecution, or for a co-accused, or
even for himself. In other words – unlike an ordinary witness
(or a party in a civil action) who may be compelled to testify
by subpoena, having only the right to refuse to answer a
particular incriminatory question at the time it is put to him –
the defendant in a criminal action can refuse to testify
altogether. He can refuse to take the witness stand, be sworn,
answer any question. X x x (Underscoring supplied.)
It is clear, therefore, that only an accused in a criminal case
can refuse to take the witness stand. The right to refuse to
take the stand does not generally apply to parties in
administrative cases or proceedings. The parties thereto can
only refuse to answer if incriminating questions are
propounded. This Court applied the exception – a party who is
not an accused in a criminal case is allowed not to take the
witness stand – in administrative cases/proceedings that
partook of the nature of a criminal proceeding or analogous to
a criminal proceeding.59 It is likewise the opinion of the Court
that said exception applies to parties in civil actions which are
criminal in nature. As long as the suit is criminal in nature, the
party thereto can altogether decline to take the witness
stand. It is not the character of the suit involved but the
nature of the proceedings that controls.60
In the Ayson case, it is evident that the Court treats a party in
a civil case as an ordinary witness, who can invoke the right
against self-incrimination only when the incriminating
question is propounded. Thus, for a party in a civil case to
possess the right to refuse to take the witness stand, the civil
case must also partake of the nature of a criminal proceeding.
In the present controversy, the case is civil it being a suit for
Annulment, Specific Performance with Damages. In order for
petitioners to exercise the right to refuse to take the witness
stand and to give their depositions, the case must partake of
the nature of a criminal proceeding. The case on hand
certainly cannot be categorized as such. The fact that there
are two criminal cases pending which are allegedly based on
the same set of facts as that of the civil case will not give
them the right to refuse to take the witness stand and to give
their depositions. They are not facing criminal charges in the
civil case. Like an ordinary witness, they can invoke the right
against self-incrimination only when the incriminating
question is actually asked of them. Only if and when
incriminating questions are thrown their way can they refuse
to answer on the ground of their right against self-
incrimination.
On the second assigned error, petitioners contend that the
taking of their oral depositions should not be allowed without
leave of court as no answer has yet been served and the
issues have not yet been joined because their answers were
filed ex abudanti cautela pending final resolution of the
petition for certiorari challenging the trial court’s Orders dated Pursuant to Article VIII, Section 13 of the Constitution, it is
12 March 1996 and 24 May 1996 that denied their motions to hereby certified that the conclusions in the above Decision
dismiss and for reconsideration, respectively. were reached in consultation before the case was assigned to
Section 1 of Rule 2461 of the Revised Rules of Court reads: the writer of the opinion of the Court’s Division.
Section 1. Depositions pending action, when may be taken. – ARTEMIO V. PANGANIBAN
By leave of court after jurisdiction has been obtained over any Chief Justice
defendant or over property which is the subject of the action, Footnotes
or without such leave after an answer has been served, the * Acting Chairman.
testimony of any person, whether a party or not, may be 1 CA rollo, pp. 140-158; Penned by Associate Justice Artemon
taken, at the instance of any party, by deposition upon oral D. Luna with Associate Justices Eugenio S. Labitoria and
examination or written interrogatories. The attendance of Marina L. Buzon, concurring.
witnesses may be compelled by the use of a subpoena as 2 Records, Vol. 2, pp. 883-884.
provided in Rule 23. Depositions shall be taken only in 3 Id., Vol. 3, pp. 1053-1055.
accordance with these rules. The deposition of a person 4 CA rollo, p. 221.
confined in prison may be taken only by leave of court on 5 Records, Vol. 1, pp.1-45.
such terms as the court prescribes. 6 Id., pp. 107-110.
From the quoted section, it is evident that once an answer has 7 Id., pp. 125-127.
been served, the testimony of a person, whether a party or 8 Id., pp. 141-149.
not, may be taken by deposition upon oral examination or 9 Id., pp. 156-160.
written interrogatories. In the case before us, petitioners 10 Id., pp. 176-178.
contend they have not yet served an answer to respondents 11 Id., pp. 136-139.
because the answers that they have filed with the trial court 12 Id., pp. 151-155.
were made ex abudanti cautela. In other words, they do not 13 Id., pp. 171-174.
consider the answers they filed in court and served on 14 Id., pp. 186-189.
respondents as answers contemplated by the Rules of Court 15 Id., pp. 209-212.
on the ground that same were filed ex abudanti cautela. 16 Id., pp. 190-195.
We find petitioners’ contention to be untenable. Ex abudanti 17 Id., pp. 220-224.
cautela means "out of abundant caution" or "to be on the safe 18 Id., p. 248.
side."62 An answer ex abudanti cautela does not make their 19 Id., pp. 254-260.
answer less of an answer. A cursory look at the answers filed 20 Records, Vol. 2, pp. 586-587.
by petitioners shows that they contain their respective 21 Id., pp. 597-598.
defenses. An answer is a pleading in which a defending party 22 Id., p. 602.
sets forth his defenses63 and the failure to file one within the 23 The Court of Appeals dismissed the petition on 30 October
time allowed herefore may cause a defending party to be 1996 (Records, Vol. 2, pp. 715-725) and denied petitioners’
declared in default.64 Thus, petitioners, knowing fully well the motion for reconsideration on 9 May 1997 (Records, Vol. 2,
effect of the non-filing of an answer, filed their answers pp. 748-752). On appeal to the Supreme Court, the appeal
despite the pendency of their appeal with the Court of (G.R. No. 129864) was dismissed on 29 August 2000.
Appeals on the denial of their motion to dismiss. 24 Records, Vol. 1, pp. 276-277.
Petitioners’ argument that the issues of the case have not yet 25 Records, Vol. 2, pp. 539-570.
been joined must necessarily fail in light of our ruling that 26 The latin phrase Ex Abudanti Cautela means "out of
petitioners have filed their answers although the same were abundant caution."
made ex abudanti cautela. Issues are joined when all the 27 Records, Vol. 2, pp. 608-611.
parties have pleaded their respective theories and the terms 28 Id., p. 614.
of the dispute are plain before the court.65 In the present 29 Id., pp. 623-639. The petition for certiorari was denied on
case, the issues have, indeed, been joined when petitioners, 27 April 1998 and the motion for reconsideration was denied
as well as the other defendants, filed their answers. The on 13 July 1998. On appeal to the Supreme Court (G.R. No.
respective claims and defenses of the parties have been 134646), the Court considered the case closed and
defined and the issues to be decided by the trial court have terminated.
been laid down. 30 Id., pp. 673-674.
We cannot also sustain petitioners’ contention that the lower 31 Id., pp. 820-822.
court erred when it said that the joinder of issues is not 32 Id., pp. 832-852.
required in order that Section 1, Rule 23 of the 1997 Rules of 33 Id., pp. 858-864.
Civil Procedure may be availed of. Under said section, a 34 Id., pp. 865-874.
deposition pending action may be availed of: (1) with leave of 35 Id., pp. 883-884.
court when an answer has not yet been filed but after 36 Id., pp. 912-925.
jurisdiction has been obtained over any defendant or property 37 Records, Vol. 3, pp. 926-932.
subject of the action, or (2) without leave of court after an 38 Id., pp. 933-935.
answer to the complaint has been served. In the instant case, 39 Id., pp. 1053-1055.
the taking of the deposition may be availed of even without 40 Id., pp. 1072-1077.
leave of court because petitioners have already served their 41 Id., pp. 1078-1087.
answers to the complaint. 42 CA rollo, pp. 2-111.
WHEREFORE, all the foregoing considered, the instant petition 43 Records, Vol. 3, pp. 1205-1207.
is dismissed for lack of merit. 44 Id., pp. 1213-1222.
SO ORDERED. 45 Id., pp. 1223-1233.
MINITA V. CHICO-NAZARIO 46 Id., pp. 1235-1237.
Associate Justice 47 Id., p. 1257.
WE CONCUR: 48 Id., pp. 1264-1265.
ARTEMIO V. PANGANIBAN 49 Id., p. 1267.
Chief Justice 50 The Court of Appeals dismissed the petition for certiorari
Chairperson on 30 April 1999 and the motion for reconsideration was
ON LEAVE MA. ALICIA AUSTRIA-MARTINEZ* denied on 25 January 2000. On appeal to the Supreme Court,
CONSUELO YNARES-SANTIAGO Asscociate Justice the appeal was denied on 29 May 2000.
Associate Justice 51 Records, Vol. 4, pp. 1323-1361.
ROMEO J. CALLEJO, SR. 52 CA rollo, pp. 140-158.
Associate Justice 53 Id., pp. 159-166.
CERTIFICATION 54 Id., pp. 204-208.
55 Id., p. 221.
56 Now Section 1, Rule 23 of the 1997 Rules of Civil
Procedure.
57 People v. Ayson, G.R. No. 85215, 7 July 1989, 175 SCRA
216, 226-227.
58 Id., pp. 232-233.
59 Cabal v. Hon. Kapunan, Jr., 116 Phil. 1361, 1367-1368
(1962); Pascual, Jr., v. Board of Medical Examiners, 138 Phil.
361, 363 (1969).
60 Galman v. Pamaran, G.R. Nos. L-71208-09 and L-71212-13,
30 August 1985, 138 SCRA 294, 323.
61 Substantially reproduced in 1997 Rules of Civil Procedure,
Rule 23, Section 1.
62 Black’s Law Dictionary, 8th Ed., p. 600.
63 1997 Rules of Civil Procedure, Rule 6, Section 4.
64 1997 Rules of Civil Procedure, Rule 9, Section 3.
65 The 2002 Revised Manual For Clerks of Court, Vol. 1, p.
250.
Republic of the Philipppines
SUPREME COURT
Manila
SECOND DIVISION
[G.R. No. 133119. August 17, 2000]
FINANCIAL BUILDING CORPORATION, Petitioner, vs. FORBES
PARK ASSOCIATION, INC., respondent.
DECISION
DE LEON, JR., J.: chanroblesvirtualawlibrary
Before us is petition for review on certiorari of the Decision[1]
dated March 20, 1998 of the Court of Appeals[2] in CA-GR CV
No. 48194 entitled Forbes Park Association, Inc. vs. Financial
Building Corporation, finding Financial Building Corporation
(hereafter, Financial Building) liable for damages in favor of
Forbes Park Association, Inc. (hereafter, Forbes Park), for
violating the latters deed of restrictions on the construction of
buildings within the Forbes Park Village, Makati.
chanroblesvirtualawlibrary
The pertinent facts are as follows: chanroblesvirtualawlibrary
The then Union of Soviet Socialist Republic (hereafter, USSR)
was the owner of a 4,223 square meter residential lot located
at No. 10, Narra Place, Forbes Park Village in Makati City. On
December 2, 1985, the USSR engaged the services of
Financial Building for the construction of a multi-level office
and staff apartment building at the said lot, which would be
used by the Trade Representative of the USSR.[3] Due to the
USSRs representation that it would be building a residence for
its Trade Representative, Forbes Park authorized its
construction and work began shortly thereafter.
chanroblesvirtualawlibrary
On June 30, 1986, Forbes Park reminded the USSR of existing
regulations[4] authorizing only the construction of a single-
family residential building in each lot within the village. It also
elicited a reassurance from the USSR that such restriction has
been complied with.[5] Promptly, the USSR gave its assurance
that it has been complying with all regulations of Forbes Park.
[6] Despite this, Financial Building submitted to the Makati
City Government a second building plan for the construction
of a multi-level apartment building, which was different from
the first plan for the construction of a residential building
submitted to Forbes Park. chanroblesvirtualawlibrary
Forbes Park discovered the second plan and subsequent
ocular inspection of the USSRs subject lot confirmed the
violation of the deed of restrictions. Thus, it enjoined further
construction work. On March 27, 1987, Forbes Park suspended
all permits of entry for the personnel and materials of
Financial Building in the said construction site. The parties
attempted to meet to settle their differences but it did not
push through. chanroblesvirtualawlibrary
Instead, on April 9, 1987, Financial Building filed in the
Regional Trial Court of Makati, Metro Manila, a Complaint[7]
for Injunction and Damages with a prayer for Preliminary
Injunction against Forbes Park docketed as Civil Case No.
16540. The latter, in turn, filed a Motion to Dismiss on the
ground that Financial Building had no cause of action because
it was not the real party-in-interest.
chanroblesvirtualawlibrary
On April 28, 1987, the trial court issued a writ of preliminary
injunction against Forbes Park but the Court of Appeals
nullified it and dismissed the complaint in Civil Case No.
16540 altogether. We affirmed the said dismissal in our
Resolution,[8] promulgated on April 6, 1988, in G.R. No.
79319 entitled Financial Building Corporation, et al. vs. Forbes
Park Association, et al. chanroblesvirtualawlibrary
After Financial Buildings case, G.R. No. 79319, was terminated
with finality, Forbes Park sought to vindicate its rights by filing
on October 27, 1989 with the Regional Trial Court of Makati a
Complaint[9] for Damages, against Financial Building,
docketed as Civil Case No. 89-5522, arising from the violation
of its rules and regulations. The damages claimed are in the
following amounts: (a) P3,000,000.00 as actual damages; (b)
P1,000,000.00 as moral damages; (c) P1,000,000.00 as
exemplary damages; and (d) P1,000,000.00 as attorneys fees.
[10] On September 26, 1994, the trial court rendered its
Decision[11] in Civil Case No. 89-5522 in favor of Forbes Park
and against Financial Building, the dispositive portion of which
reads, to wit: chanroblesvirtualawlibrary
WHEREFORE, in view of the foregoing, the Court hereby
renders judgment in favor of the plaintiff and against the
defendant: chanroblesvirtualawlibrary
(1) Ordering the defendant to remove/demolish the illegal
structures within three (3) months from the time this
judgment becomes final and executory, and in case of failure
of the defendant to do so, the plaintiff is authorized to
demolish/remove the structures at the expense of the
defendant; chanroblesvirtualawlibrary
(2) Ordering the defendant to pay damages, to wit:
chanroblesvirtualawlibrary
(a) P3,000,000.00 as actual damages by way of demolition
expenses; chanroblesvirtualawlibrary
(b) P1,000,000.00 as exemplary damages;
chanroblesvirtualawlibrary
(c) P500,000.00 as attorneys fees; chanroblesvirtualawlibrary
(d) the costs of suit. chanroblesvirtualawlibrary
SO ORDERED. chanroblesvirtualawlibrary
Financial Building appealed the said Decision of the trial court
in Civil Case No. 89-5522 by way of a petition for review on
certiorari[12] entitled Financial Building Corporation vs.
Forbes Park Association, Inc. to the Court of Appeals and
docketed therein as CA-GR CV No. 48194. However, the Court
of Appeals affirmed it in its Decision[13] dated March 20,
1998, the dispositive portion of which reads:
chanroblesvirtualawlibrary
WHEREFORE, the Decision dated September 26, 1994 of the
Regional Trial Court of Makati is AFFIRMED with the
modification that the award of exemplary damages, as well as
attorneys fees, is reduced to fifty thousand pesos
(P50,000.00) each. chanroblesvirtualawlibrary
Hence, this petition, wherein Financial Building assigns the
following errors: chanroblesvirtualawlibrary

I. THE COURT OF APPEALS GRAVELY ERRED IN NOT
DISMISSING THE COMPLAINT FILED BY RESPONDENT FPA
DESPITE THE FACT THAT ITS ALLEGED CLAIMS AND CAUSES
OF ACTION THEREIN ARE BARRED BY PRIOR JUDGMENT
AND/OR ARE DEEMED WAIVED FOR ITS FAILURE TO
INTERPOSE THE SAME AS COMPULSORY COUNTERCLAIMS IN
CIVIL CASE NO. 16540; chanroblesvirtualawlibrary
II. THE COURT OF APPEALS GRAVELY ERRED IN NOT
DISMISSING THE COMPLAINT FILED BY RESPONDENT FPA
AGAINST PETITIONER FBC SINCE RESPONDENT FPA HAS NO
CAUSE OF ACTION AGAINST PETITIONER FBC;
chanroblesvirtualawlibrary
III. THE COURT OF APPEALS GRAVELY ERRED IN AWARDING
DAMAGES IN FAVOR OF RESPONDENT FPA DESPITE THE FACT
THAT ON THE BASIS OF THE EVIDENCE ON RECORD,
RESPONDENT FPA IS NOT ENTITLED THERETO AND
PETITIONER FBC IS NOT LIABLE THEREFOR;
chanroblesvirtualawlibrary
IV. THE COURT OF APPEALS ERRED IN ORDERING THE
DEMOLITION OF THE ILLEGAL STRUCTURES LOCATED AT NO.
10 NARRA PLACE, FORBES PARK, MAKATI CITY, CONSIDERING
THAT THE SAME ARE LOCATED ON DIPLOMATIC PREMISES[14]
chanroblesvirtualawlibrary
We grant the petition. chanroblesvirtualawlibrary
First. The instant case is barred due to Forbes Parks failure to
set it up as a compulsory counterclaim in Civil Case No.
16540, the prior injunction suit initiated by Financial Building
against Forbes Park. chanroblesvirtualawlibrary
A compulsory counterclaim is one which arises out of or is
necessarily connected with the transaction or occurrence that
is the subject matter of the opposing partys claim.[15] If it is
within the jurisdiction of the court and it does not require for
its adjudication the presence of third parties over whom the
court cannot acquire jurisdiction, such compulsory
counterclaim is barred if it is not set up in the action filed by
the opposing party.[16] chanroblesvirtualawlibrary
Thus, a compulsory counterclaim cannot be the subject of a
separate action but it should instead be asserted in the same
suit involving the same transaction or occurrence, which gave
rise to it.[17] To determine whether a counterclaim is
compulsory or not, we have devised the following tests: (1)
Are the issues of fact or law raised by the claim and the
counterclaim largely the same? (2) Would res judicata bar a
subsequent suit on defendants claim absent the compulsory
counterclaim rule? (3) Will substantially the same evidence
support or refute plaintiffs claim as well as the defendants
counterclaim? and (4) Is there any logical relation between
the claim and the counterclaim? Affirmative answers to the
above queries indicate the existence of a compulsory
counterclaim.[18] chanroblesvirtualawlibrary
Undoubtedly, the prior Civil Case No. 16540 and the instant
case arose from the same occurrence the construction work
done by Financial Building on the USSRs lot in Forbes Park
Village. The issues of fact and law in both cases are identical.
The factual issue is whether the structures erected by
Financial Building violate Forbes Parks rules and regulations,
whereas the legal issue is whether Financial Building, as an
independent contractor working for the USSR, could be
enjoined from continuing with the construction and be held
liable for damages if it is found to have violated Forbes Parks
rules. chanroblesvirtualawlibrary
As a result of the controversy, Financial Building seized the
initiative by filing the prior injunction case, which was
anchored on the contention that Forbes Parks prohibition on
the construction work in the subject premises was improper.
The instant case on the other hand was initiated by Forbes
Park to compel Financial Building to remove the same
structures it has erected in the same premises involved in the
prior case and to claim damages for undertaking the said
construction. Thus, the logical relation between the two cases
is patent and it is obvious that substantially the same
evidence is involved in the said cases.
chanroblesvirtualawlibrary
Moreover, the two cases involve the same parties. The
aggregate amount of the claims in the instant case is within
the jurisdiction of the regional trial court, had it been set up as
a counterclaim in Civil Case No. 16540. Therefore, Forbes
Parks claims in the instant case should have been filed as a
counterclaim in Civil Case No. 16540.
chanroblesvirtualawlibrary
Second. Since Forbes Park filed a motion to dismiss in Civil
Case No. 16540, its existing compulsory counterclaim at that
time is now barred. chanroblesvirtualawlibrary
A compulsory counterclaim is auxiliary to the proceeding in
the original suit and derives its jurisdictional support
therefrom.[19] A counterclaim presupposes the existence of a
claim against the party filing the counterclaim. Hence, where
there is no claim against the counterclaimant, the
counterclaim is improper and it must dismissed, more so
where the complaint is dismissed at the instance of the
counterclaimant.[20] In other words, if the dismissal of the
main action results in the dismissal of the counterclaim
already filed, it stands to reason that the filing of a motion to
dismiss the complaint is an implied waiver of the compulsory
counterclaim because the grant of the motion ultimately
results in the dismissal of the counterclaim.
chanroblesvirtualawlibrary
Thus, the filing of a motion to dismiss and the setting up of a
compulsory counterclaim are incompatible remedies. In the
event that a defending party has a ground for dismissal and a
compulsory counterclaim at the same time, he must choose
only one remedy. If he decides to file a motion to dismiss, he
will lose his compulsory counterclaim. But if he opts to set up
his compulsory counterclaim, he may still plead his ground for
dismissal as an affirmative defense in his answer.[21] The
latter option is obviously more favorable to the defendant
although such fact was lost on Forbes Park.
chanroblesvirtualawlibrary
The ground for dismissal invoked by Forbes Park in Civil Case
No. 16540 was lack of cause of action. There was no need to
plead such ground in a motion to dismiss or in the answer
since the same was not deemed waived if it was not pleaded.
[22] Nonetheless, Forbes Park still filed a motion to dismiss
and thus exercised bad judgment in its choice of remedies.
Thus, it has no one to blame but itself for the consequent loss
of its counterclaim as a result of such choice.
chanroblesvirtualawlibrary
Inasmuch as the action for damages filed by Forbes Park
should be as it is hereby dismissed for being barred by the
prior judgment in G.R. No. 79319 (supra) and/or deemed
waived by Forbes Park to interpose the same under the rule
on compulsory counterclaims, there is no need to discuss the
other issues raised by the herein petitioner.
chanroblesvirtualawlibrary
WHEREFORE , the instant petition is hereby GRANTED and the
Decision dated March 20, 1998 of the Court of Appeals in CA-
G.R. CV No. 48194 is hereby REVERSED and SET ASIDE.
chanroblesvirtualawlibrary
Costs against respondent Forbes Park Association, Inc. .
chanroblesvirtualawlibrary
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing and Buena, JJ.,
concur.
Endnotes:
[1] Penned by Associate Justice Fermin A. Martin, Jr. and
concurred in by Associate Justices Conrado M. Vasquez, Jr. and
Artemio G. Tuquero, Rollo, pp. 75-89.
[2] Eleventh Division.
[3] Rollo, p. 876.
[4] Forbes Park Association, Inc. Rules and Regulations, 1984
edition, Rollo, pp. 299-320.
[5] Rollo, pp. 896-897.
[6] Rollo, p. 898.
[7] Rollo, pp. 90-106.
[8] Rollo, pp. 956-958.
[9] Rollo, pp. 959-974.
[10] Rollo, p. 973.
[11] Rollo, pp.729-743.
[12] Rollo, pp. 9-74.
[13] Rollo, pp. 75-89.
[14] Petition, entitled Financial Building Corporation vs. Forbes
Park Association, Inc. and docketed as CA-G.R. CV No. 48194,
Rollo, pp. 9-74.
[15] Sec. 3, Rule 6 of the 1964 Rules of Court, which were the
rules in effect at the time of the pendency of Civil Case No.
16540.
[16] Sec. 4, Rule 9, id.
[17] Yulienco v. Court of Appeals, G.R. No. 131692, June 10,
1999. Citing Valencia v. Court of Appeals, 263 SCRA 275, 288
(1996).
[18] Sec. 4, Rule 9, id.
[19] Metals Engineering Resources Corp. v. Court of Appeals
203 SCRA 273, 282 (1991); Santo Tomas University Hospital
v. Surla 294 SCRA 382, 392 (1998).
[20] Ibid., p. 283; Intestate Estate of Amado B. Dalisay v.
Marasigan 257 SCRA 509, 513-514 (1996); International
Container Terminal Services, Inc. v. Court of Appeals 214
SCRA 456, 462 (1992).
[21] Sec. 5, Rule 16, 1964 Rules of Court, which was then in
effect; under Sec. 6, Rule 16 of the 1997 Rules on Civil
Procedure, if the action is dismissed as a result of the
affirmative defense pleaded in the answer, the counterclaim
pleaded in the answer may continue in the same action.
[22] Caia v. Court of Appeals 239 SCRA 252, 265 (1994).
G.R. No. 166393 June 18, 2009
CRISTINA F. REILLO, LEONOR F. PUSO, ADELIA F. ROCAMORA,
SOFRONIO S.J. FERNANDO, EFREN S.J. FERNANDO, ZOSIMO S.J.
FERNANDO, JR., and MA. TERESA F. PIÑON, Petitioners,
vs.
GALICANO E.S. SAN JOSE, represented by his Attorneys-in-
Fact, ANNALISA S.J. RUIZ and RODELIO S. SAN JOSE, VICTORIA
S.J. REDONGO, CATALINA S.J. DEL ROSARIO and MARIBETH S.J.
CORTEZ, collectively known as the HEIRS OF QUITERIO SAN
JOSE and ANTONINA ESPIRITU SANTO, Respondents.
DECISION
PERALTA, J.:
Assailed in this petition for review on certiorari is the
Decision1 dated August 31, 2004 of the Court of Appeals (CA)
in CA-G.R. CV No. 69261 which affirmed the Order dated May
9, 2000 of the Regional Trial Court (RTC) of Morong, Rizal,
Branch 78, granting the motion for judgment on the pleadings
and the motion to dismiss counter petition for partition filed
by respondents in Civil Case No. 99-1148-M. Also questioned
is the CA Resolution2 dated December 14, 2004 denying
petitioners’ motion for reconsideration.
Spouses Quiterio San Jose (Quiterio) and Antonina Espiritu
Santo (Antonina) were the original registered owners of a
parcel of land located in E. Rodriguez Sr. Avenue, Teresa,
Rizal covered by Transfer Certificate of Title (TCT) No. 458396
of the Register of Deeds of Rizal. The said parcel of land is
now registered in the name of Ma. Teresa F. Piñon (Teresa)
under TCT No. M-94400.
Quiterio and Antonina had five children, namely, Virginia,
Virgilio, Galicano, Victoria and Catalina. Antonina died on July
1, 1970, while Quiterio died on October 19, 1976. Virginia and
Virgilio are also now deceased. Virginia was survived by her
husband Zosimo Fernando, Sr. (Zosimo Sr.) and their seven
children, while Virgilio was survived by his wife Julita Gonzales
and children, among whom is Maribeth S.J. Cortez (Maribeth).
On October 26, 1999, Galicano, represented by his children
and attorneys-in-fact, Annalisa S.J. Ruiz and Rodegelio San
Jose, Victoria, Catalina, and Maribeth (respondents) filed with
the RTC a Complaint3 for annulment of title, annulment of
deed of extra-judicial settlement, partition and damages
against Zosimo Sr. and his children Cristina F. Reillo, Leonor F.
Puso, Adelia F. Rocamora, Sofronio S.J. Fernando, Efren S.J.
Fernando, Zosimo S.J. Fernando, Jr. and Ma. Teresa
(petitioners) and the Register of Deeds of Morong, Rizal. The
complaint alleged among other things:
6. Under date of January 23, 1998, defendants FERNANDO et
al, without the knowledge and consent of all the other
surviving heirs of the deceased spouses QUITERIO SAN JOSE
and ANTONINA ESPIRITU SANTO, including herein plaintiffs,
executed a Deed of Extrajudicial Settlement of Estate Among
Heirs with Waiver of Rights making it appear therein that they
are the "legitimate descendants and sole heirs of QUITERIO
SAN JOSE and ANTONINA ESPIRITU SANTO"; and adjudicating
among themselves, the subject parcel of land.
6.1 In the same document, defendants ZOSIMO SR., CRISTINA,
LEONOR, ADELIA, SOFRONIO, EFREN and ZOSIMO JR., waived
all their rights, participation and interests over the subject
parcel of land in favor of their co-defendant MA. TERESA F.
PIÑON (a.k.a MA. TERESA S.J. FERNANDO).
xxxx
7. On the strength of the said falsified Deed of Extrajudicial
Settlement of Estate, defendant MA. TERESA PIÑON (a.k.a MA.
TERESA S.J. FERNANDO) succeeded in causing the
cancellation of TCT No. 458396 in the name of SPS. QUITERIO
SAN JOSE and ANTONINA ESPIRITU SANTO and the issuance of
a new Transfer Certificate of Title in her name only, to the
extreme prejudice of all the other heirs of the deceased SPS.
QUITERIO SAN JOSE and ANTONINA ESPIRITU SANTO,
specifically, the herein plaintiffs who were deprived of their
lawful participation over the subject parcel of land.
7.1 Thus, on July 6, 1999, Transfer Certificate of Title No. M-
94400 was issued in the name of defendant MA. TERESA S.J.
FERNANDO.
xxxx
8. As a result, the herein plaintiffs and the other surviving
heirs of the deceased spouses QUITERIO SAN JOSE and
ANTONINA ESPIRITU SANTO, who are legally entitled to inherit
from the latter’s respective estates, in accordance with the
laws of intestate succession, have been duly deprived of their
respective rights, interests and participation over the subject
parcel of land.
8.1 Thus, there is sufficient ground to annul the subject Deed
of Extrajudicial Settlement of Estate Among Heirs with Waiver
of Rights dated January 23, 1998, and all other documents
issued on the strength thereof, particularly Transfer
Certificate of Title No. M-94400.4
It was also alleged that respondents filed a complaint before
the Lupong Tagapamayapa of their Barangay which issued the
required certification to file action for failure of the parties to
settle the matter amicably.
Petitioners filed their Answer with Counter-Petition and with
Compulsory Counterclaim5 denying that the Deed of
Extrajudicial Settlement of Estate Among Heirs with Waiver of
Rights which was the basis of the issuance of TCT No. M-
94400, was falsified and that the settlement was made and
implemented in accordance with law. They admitted that the
deceased spouses Quiterio and Antonina had five children;
that the subject property was not the only property of spouses
Quiterio and Antonina and submitted in their counter-petition
for partition the list of the other 12 parcels of land of the
deceased spouses Quiterio and Antonina that petitioners
alleged are in respondents’ possession and control.
On January 18, 2000, respondents filed a Motion for Judgment
on the Pleadings6 alleging that: (1) the denials made by
petitioners in their answer were in the form of negative
pregnant; (2) petitioners failed to state the basis that the
questioned document was not falsified; (3) they failed to
specifically deny the allegations in the complaint that
petitioners committed misrepresentations by stating that they
are the sole heirs and legitimate descendants of Quiterio and
Antonina; and (4) by making reference to their allegations in
their counter-petition for partition to support their denials,
petitioners impliedly admitted that they are not the sole heirs
of Quiterio and Antonina.
Respondents filed a Reply to Answer with Compulsory
Counterclaim7 with a motion to dismiss the counter-petition
for partition on the ground that petitioners failed to pay the
required docket fees for their counter-petition for partition.
Petitioners filed their Rejoinder8 without tackling the issue of
non-payment of docket fees.
On February 4, 2000, petitioners filed their Comment9 to
respondents’ motion for judgment on the pleading and prayed
that the instant action be decided on the basis of the
pleadings with the exception of respondents’ unverified Reply.
Petitioners also filed an Opposition to the motion to dismiss
the counter-petition for partition.
On May 9, 2000, the RTC rendered its Order,10 the dispositive
portion of which reads:
1. The Extrajudicial Settlement of Estate Among Heirs with
Waiver of Rights, dated January 23, 1998 and Transfer
Certificate of Title No. M-94400 in the name of Ma. Teresa S.J.
Fernando are declared null and void;
2. The Register of Deeds of Rizal, Morong Branch, is directed
to cancel TCT No. 94400; and
3. The Heirs of Quiterio San Jose and Antonina Espiritu Santo
is (sic) directed to partition the subject parcel of land covered
by TCT No. M-458396 in accordance with the law of intestate
succession.11
SO ORDERED.
The RTC found that, based on the allegations contained in the
pleadings filed by the parties, petitioners misrepresented
themselves when they alleged in the Deed of Extrajudicial
Settlement of Estate Among Heirs with Waiver of Rights that
they are the sole heirs of the deceased spouses Quiterio and
Antonina; that petitioners prayed for a counter-petition for
partition involving several parcels of land left by the deceased
spouses Quiterio and Antonina which bolstered respondents’
claim that petitioners falsified the Extrajudicial Settlement
which became the basis for the issuance of TCT No. M-94400
in Ma. Teresa’s name; thus, a ground to annul the Deed of
Extrajudicial Settlement and the title.1awphi1 The RTC did not
consider as filed petitioners’ Counter-Petition for Partition
since they did not pay the corresponding docket fees.
Petitioners filed their Motion for Reconsideration, which the
RTC denied in an Order12 dated August 29, 2000.
Dissatisfied, petitioners filed an appeal with the CA. After the
parties filed their respective briefs, the case was submitted
for decision.
On August 31, 2004, the CA rendered its assailed Decision
affirming the May 9, 2000 Order of the RTC.
The CA found that, while the subject matter of respondents’
complaint was the nullity of the Deed of Extrajudicial
Settlement of Estate among Heirs with Waiver of Rights that
resulted in the issuance of TCT No. M-94400 in Ma. Teresa’s
name, petitioners included in their Answer a Counter-Petition
for Partition involving 12 other parcels of land of spouses
Quiterio and Antonina which was in the nature of a permissive
counterclaim; that petitioners, being the plaintiffs in the
counter-petition for partition, must pay the docket fees
otherwise the court will not acquire jurisdiction over the case.
The CA ruled that petitioners cannot pass the blame to the
RTC for their omission to pay the docket fees.
The CA affirmed the RTC’s judgment on the pleadings since
petitioners admitted that the deceased spouses Quiterio and
Antonina had five children which included herein plaintiffs;
thus, petitioners misrepresented themselves when they
stated in the Deed of Extrajudicial Settlement that they are
the legitimate descendants and sole heirs of the deceased
spouses Quiterio and Antonina; that the deed is null and void
on such ground since respondents were deprived of their
rightful share in the subject property and petitioners cannot
transfer the property in favor of Ma. Teresa without
respondents’ consent; that TCT No. M-94400 must be
cancelled for lack of basis. The CA affirmed the RTC’s Order of
partition of the subject property in accordance with the rules
on intestate succession in the absence of a will.
Petitioners filed the instant petition for review on certiorari
raising the following assignment of errors, to wit:
THE COURT OF APPEALS ERRED IN NOT GIVING DUE COURSE
TO THE APPEAL OF THE DEFENDANTS (HEREIN PETITIONERS)
AND IN EVENTUALLY UPHOLDING THE DECISION OF THE
COURT OF ORIGIN, CONSIDERING THAT SUCH RULING WILL
RESULT TO MULTIPLICITY OF SUITS BETWEEN THE SAME
PARTIES AND IN VIOLATION OF THE CONSTITUTIONAL
GUARANTY OF DUE PROCESS OF LAW & PROPERTY AND
PROPERTY RIGHTS.
THE COURT OF APPEALS ERRED IN NOT VACATING THE
ORDER OF THE TRIAL COURT IN PARTITIONING THE ESTATE
WITHOUT PUBLICATION AS REQUIRED BY RULE 74 AND 76 OF
THE 1997 RULES OF CIVIL PROCEDURE. 13
Petitioners contend that in their Comment to respondents’
motion for judgment on the pleadings, they stated that they
will not oppose the same provided that their Answer with
Counter-Petition for Partition and Rejoinder will be taken into
consideration in deciding the case; however, the RTC decided
the case on the basis alone of respondents’ complaint; that
the Answer stated that the deed was not a falsified document
and was made and implemented in accordance with law, thus,
it was sufficient enough to tender an issue and was very far
from admitting the material allegations of respondents’
complaint.
Petitioners also fault the RTC for disregarding their claim for
partition of the other parcels of land owned by the deceased
spouses Quiterio and Antonina for their failure to pay the
court docket fees when the RTC could have simply directed
petitioners to pay the same; and that this error if not
corrected will result to multiplicity of suits.
Petitioners argue that the RTC erred in ordering the partition
of the subject property as it violates the basic law on intestate
succession that the heirs should be named and qualified
through a formal petition for intestate succession whereby
blood relationship should be established first by the claiming
heirs before they shall be entitled to receive from the estate
of the deceased; that the order of partition was rendered
without jurisdiction for lack of publication as required under
Rules 74 and 76 of the Rules of Civil Procedure for testate or
intestate succession.

We find no merit in the petition.
The CA committed no reversible error in affirming the
judgment on the pleadings rendered by the RTC.
Section 1, Rule 34 of the Rules of Court, states:
SECTION 1. Judgment on the pleadings. – Where an answer
fails to tender an issue, or otherwise admits the material
allegations of the adverse party’s pleading, the court may, on
motion of that party, direct judgment on such pleading. x x x.
Where a motion for judgment on the pleadings is filed, the
essential question is whether there are issues generated by
the pleadings. In a proper case for judgment on the pleadings,
there is no ostensible issue at all because of the failure of the
defending party’s answer to raise an issue.14 The answer
would fail to tender an issue, of course, if it does not deny the
material allegations in the complaint or admits said material
allegations of the adverse party’s pleadings by confessing the
truthfulness thereof and/or omitting to deal with them at
all.15
In this case, respondents’ principal action was for the
annulment of the Deed of Extrajudicial Settlement of Estate
Among Heirs with Waiver of Rights executed by petitioners
and annulment of title on the ground that petitioners stated in
the said Deed that they are the legitimate descendants and
sole heirs of the spouses Quiterio and Antonina. Although
petitioners denied in their Answer that the Deed was falsified,
they, however, admitted respondents’ allegation that spouses
Quiterio and Antonina had 5 children, thus, supporting
respondents’ claim that petitioners are not the sole heirs of
the deceased spouses. Petitioners’ denial/admission in his
Answer to the complaint should be considered in its entirety
and not truncated parts. Considering that petitioners already
admitted that respondents Galicano, Victoria, Catalina and
Maribeth are the children and grandchild, respectively, of the
spouses Quiterio and Antonina, who were the original
registered owners of the subject property, and thus excluding
respondents from the deed of settlement of the subject
property, there is no more genuine issue between the parties
generated by the pleadings, thus, the RTC committed no
reversible error in rendering the judgment on the pleadings.
A deed of extrajudicial partition executed without including
some of the heirs, who had no knowledge of and consent to
the same, is fraudulent and vicious.16 The deed of settlement
made by petitioners was invalid because it excluded
respondents who were entitled to equal shares in the subject
property. Under the rule, no extrajudicial settlement shall be
binding upon any person who has not participated therein or
had no notice thereof.17 Thus, the RTC correctly annulled the
Deed of Extrajudicial Settlement of Estate Among Heirs with
Waiver of Rights dated January 23, 1998 and TCT No. M-94400
in the name of Ma. Teresa S.J. Fernando issued pursuant to
such deed.
Petitioners’ claim that had there been a trial, they could have
presented testamentary and documentary evidence that the
subject land is the inheritance of their deceased mother from
her deceased parents, deserves scant consideration. A
perusal of petitioners’ Answer, as well as their Rejoinder,
never raised such a defense. In fact, nowhere in the Deed of
Extrajudicial Settlement Among Heirs with Waiver of Rights
executed by petitioners was there a statement that the
subject property was inherited by petitioners’ mother Virginia
from her deceased parents Quiterio and Antonina. Notably,
petitioners never opposed respondents’ motion for judgment
on the pleadings.
We also find no merit in petitioners’ contention that the
Counter-Petition for Partition in their Answer was in the nature
of a compulsory counterclaim which does not require the
payment of docket fees.
A counterclaim is any claim which a defending party may
have against an opposing party.18 It may either be
permissive or compulsory. It is permissive if it does not arise
out of or is not necessarily connected with the subject matter
of the opposing party’s claim.19 A permissive counterclaim is
essentially an independent claim that may be filed separately
in another case.
A counterclaim is compulsory when its object arises out of or
is necessarily connected with the transaction or occurrence
constituting the subject matter of the opposing party’s claim
and does not require for its adjudication the presence of third
parties of whom the court cannot acquire jurisdiction.20
Unlike permissive counterclaims, compulsory counterclaims
should be set up in the same action; otherwise, they would be
barred forever.
Respondents’ action was for the annulment of the Deed of
Extrajudicial Settlement, title and partition of the property
subject of the Deed. On the other hand, in the Counter-
Petition filed by petitioners in their Answer to respondents’
complaint, they were asking for the partition and accounting
of the other 12 parcels of land of the deceased spouses
Quiterio and Antonina, which are entirely different from the
subject matter of the respondents’ action. Petitioners’ claim
does not arise out of or is necessarily connected with the
action for the Annulment of the Deed of Extrajudicial
Settlement of the property covered by TCT No. 458396. Thus,
payment of docket fees is necessary before the RTC could
acquire jurisdiction over petitioners’ petition for
partition.1avvphi1
Petitioners, however, argue that the RTC could have simply
issued a directive ordering them to pay the docket fees, for its
non-payment should not result in the automatic dismissal of
the case.
We find apropos the disquisition of the CA on this matter,
thus:
The rule regarding the payment of docket fees upon the filing
of the initiatory pleading is not without exception. It has been
held that if the filing of the initiatory pleading is not
accompanied by payment of docket fees, the court may allow
payment of the fee within reasonable time but in no case
beyond the applicable prescriptive or reglementary period.
It is apparent from the arguments of the defendants-
appellants that they are blaming the trial court for their
omission to pay the docket fees. It is, however, our opinion
that the defendants-appellants cannot pass on to the trial
court the performance of a positive duty imposed upon them
by the law. It should be noted that their omission to file the
docket fees was raised as one of the grounds to dismiss the
counter petition for partition. The defendants-appellants
opposed the said motion without, however, offering an answer
to the said ground raised by the plaintiffs-appellees. In fact,
during the period the motion was being heard by the trial
court, the defendants–appellants never paid the docket fees
for their petition so that it could have at least brought to the
attention of the trial court their payment of the docket fees
although belatedly done. They did not even ask the trial court
for time within which to pay the docket fees for their petition.
When the trial court ruled to dismiss the petition of the
defendants-appellants, the latter did not, in their motion for
reconsideration, ask the trial court to reconsider the dismissal
of their petition by paying the required docket fees, neither
did they ask for time within which to pay their docket fees. In
other words, the trial court could have issued an order
allowing the defendants-appellants a period to pay the docket
fees for their petition if the defendants-appellants made such
manifestation. What is apparent from the factual
circumstances of the case is that the defendants-appellants
have been neglectful in complying with this positive duty
imposed upon them by law as plaintiffs of the counter petition
for partition. Because of their omission to comply with their
duty, no grave error was committed by the trial court in
dismissing the defendants-appellants’ counter petition for complaint the nature and extent of his title and an adequate
partition. 21 description of the real estate of which partition is demanded
and joining as defendants all other persons interested in the
Petitioners argue that with the dismissal of their Counter- property.
Petition for Partition, the partition of the other parcels of land
owned by the deceased spouses Quiterio and Antonina will And, under this law, there is no requirement for publication.
result to multiplicity of suits.
WHEREFORE, the instant petition is DENIED. The Decision
We are not persuaded. dated August 31, 2004 and the Resolution dated December
14, 2004, of the Court of Appeals in CA-G.R. CV No. 69261,
Significantly, in petitioners’ Answer with Counter-Petition for are AFFIRMED.
Partition, they enumerated 12 other parcels of land owned by
the deceased spouses Quiterio and Antonina. They alleged SO ORDERED.
that some of these properties had already been disposed of
by respondents and some are still generating income under DIOSDADO M. PERALTA
the control and administration of respondents, and these Associate Justice
properties should be collated back by respondents to be
partitioned by all the heirs of the deceased spouses. It bears WE CONCUR:
stressing that the action filed by respondents in the RTC was
an ordinary civil action for annulment of title, annulment of CONSUELO YNARES-SANTIAGO
the deed of extrajudicial settlement and partition of a parcel Associate Justice
of land now covered by TCT No. M-94400; hence, the Chairperson
authority of the court is limited to the property described in MINITA V. CHICO-NAZARIO
the pleading. The RTC cannot order the collation and partition Associate Justice PRESBITERO J. VELASCO, JR.
of the other properties which were not included in the Associate Justice
partition that was the subject matter of the respondents’
action for annulment. Thus, a separate proceeding is indeed ANTONIO EDUARDO B. NACHURA
proper for the partition of the estate of the deceased spouses Associate Justice
Quiterio and Antonina.
ATTESTATION
Finally, petitioners contend that the RTC erred when it
ordered the heirs of Quiterio and Antonina to partition the I attest that the conclusions in the above Decision had been
subject parcel of land covered by TCT No. 458396 in reached in consultation before the case was assigned to the
accordance with the laws of intestate succession; that the RTC writer of the opinion of the Court’s Division.
violated the requirement of publication under Sections 1 and
2 of Rule 74 and Section 3 of Rule 76 of the Rules of Court. CONSUELO YNARES-SANTIAGO
Associate Justice
We do not agree. Third Division, Chairperson

We find the ruling of the CA on the matter of the RTC’s order CERTIFICATION
of partition of land subject of the annulled deed of
extrajudicial settlement worth quoting, thus: Pursuant to Section 13, Article VIII of the Constitution and the
Division Chairperson’s Attestation, I certify that the
Considering that the subject document and the corresponding conclusions in the above Decision were reached in
title were canceled, the logical consequence is that the consultation before the case was assigned to the writer of the
property in dispute, which was the subject of the extrajudicial opinion of the Court’s Division.
settlement, reverted back to the estate of its original owners,
the deceased spouses Quiterio and Antonina San Jose. Since, REYNATO S. PUNO
it was admitted that all the parties to the instant suit are legal Chief Justice
heirs of the deceased spouses, they owned the subject
property in common. It is a basic rule that any act which is Footnotes
intended to put an end to indivision among co-heirs or co- 1 Penned by Associate Justice Perlita J. Tria Tirona, with
owners is deemed to be a partition. Therefore, there was no Associate Justices Ruben T. Reyes (Retired Justice of this
reversible error committed by the trial court in ordering the Court) and Jose C. Reyes, Jr., concurring; rollo, pp. 8-17
partition of the subject property. We find nothing wrong with 2 Id. at 20-22.
such ruling considering that the trial court ordered the 3 Records, pp. 2-10.
partition of the subject property in accordance with the rules 4 Id. at 4-6.
on intestate succession. The trial court found the property to 5 Id. at 21-27.
be originally owned by the deceased spouses Quiterio and 6 Id. at 40-44.
Antonina San Jose and, in the absence of a will left by the 7 Id. at 56-59.
deceased spouses, it must be partitioned in accordance with 8 Id. at 73-74
the rules on intestate succession.22 9 Id. at 81-82.
10 Penned by Judge Adelina Calderon-Bargas; id. at 94-97.
As the RTC nullified the Deed of Extrajudicial Settlement of 11 Records, p. 97.
Estate Among Heirs with Waiver of Rights executed by 12 Id. at 110-111.
petitioners and the title issued in accordance therewith, the 13 Rollo, p. 29.
order of partition of the land subject of the settlement in 14 Tan v. De la Vega, G.R. No. 168809, March 10, 2006, 484
accordance with the laws on intestate succession is proper as SCRA 538, 545, citing Wood Technology Corporation v.
respondents’ action filed in the RTC and respondents’ prayer Equitable Banking Corporation, 451 SCRA 724, 731 (2005).
in their complaint asked for the partition of the subject 15 Id.
property in accordance with intestate succession. The 16 Pedrosa v. Court of Appeals, G.R. No. 118680, March 5,
applicable law is Section 1, Rule 69 of the Rules of Court, 2001, 353 SCRA 620, citing Villaruz v. Neme, 1 SCRA 27, 30
which deals with action for partition, to wit: (1963).
17 Rules of Court, Rule 74, Sec. 1.
SECTION 1. Complaint in action for partition of real estate. — 18 Rules of Court, Rule 6, Sec. 6.
A person having the right to compel the partition of real 19 Lafarge Cement Philippines, Inc. v. Continental Cement
estate may do so as provided in this Rule, setting forth in his Corporation, G.R. No. 155173, November 23, 2004, 443 SCRA
522, 533-534, citing Lopez v. Gloria, 40 Phil. 26 (1919), per
Torres, J.
20 Rules of Court, Rule 6, Sec. 7.
21 Rollo, pp. 14-15..
22 Id. at 17.
G.R. No. 160242 May 17, 2005
ASIAN CONSTRUCTION AND DEVELOPMENT CORPORATION,
petitioner,
vs.
COURT OF APPEALS and MONARK EQUIPMENT CORPORATION,
respondents.
DECISION
CALLEJO, SR., J.:
On March 13, 2001, Monark Equipment Corporation (MEC)
filed a Complaint1 for a sum of money with damages against
the Asian Construction and Development Corporation (ACDC)
with the Regional Trial Court (RTC) of Quezon City. The
complaint alleged the following: ACDC leased Caterpillar
generator sets and Amida mobile floodlighting systems from
MEC during the period of March 13 to July 15, 1998 but failed,
despite demands, to pay the rentals therefor in the total
amount of P4,313,935.00; from July 14 to August 25, 1998,
various equipments from MEC were, likewise, leased by ACDC
for the latter’s power plant in Mauban, Quezon, and that there
was still a balance of P456,666.67; and ACDC also purchased
and took custody of various equipment parts from MEC for the
agreed price of P237,336.20 which, despite demands, ACDC
failed to pay.
MEC prayed that judgment be rendered in its favor, thus:
1. Ordering defendant to pay the plaintiff the total amount of
FIVE MILLION SEVENTY-ONE THOUSAND THREE HUNDRED
THIRTY-FIVE [PESOS] & 86/100 (P5,071,335.86);
2. Ordering defendant to pay the plaintiff legal interest of 12%
per annum on the principal obligations in the total amount of
FIVE MILLION SEVENTY-ONE THOUSAND THREE HUNDRED
THIRTY-FIVE [PESOS] & 86/100 (P5,071,335.86) computed
from the date the obligations became due until fully paid;
3. Ordering defendant to pay attorney’s fees in the amount
equivalent to 15% of the amount of claim;
4. Ordering defendant to pay all costs of litigation.
Plaintiff prays for such other reliefs as may be just and
equitable under the premises.2
ACDC filed a motion to file and admit answer with third-party
complaint against Becthel Overseas Corporation (Becthel). In
its answer, ACDC admitted its indebtedness to MEC in the
amount of P5,071,335.86 but alleged the following special and
affirmative defenses:
5. Defendant has incurred an obligation with plaintiff, in the
amount of P5,071,335.86. But third-party defendant fails and
refuses to pay its overdue obligation in connection with the
leased equipment used by defendant to comply with its
contracted services;
6. The equipment covered by the lease were all used in the
construction project of Becthel in Mauban, Quezon, and Expo
in Pampanga and defendant was not yet paid of its services
that resulted to the non-payment of rentals on the leased
equipment.3
And by way of third-party complaint against Becthel as third-
party defendant, ACDC alleged that:
7. Third-party plaintiff repleads the foregoing allegations in
the preceding paragraphs as may be material and pertinent
hereto;
8. Third-party BECTHEL OVERSEAS CORPORATION (herein
called "Becthel") is a corporation duly organized and existing
under the laws of the United States of America but may be
served with summons at Barangay Cagsiay I, Mauban, Quezon
4330, Philippines;
9. Third-party defendant Becthel contracted the services of
third-party plaintiff to do construction work at its Mauban,
Quezon project using the leased equipment of plaintiff
Monark;
10. With the contracted work, third-party plaintiff rented the
equipment of the plaintiff Monark;
11. Third-party plaintiff rendered and complied with its
contracted works with third-party defendant using plaintiff’s
(Monark) rented equipment. But, third-party defendant
BECTHEL did not pay for the services of third-party plaintiff
ASIAKONSTRUKT that resulted to the non-payment of plaintiff
Monark’s claim;
12. Despite repeated demands, third-party defendant failed
and refused to pay its overdue obligation to third-party
plaintiff ASIAKONSTRUKT, and third-party defendant needs to
be impleaded in this case for contribution, indemnity,
subrogation or other reliefs to off-set or to pay the amount of
money claim of plaintiff Monark on the leased equipment used
in the Mauban, Quezon project in the total amount of
P456,666.67;
13. By reason thereof, third-party plaintiff was compelled to
prosecute its claim against third-party defendant and hired
the services of undersigned counsel for an attorney’s fees of
P500,000.00.4
ACDC prayed that judgment be rendered in its favor
dismissing the complaint and ordering the third-party
defendant (Becthel) to pay P456,666.67 plus interest thereon
and attorney’s fees.5
MEC opposed the motion of ACDC to file a third-party
complaint against Becthel on the ground that the defendant
had already admitted its principal obligation to MEC in the
amount of P5,071,335.86; the transaction between it and
ACDC, on the one hand, and between ACDC and Becthel, on
the other, were independent transactions. Furthermore, the
allowance of the third-party complaint would result in undue
delays in the disposition of the case.6
MEC then filed a motion for summary judgment, alleging
therein that there was no genuine issue as to the obligation of
ACDC to MEC in the total amount of P5,071,335.86, the only
issue for the trial court’s resolution being the amount of
attorney’s fees and costs of litigation.7
ACDC opposed the motion for summary judgment, alleging
that there was a genuine issue with respect to the amount of
P5,071,335.86 being claimed by MEC, and that it had a third-
party complaint against Becthel in connection with the reliefs
sought against it which had to be litigated.8
In its reply, MEC alleged that the demand of ACDC in its
special and affirmative defenses partook of the nature of a
negative pregnant, and that there was a need for a hearing on
its claim for damages.
On August 2, 2001, the trial court issued a Resolution denying
the motion of ACDC for leave to file a third-party complaint
and granting the motion of MEC, which the trial court
considered as a motion for a judgment on the pleadings. The
fallo of the resolution reads:
ACCORDINGLY, this Court finds defendant Asian Construction
and Development Corporation liable to pay plaintiff Monark
Equipment Corporation and is hereby ordered to pay plaintiff
the amount of FIVE MILLION SEVENTY-ONE THOUSAND AND
THREE HUNDRED THIRTY-FIVE & 86/100 PESOS
(P5,071,335.86) plus 12% interest from the filing of the
complaint until fully paid.
SO ORDERED.9
ACDC appealed the resolution to the Court of Appeals (CA),
alleging that –
I. THE LOWER COURT ERRED IN DENYING THE MOTION TO
FILE AND ADMIT ANSWER WITH THIRD-PARTY COMPLAINT;
II. THE LOWER COURT ERRED IN GRANTING THE MOTION FOR
SUMMARY JUDGMENT;
III. THE LOWER COURT ERRED WHEN IT DENIED THE THIRD-
PARTY COMPLAINT AND ORDERED DEFENDANT TO PAY THE
AMOUNT OF P5,071,335.86 PLUS INTEREST OF 12% PER
ANNUM.10
On July 18, 2001, the CA rendered judgment dismissing the
appeal and affirming the assailed decision. The appellate
court ruled that since MEC had prayed for judgment on the
pleadings, it thereby waived its claim for damages other than
the amount of P5,071,335.86; hence, there was no longer a
genuine issue to be resolved by the court which necessitated
trial. The appellate court sustained the disallowance of the
third-party complaint of ACDC against Becthel on the ground
that the transaction between the said parties did not arise out
of the same transaction on which MEC’s claim was based.
Its motion for reconsideration of the decision having been
denied, ACDC, now the petitioner, filed the present petition for
review on certiorari, and raises the following issues:
I. WHETHER OR NOT A THIRD-PARTY COMPLAINT IS PROPER;
AND
II. WHETHER OR NOT JUDGMENT ON THE PLEADINGS IS
PROPER.11
Citing the rulings of this Court in Allied Banking Corporation v.
Court of Appeals12 and British Airways v. Court of Appeals,13
the petitioner avers that the CA erred in ruling that in denying
its motion for leave to file a third-party complaint, the RTC
acted in accordance with the Rules of Court and case law. The
petitioner maintains that it raised genuine issues in its
answer; hence, it was improper for the trial court to render
judgment on the pleadings:
With due respect, the judgment on the pleadings affirmed by
the Court of Appeals is not, likewise, proper considering that
the Answer with Third-Party Complaint, although it admitted
the obligation to respondent, tendered an issue of whether
the respondent’s claim is connected with the third-party
claim.
As alleged in the Answer with Third-Party Complaint, it is
admitted then by respondent, for purposes of judgment on
the pleadings, that failure to pay respondent was in
connection of Becthel Overseas Corporation’s failure to pay its
obligation to petitioner and that the equipment leased was
used in connection with the Becthel Overseas Corporation
project.
This tendered issue could not just be disregarded in the light
of the third-party complaint filed by herein petitioner and
third-party plaintiff which, as argued in the first
discussion/argument, is proper and should have been given
due course.14
The petition is denied for lack of merit.
Section 11, Rule 6 of the Rules of Court provides:
Sec. 11. Third (fourth, etc.)-party complaint. – A third (fourth,
etc.) – party complaint is a claim that a defending party may,
with leave of court, file against a person not a party to the
action, called the third (fourth, etc.) – party defendant, for
contribution, indemnity, subrogation or any other relief, in
respect of his opponent’s claim.
Furthermore, Section 1, Rule 34 of the Rules of Court provides
that the Court may render judgment on the pleadings, as
follows:
Section 1. Judgment on the pleadings. – Where an answer fails
to tender an issue, or, otherwise, admits the material
allegations of the adverse party’s pleading, the court may, on
motion of that party, direct judgment on such pleading.
However, in actions for declaration of nullity or annulment of
marriage or for legal separation, the material facts alleged in
the complaint shall always be proved.
The purpose of Section 11, Rule 6 of the Rules of Court is to
permit a defendant to assert an independent claim against a
third-party which he, otherwise, would assert in another
action, thus preventing multiplicity of suits. All the rights of
the parties concerned would then be adjudicated in one
proceeding. This is a rule of procedure and does not create a
substantial right. Neither does it abridge, enlarge, or nullify
the substantial rights of any litigant.15 This right to file a
third-party complaint against a third-party rests in the
discretion of the trial court. The third-party complaint is
actually independent of, separate and distinct from the
plaintiff’s complaint, such that were it not for the rule, it would
have to be filed separately from the original complaint.16
A prerequisite to the exercise of such right is that some
substantive basis for a third-party claim be found to exist,
whether the basis be one of indemnity, subrogation,
contribution or other substantive right.17 The bringing of a
third-party defendant is proper if he would be liable to the
plaintiff or to the defendant or both for all or part of the
plaintiff’s claim against the original defendant, although the
third-party defendant’s liability arises out of another
transaction.18 The defendant may implead another as third-
party defendant (a) on an allegation of liability of the latter to
the defendant for contribution, indemnity, subrogation or any
other relief; (b) on the ground of direct liability of the third-
party defendant to the plaintiff; or (c) the liability of the third-
party defendant to both the plaintiff and the defendant.19
There must be a causal connection between the claim of the
plaintiff in his complaint and a claim for contribution,
indemnity or other relief of the defendant against the third-
party defendant. In Capayas v. Court of First Instance,20 the
Court made out the following tests: (1) whether it arises out of
the same transaction on which the plaintiff’s claim is based;
or whether the third-party claim, although arising out of
another or different contract or transaction, is connected with
the plaintiff’s claim; (2) whether the third-party defendant
would be liable to the plaintiff or to the defendant for all or
part of the plaintiff’s claim against the original defendant,
although the third-party defendant’s liability arises out of
another transaction; and (3) whether the third-party
defendant may assert any defenses which the third-party
plaintiff has or may have to the plaintiff’s claim.
The third-party complaint does not have to show with
certainty that there will be recovery against the third-party
defendant, and it is sufficient that pleadings show possibility
of recovery.21 In determining the sufficiency of the third-party
complaint, the allegations in the original complaint and the
third-party complaint must be examined.22 A third-party
complaint must allege facts which prima facie show that the
defendant is entitled to contribution, indemnity, subrogation
or other relief from the third-party defendant.23
It bears stressing that common liability is the very essence for
contribution. Contribution is a payment made by each, or by
any of several having a common liability of his share in the
damage suffered or in the money necessarily paid by one of
the parties in behalf of the other or others.24 The rule on
common liability is fundamental in the action for
contribution.25 The test to determine whether the claim for
indemnity in a third-party complaint is, whether it arises out
of the same transaction on which the plaintiff’s claim is based,
or the third-party plaintiff’s claim, although arising out of
another or different contract or transaction, is connected with
the plaintiff’s claim.26
In this case, the claims of the respondent, as plaintiff in the
RTC, against the petitioner as defendant therein, arose out of
the contracts of lease and sale; such transactions are different
and separate from those between Becthel and the petitioner
as third-party plaintiff for the construction of the latter’s
project in Mauban, Quezon, where the equipment leased from
the respondent was used by the petitioner. The controversy
between the respondent and the petitioner, on one hand, and
that between the petitioner and Becthel, on the other, are
thus entirely distinct from each other. There is no showing in
the proposed third-party complaint that the respondent knew
or approved the use of the leased equipment by the petitioner
for the said project in Quezon. Becthel cannot invoke any
defense the petitioner had or may have against the claims of
the respondent in its complaint, because the petitioner
admitted its liabilities to the respondent for the amount of
P5,075,335.86. The barefaced fact that the petitioner used
the equipment it leased from the respondent in connection
with its project with Becthel does not provide a substantive
basis for the filing of a third-party complaint against the latter.
There is no causal connection between the claim of the
respondent for the rental and the balance of the purchase
price of the equipment and parts sold and leased to the
petitioner, and the failure of Becthel to pay the balance of its
account to the petitioner after the completion of the project in
Quezon.27
We note that in its third-party complaint, the petitioner
alleged that Becthel should be ordered to pay the balance of
its account of P456,666.67, so that the petitioner could pay
the same to the respondent. However, contrary to its earlier
plea for the admission of its third-party complaint against
Becthel, the petitioner also sought the dismissal of the
respondent’s complaint. The amount of P456,666.67 it sought
to collect from Becthel would not be remitted to the
respondent after all.
The rulings of this Court in Allied Banking Corporation and
British Airways are not applicable in this case since the factual
backdrops in the said cases are different.
In Allied Banking Corporation, Joselito Yujuico obtained a loan
from General Bank and Trust Company. The Central Bank of
the Philippines ordered the liquidation of the Bank. In a
Memorandum Agreement between the liquidation of the Bank
and Allied Banking Corporation, the latter acquired the
receivables from Yujuico. Allied Banking Corporation then
sued Yujuico for the collection of his loan, and the latter filed a
third-party complaint against the Central Bank, alleging that
by reason of its tortious interference with the affairs of the
General Bank and Trust Company, he was prevented from
performing his obligation under the loan. This Court allowed
the third-party complaint based on the claim of the defendant
therein, thus:
… In the words of private respondent, he "[s]eeks to transfer
liability for the default imputed against him by the petitioner
to the proposed third-party defendants because of their
tortious acts which prevented him from performing his
obligations." Thus, if at the outset the issue appeared to be a
simple maker’s liability on a promissory note, it became
complex by the rendition of the aforestated decision.28
In British Airways, the Court allowed the third-party complaint
of British Airways against its agent, the Philippine Airlines, on
the plaintiff’s complaint regarding his luggage, considering
that a contract of carriage was involved. The Court ruled,
thus:
Undeniably, for the loss of his luggage, Mahtani is entitled to
damages from BA, in view of their contract of carriage. Yet,
BA adamantly disclaimed its liability and instead imputed it to
PAL which the latter naturally denies. In other words, BA and
PAL are blaming each other for the incident.
In resolving this issue, it is worth observing that the contract
of air transportation was exclusively between Mahtani and BA,
the latter merely endorsing the Manila to Hongkong leg of the
former’s journey to PAL, as its subcontractor or agent. In fact,
the fourth paragraph of the "Conditions of Contracts" of the
ticket issued by BA to Mahtani confirms that the contract was
one of continuous air transportation from Manila to Bombay.
"4. xxx carriage to be performed hereunder by several
successive carriers is regarded as a single operation."
Prescinding from the above discussion, it is undisputed that
PAL, in transporting Mahtani from Manila to Hongkong acted
as the agent of BA.
Parenthetically, the Court of Appeals should have been
cognizant of the well-settled rule that an agent is also
responsible for any negligence in the performance of its
function and is liable for damages which the principal may
suffer by reason of its negligent act. Hence, the Court of
Appeals erred when it opined that BA, being the principal, had
no cause of action against PAL, its agent or sub-contractor.
Also, it is worth mentioning that both BA and PAL are
members of the International Air Transport Association (IATA),
wherein member airlines are regarded as agents of each
other in the issuance of the tickets and other matters
pertaining to their relationship. Therefore, in the instant case,
the contractual relationship between BA and PAL is one of
agency, the former being the principal, since it was the one
which issued the confirmed ticket, and the latter the agent.29
It goes without saying that the denial of the petitioner’s
motion with leave to file a third-party complaint against
Becthel is without prejudice to its right to file a separate
complaint against the latter.
Considering that the petitioner admitted its liability for the
principal claim of the respondent in its Answer with Third-
Party Complaint, the trial court did not err in rendering
judgment on the pleadings against it.
IN LIGHT OF ALL THE FOREGOING, the petition is DENIED for
lack of merit. Costs against the petitioner.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Tinga, and Chico-Nazario,
JJ., concur.
Footnotes
1 Rollo, pp. 26-30.
2 Rollo, p. 29.
3 Id. at 44.
4 Rollo, p. 45.
5 Ibid.
6 Records, pp. 39-40.
7 Id. at 34.
8 Id. at 36-37.
9 Records, p. 48.
10 CA Rollo, p. 15.
11 Rollo, p. 12.
12 G.R. No. 85868, 13 October 1989, 178 SCRA 526.
13 G.R. No. 121824, 29 January 1998, 285 SCRA 450.
14 Rollo, p. 16.
15 Koenigs v. Travis, 75 N.W.2d 478 (1956).
16 Allied Banking Corporation v. Court of Appeals, supra.
17 Allied Banking Corporation v. Court of Appeals, supra.
18 Capayas v. Court of First Instance of Albay, 77 Phil. 181
(1946).
19 Atlantic Coast Line R. Company v. United States Fidelity &
Guaranty Co., 52 F.Supp. 177 (1943).
20 Supra.
21 Blaszak v. Union Tank Car. Co., 184 N.E.2d 808 (1962).
22 Goswami v. H & D Construction Company, 355 N.Y.S.2d
922 (1974).
23 Capayas v. Court of First Instance of Albay, supra.
24 Koenigs v. Travis, supra.
25 United States v. Consolidated Elevator Company, 141 F.2d
791 (1944).
26 Capayas v. Court of First Instance of Albay, supra.
27 See Bourree v. A. K. Roy, Inc., 94 So.2d 13 (1957).
28 Allied Banking Corporation v. Court of Appeals, supra.
29 British Airways v. Court of Appeals, supra.
G.R. No. 174168 March 30, 2009
SY TIONG SHIOU, JUANITA TAN SY, JOLIE ROSS TAN, ROMER
TAN, CHARLIE TAN, and JESSIE JAMES TAN, Petitioners,
vs.
SY CHIM and FELICIDAD CHAN SY, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 179438 March 30, 2009
SY CHIM and FELICIDAD CHAN SY, Petitioners,
vs.
SY TIONG SHIOU and JUANITA TAN, Respondents.
DECISION
TINGA, J.:
These consolidated petitions involving the same parties.
although related, dwell on different issues.
G.R. No. 174168.
This is a petition for review1 assailing the decision and
resolution of the Court of Appeals dated 31 May 2006 and 8
August 2006, respectively, in CA-G.R. SP No. 91416.2
On 30 May 2003, four criminal complaints were filed by Sy
Chim and Felicidad Chan Sy (Spouses Sy) against Sy Tiong
Shiou, Juanita Tan Sy, Jolie Ross Tan, Romer Tan, Charlie Tan
and Jessie James Tan (Sy Tiong Shiou, et al.) before the City
Prosecutor’s Office of Manila. The cases were later
consolidated. Two of the complaints, I.S. Nos. 03E-15285 and
03E-15286,3 were for alleged violation of Section 74 in
relation to Section 144 of the Corporation Code. In these
complaints, the Spouses Sy averred that they are
stockholders and directors of Sy Siy Ho & Sons, Inc. (the
corporation) who asked Sy Tiong Shiou, et al., officers of the
corporation, to allow them to inspect the books and records of
the business on three occasions to no avail. In a letter4 dated
21 May 2003, Sy Tiong Shiou, et al. denied the request, citing
civil and intra-corporate cases pending in court.5
In the two other complaints, I.S. No. 03E-15287 and 03E-
15288,6 Sy Tiong Shiou was charged with falsification under
Article 172, in relation to Article 171 of the Revised Penal
Code (RPC), and perjury under Article 183 of the RPC.
According to the Spouses Sy, Sy Tiong Shiou executed under
oath the 2003 General Information Sheet (GIS) wherein he
falsely stated that the shareholdings of the Spouses Sy had
decreased despite the fact that they had not executed any
conveyance of their shares.7
Sy Tiong Shiou, et al. argued before the prosecutor that the
issues involved in the civil case for accounting and damages
pending before the RTC of Manila were intimately related to
the two criminal complaints filed by the Spouses Sy against
them, and thus constituted a prejudicial question that should
require the suspension of the criminal complaints. They also
argued that the Spouses Sy’s request for inspection was
premature as the latter’s concern may be properly addressed
once an answer is filed in the civil case. Sy Tiong Shiou, on the
other hand, denied the accusations against him, alleging that
before the 2003 GIS was submitted to the Securities and
Exchange Commission (SEC), the same was shown to
respondents, who at that time were the President/Chairman of
the Board and Assistant Treasurer of the corporation, and that
they did not object to the entries in the GIS. Sy Tiong Shiou
also argued that the issues raised in the pending civil case for
accounting presented a prejudicial question that necessitated
the suspension of criminal proceedings.
On 29 December 2003, the investigating prosecutor issued a
resolution recommending the suspension of the criminal
complaints for violation of the Corporation Code and the
dismissal of the criminal complaints for falsification and
perjury against Sy Tiong Shiou.8 The reviewing prosecutor
approved the resolution. The Spouses Sy moved for the
reconsideration of the resolution, but their motion was denied
on 14 June 2004.9 The Spouses Sy thereupon filed a petition
for review with the Department of Justice (DOJ), which the
latter denied in a resolution issued on 02 September 2004.10
Their subsequent motion for reconsideration was likewise
denied in the resolution of 20 July 2005.11
The Spouses Sy elevated the DOJ’s resolutions to the Court of
Appeals through a petition for certiorari, imputing grave
abuse of discretion on the part of the DOJ. The appellate court
granted the petition12 and directed the City Prosecutor’s
Office to file the appropriate informations against Sy Tiong
Shiou, et al. for violation of Section 74, in relation to Section
144 of the Corporation Code and of Articles 172 and 183 of
the RPC. The appellate court ruled that the civil case for
accounting and damages cannot be deemed prejudicial to the
maintenance or prosecution of a criminal action for violation
of Section 74 in relation to Section 144 of the Corporation
Code since a finding in the civil case that respondents
mishandled or misappropriated the funds would not be
determinative of their guilt or innocence in the criminal
complaint. In the same manner, the criminal complaints for
falsification and/or perjury should not have been dismissed on
the ground of prejudicial question because the accounting
case is unrelated and not necessarily determinative of the
success or failure of the falsification or perjury charges.
Furthermore, the Court of Appeals held that there was
probable cause that Sy Tiong Shiou had committed
falsification and that the City of Manila where the 2003 GIS
was executed is the proper venue for the institution of the
perjury charges. Sy Tiong Shiou, et al. sought reconsideration
of the Court of Appeals decision but their motion was
denied.13
On 2 April 2008, the Court ordered the consolidation of G.R.
No. 179438 with G.R. No. 174168.14
Sy Tiong Shiou, et al. argue that findings of the DOJ in
affirming, modifying or reversing the recommendations of the
public prosecutor cannot be the subject of certiorari or review
of the Court of Appeals because the DOJ is not a quasi-judicial
body within the purview of Section 1, Rule 65 of the Rules of
Court. Petitioners rely on the separate opinion of former Chief
Justice Andres R. Narvasa in Roberts, Jr. v. Court of Appeals,15
wherein he wrote that this Court should not be called upon to
determine the existence of probable cause, as there is no
provision of law authorizing an aggrieved party to petition for
such a determination.16 In any event, they argue, assuming
without admitting that the findings of the DOJ may be subject
to judicial review under Section 1, Rule 65 of the Rules of
Court, the DOJ has not committed any grave abuse of
discretion in affirming the findings of the City Prosecutor of
Manila. They claim that the Spouses Sy’s request for
inspection was not made in good faith and that their motives
were tainted with the intention to harass and to intimidate Sy
Tiong Shiou, et al. from pursuing the criminal and civil cases
pending before the prosecutor’s office and the Regional Trial
Court (RTC) of Manila, Branch 46. Thus, to accede to the
Spouses Sy’s request would pose serious threats to the
existence of the corporation.17 Sy Tiong Shiou, et al. aver
that the RTC had already denied the motion for production
and inspection and instead ordered petitioners to make the
corporate records available to the appointed independent
auditor. Hence, the DOJ did not commit any grave abuse of
discretion in affirming the recommendation of the City
Prosecutor of Manila.18 They further argue that adherence to
the Court of Appeals’ ruling that the accounting case is
unrelated to, and not necessarily determinative of the success
of, the criminal complaint for falsification and/or perjury would
unnecessarily indict petitioner Sy Tiong Shiou for the said
offenses he may not have committed but only because of an
outcome unfavorable to him in the civil action.19
Indeed, a preliminary proceeding is not a quasi-judicial
function and that the DOJ is not a quasi-judicial agency
exercising a quasi-judicial function when it reviews the
findings of a public prosecutor regarding the presence of
probable cause.20 Moreover, it is settled that the preliminary
investigation proper, i.e., the determination of whether there
is reasonable ground to believe that the accused is guilty of
the offense charged and should be subjected to the expense,
rigors and embarrassment of trial, is the function of the
prosecution.21 This Court has adopted a policy of non-
interference in the conduct of preliminary investigations and
leaves to the investigating prosecutor sufficient latitude of
discretion in the determination of what constitutes sufficient
evidence as will establish probable cause for the filing of
information against the supposed offender.22
As in every rule, however, there are settled exceptions.
Hence, the principle of non-interference does not apply when
there is grave abuse of discretion which would authorize the
aggrieved person to file a petition for certiorari and
prohibition under Rule 65, 1997 Rules of Civil Procedure.23
As correctly found by the Court of Appeals, the DOJ gravely
abused its discretion when it suspended the hearing of the
charges for violation of the Corporation Code on the ground of
prejudicial question and when it dismissed the criminal
complaints.
A prejudicial question comes into play generally in a situation
where a civil action and a criminal action are both pending
and there exists in the former an issue which must be
preemptively resolved before the criminal action may proceed
since howsoever the issue raised in the civil action is resolved
would be determinative juris et de jure of the guilt or
innocence of the accused in the criminal case. The reason
behind the principle of prejudicial question is to avoid two
conflicting decisions. It has two essential elements: (a) the
civil action involves an issue similar or intimately related to
the issue raised in the criminal action; and (b) the resolution
of such issue determines whether or not the criminal action
may proceed.24
The civil action and the criminal cases do not involve any
prejudicial question.
The civil action for accounting and damages, Civil Case No.
03-106456 pending before the RTC Manila, Branch 46, seeks
the issuance of an order compelling the Spouses Sy to render
a full, complete and true accounting of all the amounts,
proceeds and fund paid to, received and earned by the
corporation since 1993 and to restitute it such amounts,
proceeds and funds which the Spouses Sy have
misappropriated. The criminal cases, on the other hand,
charge that the Spouses Sy were illegally prevented from
getting inside company premises and from inspecting
company records, and that Sy Tiong Shiou falsified the entries
in the GIS, specifically the Spouses Sy’s shares in the
corporation. Surely, the civil case presents no prejudicial
question to the criminal cases since a finding that the Spouses
Sy mishandled the funds will have no effect on the
determination of guilt in the complaint for violation of Section
74 in relation to Section 144 of the Corporation Code; the civil
case concerns the validity of Sy Tiong Shiou’s refusal to allow
inspection of the records, while in the falsification and perjury
cases, what is material is the veracity of the entries made by
Sy Tiong Shiou in the sworn GIS.
Anent the issue of probable cause, the Court also finds that
there is enough probable cause to warrant the institution of
the criminal cases.
The term probable cause does not mean ‘actual and positive
cause’ nor does it import absolute certainty. It is merely
based on opinion and reasonable belief. Thus a finding of
probable cause does not require an inquiry into whether there
is sufficient evidence to procure a conviction. It is enough that
it is believed that the act or omission complained of
constitutes the offense charged. Precisely, there is a trial for
the reception of evidence of the prosecution in support of the
charge.25
In order that probable cause to file a criminal case may be
arrived at, or in order to engender the well-founded belief that
a crime has been committed, the elements of the crime
charged should be present. This is based on the principle that
every crime is defined by its elements, without which there
should be–at the most–no criminal offense.26
Section 74 of the Corporation Code reads in part:
xxx
The records of all business transactions of the corporation and
the minutes of any meeting shall be open to inspection by any
director, trustee, stockholder or member of the corporation at
reasonable hours on business days and he may demand, in
writing, for a copy of excerpts from said records or minutes, at
his expense.
Any officer or agent of the corporation who shall refuse to
allow any director, trustee, stockholder or member of the
corporation to examine and copy excerpts from its records or
minutes, in accordance with the provisions of this Code, shall
be liable to such director, trustee, stockholder or member for
damages, and in addition, shall be guilty of an offense which
shall be punishable under Section 144 of this Code: Provided,
That if such refusal is made pursuant to a resolution or order
of the Board of Directors or Trustees, the liability under this
section for such action shall be imposed upon the directors or
trustees who voted for such refusal: and Provided, further,
That it shall be a defense to any action under this section that
the person demanding to examine and copy excerpts from the
corporation's records and minutes has improperly used any
information secured through any prior examination of the
records or minutes of such corporation or of any other
corporation, or was not acting in good faith or for a legitimate
purpose in making his demand.
Meanwhile, Section 144 of the same Code provides:
Sec. 144. Violations of the Code.—Violations of any of the
provisions of this Code or its amendments not otherwise
specifically penalized therein shall be punished by a fine of
not less than one thousand (P1,000.00) pesos but not more
than ten thousand (P10,000.00) pesos or by imprisonment for
not less than thirty (30) days but not more than five (5) years,
or both, in the discretion of the court. If the violation is
committed by a corporation, the same may, after notice and
hearing, be dissolved in appropriate proceedings before the
Securities and Exchange Commission: Provided, That such
dissolution shall not preclude the institution of appropriate
action against the director, trustee or officer of the
corporation responsible for said violation: Provided, further,
That nothing in this section shall be construed to repeal the
other causes for dissolution of a corporation provided in this
Code.
In the recent case of Ang-Abaya, et al. v. Ang, et al.,27 the
Court had the occasion to enumerate the requisites before the
penal provision under Section 144 of the Corporation Code
may be applied in a case of violation of a stockholder or
member’s right to inspect the corporate books/records as
provided for under Section 74 of the Corporation Code. The
elements of the offense, as laid down in the case, are:
First. A director, trustee, stockholder or member has made a
prior demand in writing for a copy of excerpts from the
corporation’s records or minutes;
Second. Any officer or agent of the concerned corporation
shall refuse to allow the said director, trustee, stockholder or
member of the corporation to examine and copy said
excerpts;
Third. If such refusal is made pursuant to a resolution or order
of the board of directors or trustees, the liability under this
section for such action shall be imposed upon the directors or
trustees who voted for such refusal; and,
Fourth. Where the officer or agent of the corporation sets up
the defense that the person demanding to examine and copy
excerpts from the corporation’s records and minutes has
improperly used any information secured through any prior
examination of the records or minutes of such corporation or
of any other corporation, or was not acting in good faith or for
a legitimate purpose in making his demand, the contrary must
be shown or proved.28
Thus, in a criminal complaint for violation of Section 74 of the
Corporation Code, the defense of improper use or motive is in
the nature of a justifying circumstance that would exonerate
those who raise and are able to prove the same. Accordingly,
where the corporation denies inspection on the ground of
improper motive or purpose, the burden of proof is taken from
the shareholder and placed on the corporation.29 However,
where no such improper motive or purpose is alleged, and
even though so alleged, it is not proved by the corporation,
then there is no valid reason to deny the requested
inspection.
In the instant case, however, the Court finds that the denial of
inspection was predicated on the pending civil case against
the Spouses Sy. This is evident from the 21 May 2003 letter of
Sy Tiong Shiou, et al.’s counsel30 to the Spouses Sy,31 which
reads:
Gentlemen:
We write in behalf of our clients, SY SIY HO, INC. ( Guan Yiac
Hardware); SY TIONG SHIOU, JUANITA TAN SY; JOLIE ROSS
TAN; CHARLIE TAN; ROMER TAN; and JESSE JAMES TAN,
relative to your letter dated 16 May 2003. Please be informed
that a case for Accounting and Damages had already been
filed against your clients, Sy Chim and Felicidad Chan Sy
before the Regional Trial Court of Manila, Branch 46,
denominated as Civil Case No. 03-106456.
We fully understand your desire for our clients to respond to
your demands, however, under the prevailing circumstance
this would not be advisable. The concerns that you raised in
your letter can later on be addressed after your clients shall
have filed their responsive pleading in the abovesaid case.
We trust that this response will at the moment be enough.32
Even in their Joint Counter-Affidavit dated 23 September
2003,33 Sy Tiong Shiou, et al. did not make any allegation
that "the person demanding to examine and copy excerpts
from the corporation’s records and minutes has improperly
used any information secured through any prior examination
of the records or minutes of such corporation or of any other
corporation, or was not acting in good faith or for a legitimate
purpose in making his demand." Instead, they merely
reiterated the pendency of the civil case. There being no
allegation of improper motive, and it being undisputed that Sy
Tiong Shiou, et al. denied Sy Chim and Felicidad Chan Sy’s
request for inspection, the Court rules and so holds that the
DOJ erred in dismissing the criminal charge for violation of
Section 74 in relation to Section 144 of the Corporation Code.
Now on the existence of probable cause for the falsification
and/or perjury charges.
The Spouses Sy charge Sy Tiong Shiou with the offense of
falsification of public documents under Article 171, paragraph
4; and/or perjury under Article 183 of the Revised Penal Code
(RPC). The elements of falsification of public documents
through an untruthful narration of facts are: (a) the offender
makes in a document untruthful statements in a narration of
facts; (b) the offender has a legal obligation to disclose the
truth of the facts narrated;34 (c) the facts narrated by the
offender are absolutely false; and (d) the perversion of truth
in the narration of facts was made with the wrongful intent to
injure a third person.35 On the other hand, the elements of
perjury are: (a) that the accused made a statement under
oath or executed an affidavit upon a material matter; (b) that
the statement or affidavit was made before a competent
officer, authorized to receive and administer oath; (c) that in
that statement or affidavit, the accused made a willful and
deliberate assertion of a falsehood; and, (d) that the sworn
statement or affidavit containing the falsity is required by law
or made for a legal purpose.
A General Information Sheet (GIS) is required to be filed within
thirty (30) days following the date of the annual or a special
meeting, and must be certified and sworn to by the corporate
secretary, or by the president, or any duly authorized officer
of the corporation.36 From the records, the 2003 GIS
submitted to the SEC on 8 April 2003 was executed under
oath by Sy Tiong Shiou in Manila, in his capacity as Vice
President and General Manager.37 By executing the
document under oath, he, in effect, attested to the veracity38
of its contents. The Spouses Sy claim that the entries in the
GIS pertaining to them do not reflect the true number of
shares that they own in the company. They attached to their
complaint the 2002 GIS of the company, also executed by Sy
Tiong Shiou, and compared the entries therein vis-a-vis the
ones in the 2003 GIS. The Spouses Sy noted the marked
decrease in their shareholdings, averring that at no time after
the execution of the 2002 GIS, up to the time of the filing of
their criminal complaints did they execute or authorize the
execution of any document or deed transferring, conveying or
disposing their shares or any portion thereof; and thus there is
absolutely no basis for the figures reflected in the 2003 GIS.39
The Spouses Sy claim that the false statements were made by
Sy Tiong Shiou with the wrongful intent of injuring them. All
the elements of both offenses are sufficiently averred in the
complaint-affidavits.
The Court agrees with the Court of Appeals’ holding, citing the
case of Fabia v. Court of Appeals, that the doctrine of primary
jurisdiction no longer precludes the simultaneous filing of the
criminal case with the corporate/civil case.40 Moreover, the
Court finds that the City of Manila is the proper venue for the
perjury charges, the GIS having been subscribed and sworn to
in the said place. Under Section 10(a), Rule 110 of the
Revised Rules of Court, the criminal action shall be instituted
and tried in the court of the municipality or territory where the
offense was committed or where any of its essential
ingredients occurred.41 In Villanueva v. Secretary of
Justice,42 the Court held that the felony is consummated
when the false statement is made.43 Thus in this case, it was
alleged that the perjury was committed when Sy Tiong Shiou
subscribed and sworn to the GIS in the City of Manila, thus,
following Section 10(a), Rule 110 of the Revised Rules of
Court, the City of Manila is the proper venue for the offense.
G. R. No. 179438.
This petition assails the decision44 and resolution45 of the
Court of Appeals dated 26 May 2004 and 29 August 2007,
respectively, in CA-G.R. SP No. 81897.
On 3 February 2003, Juanita Tan, corporate treasurer of Sy Siy
Ho & Sons, Inc. (the corporation), a family corporation doing
business under the name and style Guan Yiac Hardware,
submitted a letter46 to the corporation’s Board of Directors
(Board) stating that the control, supervision and
administration of all corporate funds were exercised by Sy
Chim and Felicidad Chan Sy (Spouses Sy), corporate president
and assistant treasurer, respectively. In the same letter,
Juanita Tan disclosed that Felicidad Chan Sy did not make
cash deposits to any of the corporation’s banks from 1
November 2001 to 31 January 2003, thus the total bank
remittances for the past years were less than reflected in the
corporate financial statements, accounting books and records.
Finally, Juanita Tan sought to be free from any responsibility
over all corporate funds. The Board granted Juanita Tan’s
request and authorized the employment of an external auditor
to render a complete
audit of all the corporate accounting books and records.47
Consequently, the Board hired the accounting firm Banaria,
Banaria & Company. In its Report48 dated 5 April 2003, the
accounting firm attributed to the Spouses Sy P67,117,230.30
as unaccounted receipts and disbursements from 1994 to
2002.49
A demand letter50 was subsequently served on the Spouses
Sy on 15 April 2003. On the same date, the children of the
Spouses Sy allegedly stole from the corporation cash,
postdated checks and other important documents. After the
incident, the Spouses Sy allegedly transferred residence and
ceased reporting to the corporation. Thereupon, the
corporation filed a criminal complaint for robbery against the
Spouses Sy before the City Prosecutor’s Office of Manila.51 A
search warrant was subsequently issued by the Regional Trial
Court.52
On 26 April 2003, Sy Tiong Shiou, corporate Vice President
and General Manager, called a special meeting to be held on
6 May 2003 to fill up the positions vacated by the Spouses Sy.
Sy Tiong Shiou was subsequently elected as the new
president and his wife, Juanita Tan, the new Vice President.53
Despite these developments, Sy Chim still caused the
issuance of a Notice of Stockholders meeting dated 11 June
2003 in his capacity as the alleged corporate president.54
Meanwhile, on 1 July 2003, the corporation, through Romer S.
Tan, filed its Amended Complaint for Accounting and
Damages55 against the Spouses Sy before the RTC Manila,
praying for a complete and true accounting of all the amounts
paid to, received and earned by the company since 1993 and
for the restitution of the said amount.56 The complaint also
prayed for a temporary restraining order (TRO) and or
preliminary injunction to restrain Sy Chim from calling a
stockholders’ meeting on the ground of lack of authority.
By way of Answer,57 the Spouses Sy averred that Sy Chim
was a mere figurehead and Felicidad Chan Sy merely
performed clerical functions, as it was Sy Tiong Shiou and his
spouse, Juanita Tan, who have been authorized by the
corporation’s by-laws to supervise, control and administer
corporate funds, and as such were the ones responsible for
the unaccounted funds. They assailed the meetings called by
Sy Tiong Shiou on the grounds that the same were held
without notice to them and without their participation, in
violation of the by-laws. The Spouses Sy also pursued their
counter-claim for moral and exemplary damages and
attorney’s fees.
On 9 September 2003, the Spouses Sy filed their Motion for
Leave to File Third-Party Complaint,58 praying that their
attached Third Party Complaint59 be allowed and admitted
against Sy Tiong Shiou and his spouse. In the said third-party
complaint, the Spouses Sy accused Sy Tiong Shiou and Juanita
Tan as directly liable for the corporation’s claim for
misappropriating corporate funds.
On 8 October 2003, the trial court granted the motion for
leave to file the third-party complaint, and forthwith directed
the issuance of summons against Sy Tiong Shiou and Juanita
Tan.60 On 16 January 2004, their counsel allegedly
discovered that Sy Tiong Shiou and Juanita Tan were not
furnished with the copies of several pleadings, as well as a
court order, which resulted in their having been declared in
default for failure to file their answer to the third-party
complaint; thus, they opted not to file a motion for
reconsideration anymore and instead filed a petition for
certiorari before the Court of Appeals.
In its Decision dated 26 May 2004, the Court of Appeals
granted the petition of Sy Tiong Shiou and Juanita Tan.61 The
appellate court declared that a third-party complaint is not
allowed under the Interim Rules of Procedure Governing Intra-
Corporate Controversies Under R.A. No. 8799 (Interim Rules),
it not being included in the exclusive enumeration of allowed
pleadings under Section 2, Rule 2 thereof. Moreover, even if
such a pleading were allowed, the admission of the third-party
complaint against Sy Tiong Shiou and Juanita Tan still would
have no basis from the facts or the law and jurisprudence.62
The Court of Appeals also ruled that the respondent judge
committed a manifest error amounting to lack of jurisdiction
in admitting the third-party complaint and in summarily
declaring Sy Tiong Shiou and Juanita Tan in default for failure
to file their answer within the purported reglementary period.
The Court of Appeals set aside the trial court’s 8 October 2003
Order admitting the third-party complaint, as well as the 19
December 2003 Order, declaring Sy Tiong Shiou and Juanita
Tan in default for failure to file their answer. The trial court
was further ordered to dismiss the third-party complaint
without prejudice to any action that the corporation may
separately file against Sy Tiong Shiou and Juanita Tan.63
The Spouses Sy filed a motion for reconsideration, but their
motion was denied on 29 August 2007.64
Sy Chim and Felicidad Chan Sy argue before this Court that a
third-party complaint is not excluded or prohibited by the
Interim Rules, and that the Court of Appeals erred in ruling
that their third- party complaint is not actionable because
their action is not in respect of the corporation’s claims. They
add that the disallowance of the third-party complaint will
result in multiplicity of suits.
The third-party complaint should be allowed.
The conflicting provisions of the Interim Rules of Procedure for
Inter-Corporate Controversies read:
Rule 1, Sec. 8. Prohibited pleadings.—The following pleadings
are prohibited:
(1) Motion to dismiss;
(2) Motion for a bill of particulars;
(3) Motion for new trial, or for reconsideration of judgment or
order, or for re-opening of trial;
(4) Motion for extension of time to file pleadings, affidavits or
any other paper, except those filed due to clearly compelling
reasons. Such motion must be verified and under oath; and
(5) Motion for postponement and other motions of similar
intent, except those filed due to clearly compelling reasons.
Such motion must be verified and under oath.
Rule 2, Sec.2. Pleadings allowed.—The only pleadings allowed
to be filed under these Rules are the complaint, answer,
compulsory counterclaims or cross-claims pleaded in the
answer, and the answer to the counterclaims or cross-
claims.65
There is a conflict, for while a third-party complaint is not
included in the allowed pleadings, neither is it among the
prohibited ones. Nevertheless, this conflict may be resolved
by following the well-entrenched rule in statutory
construction, that every part of the statute must be
interpreted with reference to the context, i.e., that every part
of the statute must be considered together with the other
parts, and kept subservient to the general intent of the whole
enactment.66 Statutes, including rules, should be construed
in the light of the object to be achieved and the evil or
mischief to be suppressed and they should be given such
construction as will advance the object, suppress the mischief
and secure the benefits intended. A statute should therefore
be read with reference to its leading idea, and its general
purpose and intention should be gathered from the whole act,
and this predominant purpose will prevail over the literal
import of particular terms or clauses, if plainly apparent,
operating as a limitation upon some and as a reason for
expanding the signification of others, so that the
interpretation may accord with the spirit of the entire act, and
so that the policy and object of the statute as a whole may be
made effectual and operative to the widest possible extent.67
Otherwise stated, the spirit, rather than the letter of a law
determines its construction; hence, a statute, as in the rules
in this case, must be read according to its spirit and intent.68
This spirit and intent can be gleaned from Sec. 3, Rule 1 of the
Interim Rules, which reads:
Sec. 3. Construction.—These Rules shall be liberally construed
in order to promote their objective of securing a just,
summary, speedy and inexpensive determination of every
action or proceeding.69
Now, a third-party complaint is a claim that a defending party
may, with leave of court, file against a person not a party to
the action, called the third-party defendant, for contribution,
indemnity, subrogation or any other relief, in respect of his
opponent’s claim. It is actually a complaint independent of,
and separate and distinct from the plaintiff’s complaint. In
fact, were it not for Rule 6, Section 11 of the Rules of Court,
such third-party complaint would have to be filed
independently and separately from the original complaint by
the defendant against the third-party defendant.
Jurisprudence is consistent in declaring that the purpose of a
third-party complaint is to avoid circuitry of action and
unnecessary proliferation of law suits and of disposing
expeditiously in one litigation all the matters arising from one
particular set of facts.70
It thus appears that the summary nature of the proceedings
governed by the Interim Rules, and the allowance of the filing
of third-party complaints is premised on one objective—the
expeditious disposition of cases. Moreover, following the rule
of liberal interpretation found in the Interim Rules, and taking
into consideration the suppletory application of the Rules of
Court under
Rule 1, Sec. 271 of the Interim Rules, the Court finds that a
third-party complaint is not, and should not be prohibited in
controversies governed by the Interim Rules. The logic and
justness of this conclusion are rendered beyond question
when it is considered that Sy Tiong Shiou and Juanita Tan are
not complete strangers to the litigation as in fact they are the
moving spirit behind the filing of the principal complaint for
accounting and damages against the Spouses Sy.1avvphi1
The Court also rules that the third-party complaint of the
Spouses Sy should be admitted.
A prerequisite to the exercise of such right is that some
substantive basis for a third-party claim be found to exist,
whether the basis be one of indemnity, subrogation,
contribution or other substantive right. The bringing of a third-
party defendant is proper if he would be liable to the plaintiff
or to the defendant or both for all or part of the plaintiff’s
claim against the original defendant, although the third-party
defendant’s liability arises out of another transaction. The
defendant may implead another as third-party defendant: (a)
on an allegation of liability of the latter to the defendant for
contribution, indemnity, subrogation or any other relief; (b) on
the ground of direct
liability of the third-party defendant to the plaintiff; or (c) the
liability of the third-party defendant to both the plaintiff and
the defendant.72
In determining the sufficiency of the third-party complaint, the
allegations in the original complaint and the third-party
complaint must be examined. A third-party complaint must
allege facts which prima facie show that the defendant is
entitled to contribution, indemnity, subrogation or other relief
from the third-party defendant.73
The complaint alleges that the Spouses Sy, as officers of the
corporation, have acted illegally in raiding its corporate funds,
hence they are duty bound to render a full, complete and true
accounting of all the amounts, proceeds and funds paid to,
received and earned by the corporation since 1993 and to
restitute to the corporation all such amounts, proceeds, and
funds which they took and misappropriated for their own use
and benefit, to the damage and prejudice of the plaintiff and
its stockholders.74 On the other hand, in the third-party
complaint, the Spouses Sy claim that it is Sy Tiong Shiou and
Juanita Tan who had full and complete control of the day-to
day operations and complete control and custody of the funds
of the corporation, and hence they are the ones liable for any
shortfall or unaccounted
difference of the corporation’s cash account. Thus, Sy Tiong
Shiou and Juanita Tan should render a full, complete and true
accounting of all the amounts, proceeds, funds paid to,
received and earned by the corporation since 1993, including
the amount attributed to the Spouses Sy in the complaint for
accounting and damages. In their prayer, the Spouses Sy
moved that Sy Tiong Shiou and Juanita Tan be declared as
directly and solely liable in respect of the corporation’s claim
for accounting and damages, and that in the event that they,
the Spouses Sy, are adjudged liable to the corporation, Sy
Tiong Shiou and Juanita Tan be ordered to pay all amounts
necessary to discharge their liability to the corporation by way
of indemnity or reimbursement.
The allegations in the third-party complaint impute direct
liability on the part of Sy Tiong Shiou and Juanita Tan to the
corporation for the very same claims which the corporation
interposed against the Spouses Sy. It is clear therefore that
the Spouses Sy’s third-party complaint is in respect of the
plaintiff corporation’s claims,75 and thus the allowance of the
third-party complaint is warranted.
WHEREFORE, these cases are resolved as follows:
G.R. No. 174168
The petition for review is DENIED. The Decision and Resolution
of the Court of Appeals dated 31 May 2006 and 8 August
2006, respectively, in CA-G.R. SP No. 91416 are AFFIRMED.
Costs against the petitioners.
G.R. No. 179438
The petition is GRANTED. The decision and resolution of the
Court of Appeals dated 26 May 2004 and 29 August 2007,
respectively, in CA-G.R. SP No. 81897 are SET ASIDE and the
Orders of the Regional Trial Court of Manila Branch 46 dated 8
October 2003 and 19 December 2003 are REINSTATED.
SO ORDERED.
DANTE O. TINGA
Associate Justice
WE CONCUR:
LEONARDO A. QUISUMBING
Associate Justice
Chairperson
CONCHITA CARPIO MORALES
Associate Justice PRESBITERO J. VELASCO, JR.
Associate Justice
ANTONIO EDUARDO B. NACHURA*
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the
writer of the opinion of the Court’s Division.
LEONARDO A. QUISUMBING
Associate Justice
Chairperson, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the
Division Chairperson’s Attestation, it is hereby certified that
the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the
opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
Footnotes
* Additional member per Raffle dated 25 June 2008 in lieu of J.
Arturo D. Brion who inhibited himself.
1 Rollo (G.R. No. 174168), pp. 10-33.
2 Id. at 37-60; penned by Associate Justice Renato S. Dacudao
with the concurrence of Associate Justice Remedios Salazar
Fernando and Associate Justice Lucas P. Bersamin.
3 Id. at 85-94.
4 Id. at 83.
5 Civil Case No. 03-106456-00 is for Accounting and Damages
pending before the Regional Trial Court of Manila, Branch 46.
Incidentally, the other petition, G. R. No. 179438 is an offshoot
of this civil case.
6 Id. at 95-104.
7 The 2003 GIS, compared to the 2002 GIS showed a
decrease from 33.75 % to only 17.40 % ownership of the
outstanding capital stock of the corporation for Sy Chim and a
decrease from 16.88% to 8.70% ownership of the outstanding
capital stock for Felicidad Chan Sy.
8 Id. at 111-118; penned by Assistant City prosecutor
Bernardino L. Cabiles.
9 Id. at 137-143.
10 Id. at 183-185.
11 Id. at 207-209.
12 Id. at 37-66; Decision dated 31 May 2006.
13 Id. at 71-72; Resolution dated 8 August 2006.
14 Id. at 528-529.
15 324 Phil. 568, 619-620 (1996).
16 Rollo, (G.R. No. 174168), pp. 22-23.
17 Id. at 27.
18 Id. at 28
19 Id. at 29.
20 Santos v. Go, G.R. No. 156081, 19 October 2005, 473 SCRA
350, 360-361.
21 Cabahug v. People, 426 Phil. 490, 499 (2002).
22 Yupangco Cotton Mills, Inc., v. Mendoza, G.R. No. 139912,
31 March 2005, 454 SCRA 386, 406.
23 Sistoza v. Desierto, 437 Phil. 117, 129 (2002)
24 Tuanda v. Sandiganbayan, 319 Phil. 460, 470 (1995).
25 Pilapil v. Sandiganbayan, G.R. No. 101978, 7 April 1993,
221 SCRA 349, 360.
26 G.R. No. 178511, 4 December 2008, citing Duterte v.
Sandiganbayan, G.R. No. 130191, April 27, 1998, 289 SCRA
721.
27 Id.
28 Id.
29 Id. citing 5A Fletcher Cyc. Corp. §. 2220, 2008.
30 Atty. Elvin P. Grana of A. Tan, Zoleta and Associates Law
Firm.
31 The law firm of Siguion Reyna Montecillo & Ongsiako.
32 Rollo, (G.R. No. 174168), p. 83.
33 Id. at 106-108.
34 "Legal obligation "means that there is a law requiring the
disclosure of the truth of the facts narrated, Reyes, The
Revised Penal Code, Book Two 210, (15th Ed., Rev. 2001).
35 Enemecio v. Office of the Ombudsman, 464 Phil. 102, 115
(2004).
36 Rollo, p. 317; As stated in the instructions on the GIS Form.
37 Id. at 321.
38 Id.; "that the matters set forth in this General Information
Sheet x x x are true and correct to the best of my knowledge,"
last page of the GIS Standard Form.
39 Supra note 6.
40 Fabia v. Court of Appeals, 437 Phil. 389, 397 (2002).
41 Saavedra, Jr. v. Department of Justice, G.R. No. 93173, 15
September 1993, 226 SCRA 438, 445 citing Diaz v. People,
191 SCRA 86, 93 (1990); see also Burgos v. Aquino, 319 Phil.
623 (1995). The elements of perjury are:
1.The accused made a statement under oath or executed an
affidavit upon a material matter;
2.The statement or affidavit was made before a competent
officer authorized to receive and administer oath;
3.In that statement or affidavit, the accused made a willful
and deliberate assertion of a falsehood; and
4.The sworn statement or affidavit containing the falsity is
required by law or made for a legal purpose.
42 Villanueva v. Secretary of Justice, G.R. No. 162187, 18
November 2005, 475 SCRA 495.
43 Id. at 512 citing U.S. v. Norris, 300 U.S. 564 (1937).
44 Id. at 386-389.
45 Rollo (G.R. No. 179438), pp. 363-373; Sy Tiong Shiou and
Juanita Tan v. Hon. Artemio S. Tipon, Presiding Judge of the
Regional Trial Court, Branch 46, Manila, Sy Chim and Felicidad
Chan Sy, penned by Associate Justice Noel G. Tijam with the
concurrence of Associate Justice Delilah Vidallon-Magtolis and
Associate Justice Edgardo P. Cruz.
46 Id. at 58-59.
47 Id. at 60-63; Minutes of the Special Meeting dated 24
March 2003.
48 Rollo (G.R. No. 179438), pp. 66-74.
49 Id. at 73.
50 Id. at 85.
51 Id. at 75. The complaint was docketed as IS No. 03D-
12147.
52 Id. at 76-77.
53 Rollo (G.R. No. 179436), pp. 78-81; Minutes of the Special
Meeting dated 6 May 2003.
54 Id. at 84.
55 Id. at 34-49.
56 Id. at 48-49.
57 Id. at 86-113.
58 Id. at 179-185.
59 Id. at 186-197. The third party plaintiffs prayed that Sy
Tiong Shiou and Juanita Tan directly and solely liable in
respect of plaintiff’s claim for accounting and damages.
60 Id. at 229-232.
61 Id. at 363-373.
62 Id. at 368-371.
63 Id. at 363-373; Court of Appeals Decision dated 26 May
2004.
64 Id. at 386-389.
65 SC-A.M. No. 01-2-04 (2001) Entitled, Interim Rules of
Procedure for Intra-Corporate Controversies.
66 Aisporna v. Court of Appeals, 113 SCRA 459, 467.
67 H.C. Black, Handbook on the Construction on the
Construction and Interpretation of the Laws 322, (2nd Ed,
1971).
68 Paras v. COMELEC, 332 Phil. 56, 64 (1996).
69 SC-A.M. No. 01-2-04 (2001), Rule 1, Sec. 3.
70 Tayao v. Mendoza, G.R. No. 162733, 12 April 2005, 455
SCRA 726, 732-733; Firestone Tire and Rubber Company of
the Philippines v. Tempongco, 137 Phil. 238, 243 (1969);
British Airways v. Court of Appeals, 349 Phil. 379, 394 (1998)
citing 67 CJS 1034. In Asian Construction and Development
Corporation v. Court of Appeals, G.R. No. 160242, 17 May
2005, the Court had the occasion to declare that "the purpose
of Section 11, Rule 6 of the Rules of Court is to permit a
defendant to assert an independent claim against a third-
party which he, otherwise, would assert in another action,
thus preventing multiplicity of suits."
71 SEC. 2. Suppletory application of the Rules of Court.—The
Rules of Court, in so far as they may be applicable and are not
inconsistent with these Rules, are hereby adopted to form an
integral part of these Rules.
72 Asian Construction and Development Corporation v. Court
of Appeals, G.R. No. 160242, 17 May 2005, 458 SCRA 750,
759.
73 Id.
74 Rollo (G.R. No. 179438), p. 40.
75 Allied Banking Corporation v. Court of Appeals, G.R. No.
85868, 13 October 1989, 178 SCRA 526. The tests to
determine whether the claim for indemnity in a third-party
claim is "in respect of plaintiff's claim." are: (a) whether it
arises out of the same transaction on which the plaintiffs
claim is based, or whether the third-party's claim, although
arising out of another or different contract or transaction, is
connected with the plaintiffs claim; (b) whether the third-party
defendant would be liable to the plaintiff or to the defendant
for all or part of the plaintiffs claim against the original
defendant, although the third-party defendant's liability arises
out of another transaction; or (c) whether the third-party
defendant may assert any defense which the third-party
plaintiff has, or may have against plaintiff s claim.
G.R. No. 167181 December 23, 2008
SPS. CARLOS MUNSALUD and WINNIE MUNSALUD, petitioners,
vs.
NATIONAL HOUSING AUTHORITY, respondent.
DECISION
REYES, R.T., J.:
INSUFFICIENCY in form and substance, as a ground for
dismissal of the complaint, should not be based on the title or
caption, especially when the allegations of the pleading
support an action.
In pursuit of a reversal of the Decision1 of the Court of
Appeals (CA) affirming the order of dismissal2 of the Regional
Trial Court (RTC) in a complaint for mandamus,3 petitioners-
spouses Carlos Munsalud and Winnie Munsalud lodged before
this Court a petition for review on certiorari.
The Facts
Laid bare from the records are the following facts:
Petitioner Winnie Munsalud is the daughter and one of the
compulsory heirs of the late Lourdes Bulado (Bulado) who
died on December 8, 1985. During the lifetime of Bulado,
respondent National Housing Authority (NHA) awarded her a
lot located at 942 R. Higgins St., CAA Compound, Bgy. 185,
Pasay City. The award was made pursuant to the "Land for the
Landless" program of respondent. She resided at the said
property until her death.
When Bulado died, petitioner Winnie assumed the obligation
to pay the monthly amortizations. Respondent NHA
recognized petitioner spouses’ assumption of obligations as
their names were reflected in the receipts. They were allowed
to occupy the lot up to the present. To prove their occupancy
over the lot, petitioners offered as evidence the following
documents, viz.:
1. Tag Card No. 77-02830-03 issued by then Pasay City Mayor
Pablo Cuneta and then NHA General Manager Gaudencio
Tobias;
2. Application and Contract for Water Services No. 295319 in
the name of Bulado but the same was signed by petitioner
Winnie;
3. Tax Declaration No. B-007-27566 over the land issued by
the Assessor’s Office of Pasay City in the name of defendant
recognizing its beneficial use in favor of petitioners;
4. Tax Declaration No. B-007-27667 over the residential
structure erected on the land and issued by the Assessor’s
Office of Pasay City in the names of petitioners;
5. ‘Pagpapatunay’ dated September 5, 1989 signed by
neighbors and acquaintances of petitioners attesting to their
long time residence in the property;
6. Deposit Receipt No. 286444 dated September 27, 1989
issued by the Manila Electric Company attesting to the
installation of electric service in the name of petitioner Winnie
on the property.4
On September 14, 1989, petitioners completed the payments
of the amortizations due on the property. Reflected on the left
side portion of the official receipt evidencing full payment is
the annotation "full payment." Consequently, petitioners
demanded that respondent NHA issue in their favor a deed of
sale and a title over the property. Respondent, however,
refused.
On January 28, 2003, petitioners, by counsel, sent respondent
a letter to issue a deed of sale and title. Despite receipt,
respondent did not issue the requested documents. On March
6, 2003, respondent wrote petitioners informing them that
petitioner Winnie’s name does not appear as beneficiary.
Petitioners replied that Winnie was representing her mother,
the late Lourdes Bulado. Respondent did not respond to the
reply.
Left with no recourse, petitioners instituted a complaint for
mandamus before the court a quo.
RTC Order
On April 22, 2003, the RTC dismissed the complaint for
mandamus, disposing thus:
Considering that the petition is insufficient in form and
substance, there being no reference to any law which the
respondent by reason of its office, trust or station is especially
enjoined as a duty to perform or any allegation that
respondent is unlawfully excluding petitioners from using or
enjoying any right or office which said petitioners are entitled
to, the above-entitled petition is hereby DISMISSED, pursuant
to Section 3 Rule 65 of the 1997 Rules of Civil Procedure.
SO ORDERED.5
Petitioners moved for reconsideration but they did not
succeed. Thus, petitioners seasonably appealed to the CA.
CA Disposition
On August 23, 2004, the CA affirmed the RTC dismissal of the
mandamus petition.
WHEREFORE, the instant appeal is hereby DISMISSED.
Accordingly, the assailed Order of Dismissal is AFFIRMED.
SO ORDERED.6
In agreeing with the court a quo, the appellate court
rationalized as follows:
It is essential to the issuance of the writ of mandamus that
the petitioner should have a clear legal right to the thing
demanded and it must be the imperative duty of the
respondent to perform the act required. It is a command to
exercise a power already possessed and to perform a duty
already imposed.
It well settled that the legal right of petitioner to the
performance of the particular act which is sought to be
compelled must be clear and complete. A clear legal right
within the meaning of the rule means a right which is clearly
founded in, or granted by law; a right which is inferable as a
matter of law. Likewise, mandamus refers only to acts
enjoined by law to be done. The duties to be enforced must be
such as are clearly peremptorily enjoined by law or by reason
of official station. However, appellants failed to point out in
their petition the specific law by which defendant is duty
bound to perform the act sought to be performed, as well as
the law which would grant them the clear legal right to the
issuance of the writ of mandamus.
Foregoing discussed, we find no error on the part of the court
a quo in dismissing the petition for mandamus filed by
plaintiffs-appellants.
On September 20, 2004, petitioners moved for
reconsideration but it was denied by the CA on February 22,
2005. Hence, the present recourse.
Issues
I.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
ERRED IN AFFIRMING THE ORDERS OF THE HONORABLE
REGIONAL TRIAL COURT OF QUEZON CITY DATED APRIL 22,
2003 AND SEPTEMBER 25, 2003 WHERE THE LATTER COURT –
RELYING UPON THE APPELLATION AND/OR LABEL THAT
PETITIONERS GAVE THEIR COMPLAINT (I.E., MANDAMUS) IN
CIVIL CASE NO. Q-03-492 – DISMISSED THE COMPLAINT
THEREIN PURPORTEDLY BECAUSE THE SAID COMPLAINT
FAILED TO COMPLY WITH SECTION 3, RULE 65 OF THE 1997
RULES OF CIVIL PROCEDURE.
II.
WHETHER OR NOT THE HONORABLE COURT OF APPEALS
ERRED IN DENYING PETITIONERS’ MOTION FOR
RECONSIDERATION OF ITS DECISION DATED AUGUST 23,
2004.7 (Underscoring supplied)
Poring over the arguments presented, the focal issue is
whether in giving due course to an action, the court is fenced
within the parameters of the title given by plaintiff to the case
without regard to the averments of the pleading.
Elsewise stated, does the trial court have absolute discretion
to dismiss an action on the ground that it is insufficient in
form and substance based alone on its designation when,
from the body and the relief prayed for, it could stand as an
action sufficient in form and substance?
Our Ruling
Petitioners’ action designated as mandamus was dismissed by
the trial court on the ground that it is insufficient in form and
substance. This begs the question: when is an action sufficient
in form and when is it sufficient in substance?
To begin with, form is the methodology used to express rules
of practice and procedure.8 It is the order or method of legal
proceedings.9 It relates to technical details.10 It is ordinarily
the antithesis of substance.11 It is an established method of
expression or practice. It is a fixed or formal way of
proceeding.12
A pleading is sufficient in form when it contains the following:
1. A Caption, setting forth the name of the court, the title of
the action indicating the names of the parties, and the docket
number which is usually left in blank, as the Clerk of Court has
to assign yet a docket number;
2. The Body, reflecting the designation, the allegations of the
party’s claims or defenses, the relief prayed for, and the date
of the pleading;
3. The Signature and Address of the party or counsel;13
4. Verification. This is required to secure an assurance that
the allegations have been made in good faith, or are true and
correct and not merely speculative;14
5. A Certificate of Non-forum Shopping, which although not
jurisdictional, the same is obligatory;15
6. An Explanation in case the pleading is not filed personally
to the Court. Likewise, for pleading subsequent to the
complaint, if the same is not served personally to the parties
affected, there must also be an explanation why service was
not done personally.16
Likewise, for all other pleadings, not initiatory in nature, there
must be:
A Proof of Service, which consists in the written admission of
the party served, or the official return of the server, or the
affidavit of the party serving, containing a full statement of
the date, place and manner of service. If the service is by
ordinary mail, proof thereof shall consist of an affidavit of the
person mailing. If service is by registered mail, proof shall be
made by such affidavit and the registry receipt issued by the
mailing office.17
In case a party is represented by counsel de parte, additional
requirements that go into the form of the pleading should be
incorporated, viz.:
1. The Roll of Attorney’s Number;
2. The Current Professional Tax Receipt Number; and
3. The IBP Official Receipt No. or IBP Lifetime Membership
Number.18
4. MCLE Compliance or Exemption Certificate Number and
Date of Issue (effective January 1, 2009).19
In the case at bench, a naked perusal of the complaint
docketed as Civil Case No. Q03- 49278 designated by
petitioners as mandamus reveals that it is sufficient in form. It
has the caption with the name of the court, the name of the
parties, and the docket number. The complaint contains
allegations of petitioners’ claims. It has a prayer and the date
when it was prepared. The signature page shows the
signature and name of petitioners’ counsel, the counsel’s IBP,
PTR and Roll of Attorney’s Numbers. The complaint was also
verified and accompanied by a certificate of non-forum
shopping and signed by petitioners as plaintiffs. It was filed
personally with the office of the clerk of court.
Now, is the petition insufficient in substance?
Substance is that which is essential and is used in opposition
to form.20 It is the most important element in any existence,
the characteristic and essential components of anything, the
main part, the essential import, and the purport.21 It means
not merely subject of act, but an intelligible abstract or
synopsis of its material and substantial elements, though it
may be stated without recital of any details.22 It goes into
matters which do not sufficiently appear or prejudicially affect
the substantial rights of parties who may be interested therein
and not to mere informalities.23
As used in reference to substance of common-law actions,
substance comprehends all of the essential or material
elements necessary to sufficiently state a good cause of
action invulnerable to attack by general demurrer.24
Substance is one which relates to the material allegations in
the pleading. It is determinative of whether or not a cause of
action exists. It is the central piece, the core, and the heart
constituting the controversy addressed to the court for its
consideration. It is the embodiment of the essential facts
necessary to confer jurisdiction upon the court.
The court a quo anchored the dismissal of petitioners’
complaint on the basis of Rule 65, Section 325 of the 1997
Rules of Civil Procedure. It found that there was no reference
to any law which respondent NHA, by reason of its office, trust
or station, is specifically enjoined as a duty to perform. It
declared that there was no allegation in the petition below
that respondent is unlawfully excluding petitioners from using
or enjoying any right or office which said petitioners are
entitled to.
Although the complaint was captioned as Mandamus,
petitioners’ averments, as well as the relief sought, called for
an action for specific performance. Pertinent portions of the
complaint for mandamus provide:
3. Plaintiff Winnie Munsalud is the daughter of the late
Lourdes Bulado, and as such is one of Bulado’s compulsory
heirs. x x x;
4. During the lifetime of Bulado, she was awarded a parcel of
land at a "land for the landless" program of the defendant;
xxxx
6. When Bulado died in 1985, Plaintiffs assumed her
obligations over the aforesaid property, particularly the
payment of the amortizations therein;
7. Defendant recognized this assumption of Bulado’s
obligations by the Plaintiffs considering that in the receipts
covering the amortizations, the names of the Plaintiffs as the
ones paying the Defendant were indicated therein;
8. In fact, Defendant also allowed Plaintiffs to move into, and
occupy, as they continue to occupy up to now, the above
described premises;
xxxx
10. On September 14, 1989, Plaintiffs completed the payment
of the amortizations due over the property in question, and
this is evidenced by an official receipt, numbered 19492,
which Defendant’s cashier, Yasmin D. Aquino, issued to the
Plaintiffs themselves, although the official name of the payor
indicated therein was still that of the deceased Lourdes
Bulado;
xxxx
12. Significantly, that receipt contained the annotation
appearing on the left side thereof, that the amount paid
thereon constituted "full payment";
13. Since then, Plaintiffs have been demanding from the
Defendant the issuance of the deed of sale and the title over
the property in question, but, inexplicably, and without any
legal justification whatsoever, Defendant has refused to issue
that deed of sale and title;
14. On January 28, 2003, Plaintiffs, through counsel, sent a
letter to the Defendant seeking the issuance of that deed of
sale and title but, despite receipt thereof, Defendant again
refused and failed [to] act favorably thereon;
xxxx
20. At this point that the lot in question had already been fully
paid for by the Plaintiffs, there is now a need to compel the
Defendant to comply with its duty to issue a deed of sale in
favor of the heirs of the deceased Lourdes Bulado, particularly
Plaintiffs Carlos and Winnie Munsalud, as well to issue a title
over the same property in favor of the same heirs.
WHEREFORE, it is most respectfully prayed that judgment be
rendered commanding the Defendant, after due notice and
hearing, to issue a deed of sale and/or a title, in favor of the
heirs of the deceased Lourdes Bulado, particularly Plaintiffs
Carlos and Winnie Munsalud, over the property subject of this
action.26 (Underscoring supplied)
A plain reading of the allegations of the complaint reveals that
petitioner Winnie Munsalud assumed the obligations of her
deceased mother, the original awardee of respondent’s "Land
for the Landless Program." One of the obligations of an
awardee is to pay the monthly amortizations. Petitioners
complied with said obligation and religiously paid the
amortizations until these were fully paid.
Indeed, petitioners have complied with what is incumbent
upon them under the program. Hence, it is now the turn of
respondent to comply with what is incumbent upon it.
In a letter dated February 21, 2003,27 respondent informed
petitioners’ counsel that per its records, the name of
petitioner Winnie Munsalud does not appear as a beneficiary.
For the guidance of respondent, Winnie Munsalud is not
actually a beneficiary. The beneficiary of its program is
Lourdes Bulado, her deceased mother. This fact was made
known to respondent when another letter dated March 6,
200328 was sent by the counsel of the heirs of Lourdes
Bulado. In the same letter, respondent was informed that
petitioner Winnie is representing her deceased mother,
Lourdes Bulado, viz.:
In view of the contents of that letter, we would like to notify
you that Ms. Munsalud is actually representing her deceased
mother, Lourdes Bulado, who, on September 14, 1989
completed her payment for Lot 12, Block 79 of the Maricaban
Estate. A copy of the receipt evidencing that completed is
attached hereto as Annex B for your easy reference.
In view thereof, may we reiterate our request for the issuance
of the title over the aforesaid property in the name of Lourdes
Bulado.29 (Underscoring supplied)
The letter was received by respondent on March 12, 2003. On
account of this second letter, respondent could have easily
verified if the name of Lourdes Bulado appears as a
beneficiary and awardee of its "Land for the Landless
Program." However, respondent never responded to the
second letter. This left petitioners with no recourse but to
bring the action to the trial court.
Evidently, the action commenced by petitioners before the
trial court, although designated as mandamus, is in reality an
action to perform a specific act. The averments of the
complaint are clear. The essential facts are sufficiently alleged
as to apprise the court of the nature of the case. The relief
sought to be obtained aims to compel respondent to issue a
deed of sale and the corresponding title over the property
awarded to Bulado. Thus, the Court finds the complaint
sufficient in substance.
The designation or caption is not controlling, more than the
allegations in the complaint, for it is not even an
indispensable part of the complaint.
Instead of focusing on what an action for mandamus should
contain, the court a quo should have proceeded to examine
the essential facts alleged in petitioners’ complaint. For what
determines the nature of the action and which court has
jurisdiction over it are the allegations in the complaint and the
character of the relief sought.30

The cause of action in a complaint is not determined by the
designation given to it by the parties. The allegations in the
body of the complaint define or describe it. The designation or
caption is not controlling more than the allegations in the
complaint. It is not even an indispensable part of the
complaint.31
There is no need to make reference to any law which
respondent by reason of its office is enjoined as a duty to
perform. Respondent’s duty arose from its contractual
obligation under the "Land for the Landless Program."
The trial court is reminded that the caption of the complaint is
not determinative of the nature of the action.32 The caption
of the pleading should not be the governing factor, but rather
the allegations in it should determine the nature of the action,
because even without the prayer for a specific remedy, the
courts may nevertheless grant the proper relief as may be
warranted by the facts alleged in the complaint and the
evidence introduced.33
All told, whether or not petitioner Winnie, in her capacity as a
compulsory heir of the awardee, becomes a beneficiary of the
program is a question best ventilated during trial on the
merits. The conditions, terms, and provisions of the program
in case an awardee dies are evidentiary and should be
presented for determination of the court. Even the effect and
the consequence of the assumption of obligation of the
awardee as well as the presence of other compulsory heirs
are issues that should be addressed for the court’s evaluation
on the basis of the evidence to be laid down before its eyes.
WHEREFORE, the appealed Decision is REVERSED AND SET
ASIDE. The case is REMANDED to the Regional Trial Court
which is ORDERED to reinstate the case and to conduct trial
on the merits with dispatch.
No costs.
SO ORDERED.
RUBEN T. REYES
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
MA. ALICIA AUSTRIA-MARTINEZ
Associate Justice
MINITA V. CHICO-NAZARIO
Associate Justice
ANTONIO EDUARDO B. NACHURA
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the
writer of the opinion of the Court’s Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the
Division Chairperson’s Attestation, I certify that the
conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the
opinion of the Court’s Division.
REYNATO S. PUNO
Chief Justice
Footnotes
1 Rollo, pp. 19-30. Dated August 23, 2004.
2 Records, p. 19. Dated April 22, 2003. Penned by Judge
Rogelio M. Pizarro, RTC, Br. 222, Quezon City.
3 Id. at 2-6. Docketed as Civil Case No. Q03-49278, entitled
"Sps. Carlos & Winnie Munsalud, for herself and on behalf of
the other Heirs of the Deceased Lourdes Bulado."
4 Rollo, p. 5.
5 Id. at 39.
6 Id. at 29-30.
7 Id. at 8.
8 Words and Phrases, Vol. 17, permanent ed., p. 546, citing
Juneau Spruce Corporation v. International Longshoremen’s
and Warehousemen’s Union, D.C. Hawaii, 131 F. Supp. 866,
869.
9 Id. at 548, citing The Princess Sophia, D.C. Wash., 36 F. 2d
591, 593.
10 Id. at 549, citing J.D. Loizeaux Lumber Co. v. Davis, 124 A.
2d 593, 41 N.J. Super. 231.
11 Id., citing Wilson v. Wagner, Tex. Civ. App., 211 SW 2d 241,
244.
12 Webster’s Third New International Dictionary (1993),
unabridged.
13 See Rules of Civil Procedure (1997), Rule 7, Secs. 1-3.
14 Clavecilla v. Quitain, G.R. No. 147989, February 20, 2006,
482 SCRA 623; Mamaril v. Civil Service Commission, G.R. No.
164929, April 10, 2006, 487 SCRA 65; Torres v. Specialized
Packaging Development Corporation, G.R. No. 149634, July 6,
2004, 433 SCRA 455.
15 See Torres v. Specialized Packaging Development
Corporation, supra.
16 See Rules of Civil Procedure (1997), Rule 13, Secs. 4 & 11.
17 Id., Sec. 13.
18 See OCA Circular No. 58-2003, May 29, 2003.
19 Bar Matter No. 1922, as amended.
20 Words and Phrases, Vol. 40, permanent ed., p. 754, citing
United States v. Johnston, D.C. Wash., 292 F. 491, 495; State
v. Burgdoerfer, 17 SW 646, 649, 107 Mo. 1, 14 L.R.A. 846.
21 Id. at 752, citing State v. Lowe, 224 P. 991, 992, 27 Okl. Cr.
104.
22 Id. at 752, citing State on Inf. of Murphy v. Brooks, 1 So. 2d
370, 371, 241 Ala. 55.
23 Id. at 754, citing Rose v. Osborne, Me., 1 A. 2d 225, 226.
24 Id., citing Hogan v. Aluminum Lock Shingle Corp., 329 P. 2d
271, 273, 214 Or. 218.
25 Rules of Civil Procedure (1997), Rule 65.
Sec. 3. Petition for mandamus. – When any tribunal,
corporation, board, officer, or person unlawfully neglects the
performance of an act which the law specifically enjoins as a
duty resulting from an office, trust, or station, or unlawfully
excludes another from the use and enjoyment of a right or
office to which such other is entitled, and there is no other
plain, speedy and adequate remedy in the ordinary course of
law, the person aggrieved thereby may file a verified petition
in the proper court, alleging the facts with certainty and
praying that judgment be rendered commanding the
respondent, immediately or at some other time to be
specified by the court, to do the act required to be done to
protect the right of the petitioner, and to pay the damages
sustained by the petitioner by reason of the wrongful acts of
the respondent.
26 Records, pp. 2-4.
27 Id. at 17.
28 Id. at 18.
29 Id.
30 Villena v. Payoyo, G.R. No. 163021, April 27, 2007, 522
SCRA 592, citing Huguete v. Embudo, G.R. No. 149554, July 1,
2003, 405 SCRA 273, citing in turn Cañiza v. Court of Appeals,
G.R. No. 110427, February 24, 1997, 268 SCRA 640, 647-648.
31 Hernudd v. Lofgren, G.R. No. 140337, September 27, 2007,
534 SCRA 205, citing Sumulong v. Court of Appeals, G.R. No.
108817, May 10, 1994, 232 SCRA 372.
32 Bokingo v. The Honorable Court of Appeals, G.R. No.
161739, May 4, 2006, 489 SCRA 521; Rivero v. Court of
Appeals, G.R. No. 141273, May 17, 2005, 458 SCRA 714.
33 Evangelista v. Santiago, G.R. No. 157447, April 29, 2005,
457 SCRA 744, citing Chacon Enterprises v. Court of Appeals,
G.R. No. L-46418, September 29, 1983, 124 SCRA 784.
G.R. No. 149576 August 8, 2006
REPUBLIC OF THE PHILIPPINES, represented by the Land
Registration Authority, Petitioner,
vs.
KENRICK DEVELOPMENT CORPORATION, Respondent.
DECISION
CORONA, J.:
The Republic of the Philippines assails the May 31, 2001
decision 1 and August 20, 2001 resolution of the Court of
Appeals in CA-G.R. SP No. 52948 in this petition for review
under Rule 45 of the Rules of Court.
This case stemmed from the construction by respondent
Kenrick Development Corporation of a concrete perimeter
fence around some parcels of land located behind the Civil
Aviation Training Center of the Air Transportation Office (ATO)
in 1996. As a result, the ATO was dispossessed of some
30,228 square meters of prime land. Respondent justified its
action with a claim of ownership over the property. It
presented Transfer Certificate of Title (TCT) Nos. 135604,
135605 and 135606 issued in its name and which allegedly
originated from TCT No. 17508 registered in the name of one
Alfonso Concepcion.
ATO verified the authenticity of respondent’s titles with the
Land Registration Authority (LRA). On May 17, 1996, Atty. Jose
Loriega, head of the Land Title Verification Task Force of the
LRA, submitted his report. The Registrar of Deeds of Pasay
City had no record of TCT No. 17508 and its ascendant title,
TCT No. 5450. The land allegedly covered by respondent’s
titles was also found to be within Villamor Air Base
(headquarters of the Philippine Air Force) in Pasay City.
By virtue of the report, the Office of the Solicitor General
(OSG), on September 3, 1996, filed a complaint for revocation,
annulment and cancellation of certificates of title in behalf of
the Republic of the Philippines (as represented by the LRA)
against respondent and Alfonso Concepcion. It was raffled to
Branch 114 of the Regional Trial Court of Pasay City where it
was docketed as Civil Case No. 96-1144.
On December 5, 1996, respondent filed its answer which was
purportedly signed by Atty. Onofre Garlitos, Jr. as counsel for
respondent.
Since Alfonso Concepcion could not be located and served
with summons, the trial court ordered the issuance of an alias
summons by publication against him on February 19, 1997.
The case was thereafter punctuated by various incidents
relative to modes of discovery, pre-trial, postponements or
continuances, motions to dismiss, motions to declare
defendants in default and other procedural matters.
During the pendency of the case, the Senate Blue Ribbon
Committee and Committee on Justice and Human Rights
conducted a hearing in aid of legislation on the matter of land
registration and titling. In particular, the legislative
investigation looked into the issuance of fake titles and
focused on how respondent was able to acquire TCT Nos.
135604, 135605 and 135606.
During the congressional hearing held on November 26, 1998,
one of those summoned was Atty. Garlitos, respondent’s
former counsel. He testified that he prepared respondent’s
answer and transmitted an unsigned draft to respondent’s
president, Mr. Victor Ong. The signature appearing above his
name was not his. He authorized no one to sign in his behalf
either. And he did not know who finally signed it.
With Atty. Garlitos’ revelation, the Republic promptly filed an
urgent motion on December 3, 1998 to declare respondent in
default, 2 predicated on its failure to file a valid answer. The
Republic argued that, since the person who signed the answer
was neither authorized by Atty. Garlitos nor even known to
him, the answer was effectively an unsigned pleading.
Pursuant to Section 3, Rule 7 of the Rules of Court, 3 it was a
mere scrap of paper and produced no legal effect.
On February 19, 1999, the trial court issued a resolution
granting the Republic’s motion. 4 It found respondent’s
answer to be sham and false and intended to defeat the
purpose of the rules. The trial court ordered the answer
stricken from the records, declared respondent in default and
allowed the Republic to present its evidence ex parte.
The Republic presented its evidence ex parte, after which it
rested its case and formally offered its evidence.
Meanwhile, respondent sought reconsideration of the
February 19, 1999 resolution but the trial court denied it.
Aggrieved, respondent elevated the matter to the Court of
Appeals via a petition for certiorari 5 seeking to set aside the
February 19, 1999 resolution of the trial court. Respondent
contended that the trial court erred in declaring it in default
for failure to file a valid and timely answer.
On May 31, 2001, the Court of Appeals rendered the assailed
decision. It found Atty. Garlitos’ statements in the legislative
hearing to be unreliable since they were not subjected to
cross-examination. The appellate court also scrutinized Atty.
Garlitos’ acts after the filing of the answer 6 and concluded
that he assented to the signing of the answer by somebody in
his stead. This supposedly cured whatever defect the answer
may have had. Hence, the appellate court granted
respondent’s petition for certiorari. It directed the lifting of the
order of default against respondent and ordered the trial court
to proceed to trial with dispatch. The Republic moved for
reconsideration but it was denied. Thus, this petition.
Did the Court of Appeals err in reversing the trial court’s order
which declared respondent in default for its failure to file a
valid answer? Yes, it did.
A party may, by his words or conduct, voluntarily adopt or
ratify another’s statement. 7 Where it appears that a party
clearly and unambiguously assented to or adopted the
statements of another, evidence of those statements is
admissible against him. 8 This is the essence of the principle
of adoptive admission.
An adoptive admission is a party’s reaction to a statement or
action by another person when it is reasonable to treat the
party’s reaction as an admission of something stated or
implied by the other person. 9 By adoptive admission, a third
person’s statement becomes the admission of the party
embracing or espousing it. Adoptive admission may occur
when a party:
(a) expressly agrees to or concurs in an oral statement made
by another; 10
(b) hears a statement and later on essentially repeats it; 11
(c) utters an acceptance or builds upon the assertion of
another; 12
(d) replies by way of rebuttal to some specific points raised by
another but ignores further points which he or she has heard
the other make 13 or
(e) reads and signs a written statement made by another. 14
Here, respondent accepted the pronouncements of Atty.
Garlitos and built its case on them. At no instance did it ever
deny or contradict its former counsel’s statements. It went to
great lengths to explain Atty. Garlitos’ testimony as well as its
implications, as follows:
1. While Atty. Garlitos denied signing the answer, the fact was
that the answer was signed. Hence, the pleading could not be
considered invalid for being an unsigned pleading. The fact
that the person who signed it was neither known to Atty.
Garlitos nor specifically authorized by him was immaterial.
The important thing was that the answer bore a signature.
2. While the Rules of Court requires that a pleading must be
signed by the party or his counsel, it does not prohibit a
counsel from giving a general authority for any person to sign
the answer for him which was what Atty. Garlitos did. The
person who actually signed the pleading was of no moment as
long as counsel knew that it would be signed by another. This
was similar to addressing an authorization letter "to whom it
may concern" such that any person could act on it even if he
or she was not known beforehand.
3. Atty. Garlitos testified that he prepared the answer; he
never disowned its contents and he resumed acting as
counsel for respondent subsequent to its filing. These
circumstances show that Atty. Garlitos conformed to or
ratified the signing of the answer by another.
Respondent repeated these statements of Atty. Garlitos in its
motion for reconsideration of the trial court’s February 19,
1999 resolution. And again in the petition it filed in the Court
of Appeals as well as in the comment 15 and memorandum it
submitted to this Court.
Evidently, respondent completely adopted Atty. Garlitos’
statements as its own. Respondent’s adoptive admission
constituted a judicial admission which was conclusive on it.
Contrary to respondent’s position, a signed pleading is one
that is signed either by the party himself or his counsel.
Section 3, Rule 7 is clear on this matter. It requires that a
pleading must be signed by the party or counsel representing
him.
Therefore, only the signature of either the party himself or his
counsel operates to validly convert a pleading from one that is
unsigned to one that is signed.
Counsel’s authority and duty to sign a pleading are personal
to him. He may not delegate it to just any person.
The signature of counsel constitutes an assurance by him that
he has read the pleading; that, to the best of his knowledge,
information and belief, there is a good ground to support it;
and that it is not interposed for delay. 16 Under the Rules of
Court, it is counsel alone, by affixing his signature, who can
certify to these matters.
The preparation and signing of a pleading constitute legal
work involving practice of law which is reserved exclusively
for the members of the legal profession. Counsel may
delegate the signing of a pleading to another lawyer 17 but
cannot do so
in favor of one who is not. The Code of Professional
Responsibility provides:
Rule 9.01 ― A lawyer shall not delegate to any unqualified
person the performance of any task which by law may only be
performed by a member of the Bar in good standing.
Moreover, a signature by agents of a lawyer amounts to
signing by unqualified persons, 18 something the law strongly
proscribes.
Therefore, the blanket authority respondent claims Atty.
Garlitos entrusted to just anyone was void. Any act taken
pursuant to that authority was likewise void. There was no
way it could have been cured or ratified by Atty. Garlitos’
subsequent acts.
Moreover, the transcript of the November 26, 1998 Senate
hearing shows that Atty. Garlitos consented to the signing of
the answer by another "as long as it conformed to his draft."
We give no value whatsoever to such self-serving statement.
No doubt, Atty. Garlitos could not have validly given blanket
authority for just anyone to sign the answer. The trial court
correctly ruled that respondent’s answer was invalid and of no
legal effect as it was an unsigned pleading. Respondent was
properly declared in default and the Republic was rightly
allowed to present evidence ex parte.
Respondent insists on the liberal application of the rules. It
maintains that even if it were true that its answer was
supposedly an unsigned pleading, the defect was a mere
technicality that could be set aside.
Procedural requirements which have often been disparagingly
labeled as mere technicalities have their own valid raison d’
etre in the orderly administration of justice. To summarily
brush them aside may result in arbitrariness and injustice. 19
The Court’s pronouncement in Garbo v. Court of Appeals 20 is
relevant:
Procedural rules are [tools] designed to facilitate the
adjudication of cases. Courts and litigants alike are thus
[enjoined] to abide strictly by the rules. And while the Court,
in some instances, allows a relaxation in the application of the
rules, this, we stress, was never intended to forge a bastion
for erring litigants to violate the rules with impunity. The
liberality in the interpretation and application of the rules
applies only in proper cases and under justifiable causes and
circumstances. While it is true that litigation is not a game of
technicalities, it is equally true that every case must be
prosecuted in accordance with the prescribed procedure to
insure an orderly and speedy administration of justice.
Like all rules, procedural rules should be followed except only
when, for the most persuasive of reasons, they may be
relaxed to relieve a litigant of an injustice not commensurate
with the degree of his thoughtlessness in not complying with
the prescribed procedure. 21 In this case, respondent failed to
show any persuasive reason why it should be exempted from
strictly abiding by the rules.
As a final note, the Court cannot close its eyes to the acts
committed by Atty. Garlitos in violation of the ethics of the
legal profession. Thus, he should be made to account for his
possible misconduct.
WHEREFORE, the petition is hereby GRANTED. The May 31,
2001 decision and August 20, 2001 resolution of the Court of
Appeals in CA-G.R. SP No. 52948 are REVERSED and SET
ASIDE and the February 19, 1999 resolution of the Regional
Trial Court of Pasay City, Branch 114 declaring respondent in
default is hereby REINSTATED.
Let a copy of this decision be furnished the Commission on
Bar Discipline of the Integrated Bar of the Philippines for the
commencement of disbarment proceedings against Atty.
Onofre Garlitos, Jr. for his possible unprofessional conduct not
befitting his position as an officer of the court.
SO ORDERED.
RENATO C. CORONA
Associate Justice
WE CONCUR:
REYNATO S. PUNO
Associate Justice
Chairperson
ANGELINA SANDOVAL-GUTIERREZ ADOLFO S. AZCUNA
Associate Justice Associate Justice
CANCIO C. GARCIA
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been
reached in consultation before the case was assigned to the
writer of the opinion of the Court’s Division.
REYNATO S. PUNO
Associate Justice
Chairperson, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the
Division Chairperson’s Attestation, I certify that the
conclusions in the above decision had been reached in
consultation before the case was assigned to the writer of the
opinion of the Court’s Division.
ARTEMIO V. PANGANIBAN
Chief Justice
Footnotes
1 Penned by Associate Justice Bennie A. Adefuin-de la Cruz
(now retired) and concurred in by Associate Justices Andres B.
Reyes, Jr. and Josefina Guevara-Salonga of the Fifteenth
Division of the Court of Appeals; rollo, pp. 35-43.
2 Id., pp. 62-64.
3 SEC. 3. Signature and address. – Every pleading must be
signed by the party or counsel representing him, stating in
either case his new address which should not be a post office
box.
The signature of counsel constitutes a certificate by him that
he has read the pleading; that to the best of his knowledge,
information and belief there is a good ground to support it;
and that it is not interposed for delay.
An unsigned pleading produces no legal effect. However, the
court may, in its discretion, allow such deficiency to be
remedied if it shall appear that the same was due to mere
inadvertence and not intended to delay. Counsel who
deliberately files an unsigned pleading, or signs a pleading in
violation of this Rule, or alleges scandalous or indecent matter
therein, or fails to promptly report to the court a change of his
address, shall be subject to appropriate disciplinary action.
4 Resolution dated February 19, 1999 in Civil Case No. 96-
1144; rollo, pp. 65-69.
5 Docketed as CA-G.R. SP No. 52948.
6 These circumstances included Atty. Garlitos’ knowledge that
somebody signed the answer for him yet allowed its filing in
court; he did not protest the signing of the answer by another
person; he admitted that he was the one who drafted the
answer and he did not disown its contents; after the filing of
the answer, he continued to represent respondent in Civil
Case No. 96-1144.
7 Herrera, Remedial Law, Vol. V, 1999 edition, Rex Bookstore,
p. 371.
8 Id.
9 Estrada v. Desierto, G.R. Nos. 146710-15, 03 April 2001, 356
SCRA 108.
10 Section 797 on Evidence, 29A AmJur 2d 174 citing United
States v. Costanzo, (CA2 NY) 581 F2d 28.
11 Id. citing United States v. Weaver, (CA8 Ark) 565 F2d 129.
12 Id. citing United States v. Di Giovanni, (CA2 NY) 544 F2d
642.
13 Id. citing United States v. King, (CA2 NY) 56 F2d 122.
14 Id. citing United States v. Johnson, (CA8 Mo) 529 F2d 581.
15 A transcript of the proceedings of the November 26, 1998
Senate hearing was even attached to the comment as an
annex.
16 See note 3 supra.
17 Ruben E. Agpalo, Legal Ethics, 6th edition (1997), pp. 236-
237.
18 U.S v. Ney, 8 Phil. 146 (1967).
19 Trimica, Inc. v. Polaris Marketing Corporation, G.R. No. L-
29887, 28 October 1974, 60 SCRA 321.
20 327 Phil. 780 (1996).
21 Social Security System v. Chaves, G.R. No. 151259, 13
October 2004, 440 SCRA 269.
[G.R. No. 172449, August 20, 2008]
LAZARO MADARA, ALFREDO D. ROA III, AND JOAQUIN T.
VENUS, PETITIONERS, VS. HON. NORMA C. PERELLO,
PRESIDING JUDGE OF BRANCH 276, REGIONAL TRIAL COURT,
MUNTINLUPA CITY, FELIX M. FALCOTELO, SHERIFF-IN-CHARGE
MUNTINLUPA CITY, PHILIPPINE AMUSEMENT AND GAMING
CORPORATION, AND PROVIDENT INTERNATIONAL RESOURCES
CORPORATION, REPRESENTED BY EDWARD T. MARCELO,
CONSTANCIO D. FRANCISCO, ANNA MELINDA MARCELO-
REVILLA, LYDIA J. CHUANICO, DANIEL T. PASCUAL, LINDA J.
MARCELO, JOHN J. MARCELO, CELIA C. CABURNAY,
CELEDONIO P. ESCANO, JR., AND THE REGISTER OF DEEDS OF
MUNTINLUPA CITY, RESPONDENTS.
DECISION
BRION, J.:
Submitted for our decision is the Amended Petition for Review
on Certiorari[1] of the Decision of the Court of Appeals dated
20 December 2005[2] and its Resolution dated 24 April
2006[3] in CA-G.R. SP No. 90821,[4] filed by the petitioners
Lazaro Madara (Madara), Alfredo D. Roa III (Roa), and Joaquin
T. Venus (Venus) [collectively, the petitioners].
THE ANTECEDENTS
The amended petition originated from two (2) separate
amended complaints purportedly filed by Provident
International Resources Corporation as plaintiff (plaintiff PIRC)
with the Regional Trial Court of Muntinlupa City. [As the
narration below will show, two groups claim to represent the
PIRC; to distinguish between them when necessary, one is
herein named the plaintiff PIRC while the other is the real
PIRC.]
The first amended complaint, filed on 15 October 2002 and
entitled Provident International Resources Corporation v.
Philippine Amusement and Gaming Corp. (PAGCOR), Mr.
Efraim Genuino, as Chairman, Mr. Rafael Francisco, as
President, JOHN DOES AND JANE DOES, was docketed as Civil
Case No. 02-228.[5] The amended complaint states, among
others, that: (1) the petitioners Madara, Roa and Venus, as
well as Jose Ma. Carlos Zumel and Luis A. Asistio, were elected
plaintiff PIRC's directors for the year 2002-2003 and that
some of them, as well as a certain Santiago Alvarez (Alvarez)
who was elected General Manager, were subsequently elected
corporate officers; (2) despite information to PAGCOR (the
lessee of one of the PIRC properties) of the election of the new
set of directors and corporate officers, PAGCOR continued to
remit its lease rentals to PIRC's former corporate officers. The
amended complaint asks: (1) that PAGCOR be ordered to pay
its monthly lease rentals to Roa and/or Alvarez, and/or any of
their authorized representatives and no other; and (2) for the
issuance of a temporary restraining order and a writ of
preliminary mandatory injunction. Roa, as the President of
plaintiff PIRC, verified the complaint while Venus, in his
capacity as plaintiff PIRC's Corporate Secretary, signed the
Secretary's Certificate attesting to Roa's authority to institute
the action.
An Answer in Intervention[6] was filed also in the name of
PIRC (real PIRC) and the herein private respondents
Constancio D. Francisco (Francisco), Edward T. Marcelo
(Edward Marcelo), Lydia J. Chuanico (Chuanico), Daniel T.
Pascual (Pascual) and Anna Melinda Marcelo-Revilla (Marcelo-
Revilla). The pleading essentially states that the private
respondents, rather than the petitioners, are the bona fide
directors and officers of PIRC and that the petitioners, Zumel,
Asistio and Valdez are not even stockholders of PIRC - they
are mere pretenders who intended to grab power and control
of PIRC. The private respondents asked for: (1) the denial of
the injunctive reliefs asked in the amended complaint; (2) the
dismissal of the complaint; and (3) damages and attorney's
fees.
The second amended complaint, filed on 5 December 2002,
was docketed as Civil Case No. 02-238 and entitled Provident
International Resources Corporation v. Edward T. Marcelo,
Constancio D. Francisco, Anna Melinda Marcelo-Revilla, Linda
J. Marcelo, John J. Marcelo, Celia C. Caburnay and Celedonio P.
Escaño, Jr.[7] The complaint essentially alleges that: (1) the
original incorporators of PIRC - Chuanico, Franciso, Jose A.
Lazaro, Edward Marcelo and Pascual - merely held the initial
paid-up stockholdings in trust for the real stockholders - the
petitioners, Zumel and Asistio; thus, the incorporators at the
time of PIRC's incorporation in 1979 executed Deeds of
Assignment in blank, Deeds of Transfer in blank, waiver of
pre-emptive rights and endorsement in blank of their stock
certificates; (2) on 7 August 2002, the blank deeds and
transfer documents were completed to effect the transfer to
the petitioners, Zumel and Asistio; (3) at a stockholder's
meeting, it was agreed that the PIRC directors who have not
voluntarily resigned shall be considered removed and an
election of new directors conducted; at this election, the
petitioners, Zumel and Asistio were elected new directors and
following an organizational meeting, the new board elected a
new set of PIRC officers; (4) despite the election of the new
set of PIRC officers, the named defendants continue to
unlawfully exercise possession of the PIRC office,
misrepresent themselves as directors and officers of PIRC and
unlawfully exercise acts on behalf of PIRC; all these malicious
acts caused PIRC damage and prejudice.
The second complaint asks for the issuance of a temporary
restraining order and a writ of preliminary injunction and/or
preliminary mandatory injunction and also a permanent
injunction to enjoin the named defendants from acting as
directors and officers of PIRC and from taking custody of
corporate records. As in the first amended complaint, the
complaint was verified by Roa and the Secretary's Certificate
attesting to Roa's authority was signed by Venus.
In their Answer to the Amended Complaint in Civil Case No.
02-238 (i.e., to the second complaint), with (1) Motion to
Implead the Real PIRC and the Fraudulent Interlopers as
Indispensable Parties (2) Motion for Preliminary Hearing on
Affirmative Defenses and (3) Compulsory Counterclaims,[8]
the named defendants (except PAGCOR and its officers) in
both Civil Case No. 02-228 and Civil Case No. 02-238
maintained that they are the genuine directors and officers of
PIRC. The named defendants asked for: (1) the addition of the
petitioners, Zumel and Asistio as parties-plaintiffs and the real
PIRC as party-defendant; (2) the dismissal of the complaint in
Civil Case No. 02-238 after hearing on the affirmative
defenses; (3) the issuance of a writ of permanent injunction
against the petitioners, Zumel and Asistio; and (4) that they
be ordered to solidarily pay the named defendants and real
PIRC moral, exemplary, actual and nominal damages,
attorney's fees, litigation expenses and treble costs.
The two amended complaints were consolidated and were
raffled to Branch 256 of the RTC Muntinlupa City which issued
a 20-day temporary restraining order. PAGCOR complied with
the temporary restraining order by remitting the rental to
Alvarez. Thereafter, the Presiding Judge of Branch 256
inhibited himself from the case. The case was thereafter
assigned to Branch 276 of the RTC Muntinlupa City (RTC)
which, in turn, issued the preliminary prohibitory injunction
that the private respondents prayed for.[9]
After trial and submission of all relevant evidence in the
consolidated cases, the RTC ruled in favor of the intervenors-
defendants (the private respondents herein), finding them to
be the true and duly constituted members of the board of
directors and the duly elected officers of PIRC. The RTC found
as well that the petitioners were non-PIRC stockholders and
therefore were not qualified for election either as directors or
corporate officers. Having therefore no right to receive the
lease rentals due from PAGCOR, the RTC ordered the
petitioners to jointly return to the real PIRC the rental
payments for the period covering October 19 to November 18,
2002. The petitioners, as well as Zumel and Asistio, were also
ordered to pay the private respondents damages in the
amount of P5,000,000.00, attorney's fees of P500,000,00 and
the actual cost of litigation. The dispositive part of the RTC
decision reads:
PRESCINDING, the PETITION FOR MANDATORY INJUNCTION
is never denied (sic). But the Preliminary Prohibitory
Injunction, issued for the INTERVENORS/DEFENDANTS is made
permanent, and the Group of plaintiffs directed to
permanently desists (sic) and stop from disturbing the
operation of the Corporation by the same
INTERVENOR/DEFENDANTS, who are found to be the true and
duly constituted Officers of the Corporation, legally voted as
such Officers and as Members of the Board of Directors. The
Civil Complaint against them, Civil Case Nos. 02-238 is hereby
dismissed.
It has been shown that the Group of Plaintiffs, JOSE MA.
CARLOS L. ZUMEL, ALFREDO D. ROA III, LAZARO L. MADARA,
JOAQUIN T. VENUS and SANTIAGO ALVAREZ, JR. never had any
right to receive rental from defendant PHILIPPINE AMUSEMENT
AND GAMING CORPORATION. This Group of Plaintiffs, JOSE MA.
CARLOS L. ZUMEL, ALFREDO D. ROA III, LAZARO L. MADARA,
JOAQUIN T. VENUS and SANTIAGO ALVAREZ, JR. are therefore
directed to jointly and unilaterally return to the Corporation
the rental payments for the month of October 19 to November
18, 20002, which they collectively receive, without any right
to collect and receive such rental.
Since by reason of this suit it has been shown that the
Intervenors/Defendants, being EDWARD T. MARCELO,
CONSTANCIO D. FRANCISCO, ANNA MELINDA MARCELO-
REVILLA, LINDA J. MARCELO, JOHN J. MARCELO, CELIA C.
CABURNAY and CELEDONIO P. ESCAÑO, sustained injuries
and damages not only to the reputation of the corporation but
also personally as officers and members of the Corporation
Board, damages is tolled against the Plaintiffs, JOSE MA.
CARLOS L. ZUMEL, ALFREDO D. ROA III, LAZARO L. MADARA,
JOAQUIN T. VENUS and SANTIAGO ALVAREZ, JR. which they
must pay jointly and unilaterally to the
Intervenors/Defendants, being EDWARD T. MARCELO,
CONSTANCIO D. FRANCISCO, ANNA MELINDA MARCELO-
REVILLA, LINDA J. MARCELO, JOHN J. MARCELO, CELIA C.
CABURNAY and CELEDONIO P. ESCAÑO, JR. in the sum of FIVE
MILLION PESOS (P5,000,000.00).
Since Intervenors/Defendants EDWARD T. MARCELO,
CONSTANCIO D. FRANCISCO, ANNA MELINDA MARCELO-
REVILLA, LINDA J. MARCELO, JOHN J. MARCELO, CELIA C.
CABURNAY and CELEDONIO P. ESCAÑO, JR. were forced to
litigate and defend themselves thru counsel, attorney's fees in
the sum of FIVE HUNDRED THOUSAND PESOS (P 500,000.00)
JOSE MA. CARLOS L. ZUMEL, ALFREDO D. ROA III, LAZARO L.
MADARA, JOAQUIN T. VENUS and SANTIAGO ALVAREZ, JR.
which they must pay jointly and unilaterally.
The actual cost of this litigation is also tolled against the
Group of plaintiffs.
 SO ORDERED.[10]
The plaintiff PIRC filed a Notice of Appeal on 16 May 2005.[11]
The private respondents opposed on the ground that the
petitioners had taken a wrong mode of review; under the
Interim Rules and Procedures governing intra-corporate
controversies, as amended by Resolution En Banc, A.M. No.
04-9-07, the party aggrieved by the decision of a
commercial/corporate court has fifteen (15) days from receipt
of the decision within which to file a Petition for Review under
Rule 43 with the Court of Appeals, not a Notice of Appeal.[12]
The private respondents also filed a Motion to Disregard
Notice of Appeal and For Entry of Judgment[13] and a Motion
for Immediate Issuance of Writ of Execution.[14] The plaintiff
PIRC's response was a Manifestation, In lieu of Opposition
asking that the RTC consider its Notice of Appeal as
withdrawn.[15]
Roa, Madara, Venus and Alvarez, then filed a Motion to Admit
Petition for Reviewwith the attached Petition for Review dated
June 13, 2005[16] with the Court of Appeals. The petition was
filed by the petitioners and Santiago Alvarez[17] and was
docketed CA-G.R. SP No. 90147. Via an Ex-Parte Manifestation
and Motion dated 20 June 2005,[18] they asked the Court of
Appeals to consider their petition for review as withdrawn.
The petitioners then filed before the trial court a Petition for
Relief from Judgment dated 28 June 2005,[19] alleging that:
(1) they were prevented from (a) presenting rebuttal
evidence, or at the very least, taking an appeal from the
supposed denial of their motion to present rebuttal evidence,
(b) filing a memorandum and (c) sufficiently proving their
case through fraud, mistake or excusable negligence; and (2)
they have good and substantial causes of action. They asked:
(1) for the issuance of a temporary restraining order and/or
preliminary injunction; (2) the setting aside of the RTC
decision dated 23 April 2005; and (3) a permanent injunction
enjoining the private respondents from acting as directors and
officers of PIRC.
In an Order dated 30 June 2005[20] that resolved the
incidents pending before it (namely, the Notice of Appeal, the
Opposition thereto, and private respondents' motion for the
immediate issuance of the writ of execution), the RTC ruled
that its decision had become final and executory and entry of
judgment was in order. The RTC cited as basis the procedural
errors the plaintiff PIRC committed in filing a notice of appeal
instead of a petition for review, and in later filing a belated
petition for review. The RTC also granted the private
respondents' motion for the issuance of a writ of execution.
The RTC denied in its Order dated 1 July 2005 the petition for
relief from judgment for deficiency in form and substance.[21]
Meanwhile, in a Resolution promulgated on 19 July 2005, the
Court of Appeals granted the petitioners' Ex-Parte
Manifestation and Motion in CA-G.R. SP No. 90147, resulting in
the withdrawal of the Petition for Review.
On July 19, 2005, the plaintiff ROA group filed a Very Urgent
Motion [To Quash or Recall Writ of Execution].[22] The
petitioners then filed a Motion for Reconsideration dated 26
July 2005 of the RTC Order of July 1, 2005.[23]
These RTC incidents were still pending resolution when the
petitioners filed on August 10, 2005, a Petition for
Certiorari[24] under Rule 65 of the Revised Rules of Court
with the Court of Appeals, assailing on the ground of grave
abuse of discretion the following orders issued by the RTC and
the various notices issued by the sheriff -
a. Decision dated 23 April 2005
b. Order dated 30 June 2005
c. Writ of Execution dated 5 July 2005
d. Order dated 1 July 2005
e. Notice to Pay dated 7 July 2005
f. Notice of Levy on Execution dated 14 July 2005
g. Notice of Sale on Execution of Real Property dated 14
July 2005
h. Notice to Parties of Sheriff's Auction Sale dated 17 July
2005
The petition was docketed as CA-G.R. SP No. 90821. The
petition essentially imputed grave abuse of discretion on the
public respondents for issuing the assailed orders and notices
which were commonly directed towards the enforcement of
the RTC decision against the petitioners. The petitioners
posited that the enforcement of the RTC decision and of the
court's orders and notices against them would violate their
right to due process as they were not parties to the case;
even assuming that they were parties, they were never
notified of the proceedings from beginning to end so that the
decision is void as against them.
The private respondents filed an Urgent Manifestation Ex
Abudanti Ad Cautelam and a Comment on the petition in CA-
G.R. SP No. 90821. In their Manifestation, the private
respondents alleged that the petitioners committed forum
shopping.[25]
While CA-G.R. SP No. 90821 was pending, the RTC denied in
an Order dated 31 August 2005[26] (1) the petitioners' motion
for reconsideration of the 1 July 2005 Order and (2) the
plaintiff Roa group's Urgent Motion to Quash or Recall Writ of
Execution.
On 7 November 2005, the petitioners in their own and
individual capacities[27] filed another Petition for Certiorari
with the Court of Appeals assailing the interrelated 1 July
2005 and 31 August 2005 orders. This petition was docketed
CA-G.R. SP No. 91950.[28]
Significantly, the petitioner never disclosed - in the present
petition before this Court - all these material developments,
including the filing of the petition in CA-G.R. SP No. 91950.
Only the private respondents informed us of these
developments in their Comment on the petition. The
petitioners never denied that they filed CA-G.R. SP No. 91950
with the Court of Appeals.
Meanwhile, the Court of Appeals dismissed - via the decision
assailed in the present petition - the petition in CA-G.R. SP No.
90821 for lack of merit and forum shopping. The Court of
Appeals found that even if PIRC had been named as plaintiff in
the Civil Cases No. 02-228 and 02-238, the petitioners were
the ones actually interested in the lease rentals due from
PAGCOR in view of their claim that they were the newly
elected directors and officers of PIRC; the petitioners could
not deny that they were parties to the consolidated civil cases
because they claimed in their subsequent pleadings with the
RTC that they were the plaintiffs who had commenced the
consolidated civil cases; thus, they voluntarily submitted
themselves to the RTC's jurisdiction and could not claim
denial of due process. The forum shopping conclusion, on the
other hand, was based on the appellate court's observation
that the petition filed before it was the petitioners' fourth
attempt to question the RTC decision, and that the petitioners
had filed the petition without waiting for the resolution of the
motion for reconsideration of the Order dated 1 July 2005 and
the urgent motion to quash/recall writ of execution the
petitioners had filed with the RTC.
The petitioners moved to reconsider the Decision,[29] but the
Court of Appeals denied the motion in the second order
assailed in this petition.
Thereupon, the petitioners filed the present petition, asking us
to rule on the following ISSUES -
1. WHETHER OR NOT THE COURT OF APPEALS ERRED IN
NOT FINDING THAT THE RESPONDENT JUDGE ACTED WITH
GRAVE ABUSE OF DISCRETION OR WITHOUT JURISDICTION IN
HOLDING PETITIONERS PERSONALLY LIABLE DESPITE THEIR
NOT BEING PARTIES TO THE CASE.
2. WHETHER THE COURT OF APPEALS ERRED IN FINDING
PETITIONERS GUILTY OF FORUM SHOPPING.
The petitioners argue that they were not parties to the
consolidated civil cases and cannot therefore be bound by the
decision; their properties cannot likewise be levied on
execution. This argument is anchored on the positions that:
(1) the titles of the consolidated cases do not include them as
they were neither plaintiffs nor defendants in these cases; if
they were defendants they should have been served with
summons; (2) they never took part in the pre-trial
proceedings or in the trial proper; only the PIRC and the
private respondents offered their evidence; (3) the records
will show that nobody ever came forward and appeared as
counsel for any of the petitioners; and (4) they had no
participation in the case except to cause the filing of the
consolidated civil cases, which they did as mere
representatives.
Additionally, the petitioners argue that the pleadings cited by
the Court of Appeals purportedly showing that the petitioners
were parties to the consolidated cases were filed after the
RTC rendered judgment; this is the natural reaction of persons
who, while not parties to the case, were being held liable
under the RTC decision. Thus, the filing of these post-
judgment pleadings cannot mean that they were parties; a
mere claim in a post-judgment pleading that they are parties,
which is however negated by the records of the case, is an
inconsequential oversight and should not be considered as
voluntary submission to the jurisdiction of the court. They also
claim denial of due process for being denied the opportunity
to be heard - they were not given the chance to file a
complaint or answer, to participate in the pre-trial conference
and in the trial by submitting evidence. In sum, they claim
that the judgment as against them is void.[30]
On forum shopping, the petitioners claim that their motion for
reconsideration of the 1 July 2005 Order had been rendered
functus officio by the successive issuances - the Writ of
Execution, Notice to Pay, Notice of Levy on Execution, Notice
of Sale on Execution of Real Property, the Notice to Parties of
Sheriff's Auction Sale, the Auction Sale and Certificate of Sale
- which left them with no recourse but to consider their
motion denied for purposes of seeking immediate and
adequate reliefs from the Court of Appeals; that, in fact, even
after the filing of their petition with the Court of Appeals, the
execution of the RTC decision proceeded. All these allegedly
show that, to all intents and purposes, there was no more
pending motion for reconsideration at the time they sought
relief from the Court of Appeals; the denial too of the motion
for reconsideration on 31 August 2005 was nothing but a
mere formality.[31]
OUR RULING
We see no merit in the petition as the appellate court's
dismissal of the petition in CA-GR SP No. 90821 on the ground
of the petitioners' forum shopping is correct. Separately from
the forum shopping violation before the Court of Appeals in
CA-GR SP No. 90821, the petitioners also committed forum
shopping and violated their forum shopping certification in
seeking relief from this Court. Lastly, on the merits, we see no
reversible error in the Court of Appeals' finding that the
petitioners were parties to Civil Cases Nos. 02-228 and 02-238
who can be held liable for the RTC's decision in these cases.
Forum shopping is the institution of two or more actions or
proceedings involving the same parties for the same cause of
action, either simultaneously or successively, on the
expectation that one or the other court would render a
favorable disposition. It is the losing party's attempt, other
than by appeal or by the special civil action of certiorari, to
seek a favorable judgment in another forum. By its nature, it
is a reprehensible practice that manipulates the court system
and abuses its processes; it degrades the administration of
justice; and it wastes valuable court resources that can
otherwise be used in other priority areas in the dispensation
of justice.[32] It is particularly pernicious when it introduces
the possibility - because the losing party is asking different
courts to rule on the same or related causes and to grant the
same or substantially the same reliefs - of conflicting
decisions being rendered by different fora on the same issues.
[33]
To determine whether a party violated the rule against forum
shopping, the most important factor to ask is whether the
elements of litis pendentia are present, or whether a final
judgment in one case will amount to res judicata in another.
Otherwise stated, the test is whether the two (or more)
pending cases have identity of parties, of rights or causes of
action, and of the reliefs sought.[34] Willful and deliberate
violation of the rule against it is a ground for summary
dismissal of the case; it may also constitute direct
contempt."[35]
Forum Shopping at the Court of Appeals
We agree with the Court of Appeals that the petitioners
indulged in a clear case of forum shopping before it. One of
the assailed orders in CA - GR SP No. 90821 was the RTC's 1
July 2005 Order. At the time the petition was filed with the
appellate court, the RTC had yet to resolve the motion for
reconsideration of the 1 July 2005 Order. This is a clear case
of forum shopping, as the petitioners sought, at the same
time, two separate remedies with two different judicial venues
(the RTC and the Court of Appeals), to obtain one and the
same relief - the nullification of the RTC decision in Civil Case
Nos. 02-228 and 02-238 and its non-enforcement against the
individual petitioners.
We so conclude despite the fact that what the petitioners filed
was a petition for certiorari, a recourse that - in the usual
course and because of its nature and purpose - is not covered
by the rule on forum shopping. The exception from the forum
shopping rule, however, is true only where a petition for
certiorari is properly or regularly invoked in the usual course;
the exception does not apply when the relief sought, through
a petition for certiorari, is still pending with or has as yet to be
decided by the respondent court, tribunal or body exercising
judicial or quasi-judicial body, e.g., a motion for
reconsideration of the order assailed via a petition for
certiorari under Rule 65, as in the present case. This
conclusion is supported and strengthened by Section 1, Rule
65 of the Revised Rules of Court which provides that the
availability of a remedy in the ordinary course of law
precludes the filing of a petition for certiorari; under this rule,
the petition's dismissal is the necessary consequence if
recourse to Rule 65 is prematurely taken.
To be sure, the simultaneous remedies the petitioners sought
could result in possible conflicting rulings, or at the very least,
to complicated situations, between the RTC and the Court of
Appeals. An extreme possible result is for the appellate court
to confirm that the RTC decision is meritorious, yet the RTC
may at the same time reconsider its ruling and recall its order
of dismissal. In this eventuality, the result is the affirmation of
the decision that the court a quo has backtracked on. Other
permutations depending on the rulings of the two courts and
the timing of these rulings are possible. In every case, our
justice system suffers as this kind of sharp practice opens the
system to the possibility of manipulation; to uncertainties
when conflict of rulings arise; and at least to vexation for
complications other than conflict of rulings. Thus, it matters
not that ultimately the Court of Appeals may completely
agree with the RTC; what the rule on forum shopping
addresses are the possibility and the actuality of its harmful
effects on our judicial system.
We find no merit too in petitioners' excuse, offered in the
present petition, that there was no pending motion for
reconsideration to speak of at the time they sought relief from
the Court of Appeals, as their motion had been impliedly but
effectively denied by the RTC. This explanation or excuse is
significantly weakened by the petitioners' subsequent filing of
yet another petition for certiorari assailing for the second time
the 1 July 2005 Order and for the first time the related 31
August 2005 Order. While the petitioners claimed effective
implied denial of their motion for reconsideration before the
RTC to justify their premature petition in CA-G.R. SP No.
90821 and to escape a forum shopping charge, they wasted
no time at all in filing another petition in CA-G.R. SP No. 91950
to assail the formal denial of their motion for reconsideration.
These varying stances indicate to us that the real standard
the petitioners follow is their convenience, not the procedural
orderliness that the Rules of Court wish to foster; they
disregard the Rules as their convenience dictates. As a result,
there were two pending petitions before the Court of Appeals
between 7 November 2005 (the date the subsequent CA-G.R.
SP No. 91950 was filed) and 20 December 2005 (the date CA-
G.R. SP No. 90821 was promulgated) questioning the 1 July
2005 RTC Order and asking for the same reliefs - the nullity of
the RTC decision of 23 April 2005 and its non-enforcement
against the individual petitioners.
Forum Shopping With this Court
The records before us do not disclose whether the petitioners
ever informed the Division of the Court of Appeals handling
CA-G.R. SP No. 90821 of the filing of the petition in CA-G.R. SP
No. 91950, in light of the requirement that the petitioners in a
Rule 65 petition are committed to inform the court of the filing
of a similar action or proceeding within 5 days from
knowledge of such filing. The petitioners' filing of the second
petition before the Court of Appeals is however replete with
significance in relation with the present petition before this
Court.
In the required sworn certification attached to the petition for
review filed with us, the petitioners stated under oath that
they have not commenced any other action or proceeding
involving the same issues in the Supreme Court, Court of
Appeals or any other tribunal or agency, or that any such
action or proceeding is pending with us, the Court of Appeals,
or any other tribunal agency. Additionally, they undertook to
report to this Court the filing of any similar action or
proceedings within 5 days from knowledge of such filing.
Despite this certification and undertaking, the petitioners
never disclosed to this Court the pendency of CA-GR SP No.
91950 or any of its material developments; thus, we are left in
the dark, up to now, on the status and fate of CA-GR SP No.
91950. As far as we know, there are two pending cases
dealing with the issues before us - CA-G.R. SP No. 91950 and
the present petition.
Clearly, therefore, the petitioners forum-shopped when it filed
the present petition. They also filed with this Court a false
certification of non-forum shopping and blatantly violated as
well their undertaking in their sworn certification. If only for
these reasons, the present petition for review must be
summarily dismissed.
In light of these reasons, we see no need to discuss at length
the other issues the petitioners raised except to say that we
see no reversible error, under the unique fact situation of this
case, with the Court of Appeals' decision holding the
petitioners individually liable under the RTC decision.
(a) The individual petitioners pursued their interests, not that
of the PIRC, in filing the consolidated complaints, although
they formally did so under the cover and in the name of the
PIRC. Their interests were not only implied from the recitals of
the complaints but were expressed as well in the various
pleadings they filed, as narrated in the assailed Court of
Appeals decision. No genuine issue of due process arises after
the petitioners had the opportunity to be heard on their
individual interests and after they admitted in their various
pleadings that they were the complainants who had initiated
the consolidated cases. [36]
(b) We additionally note that the petitioners actually
misrepresented themselves as stockholders, directors and
officers of PIRC - an existing corporation with duly elected
directors and officers - and under their assumed capacities as
officers of the PIRC filed the amended complaints with the
RTC purportedly on PIRC's behalf. To our mind, this clearly
indicates the petitioners' design to use the PIRC's separate
corporate personality as a shield against any possible or
potential personal liability. Interestingly enough, after
shielding their individual selves behind the PIRC through
misrepresentation, the petitioners now seek refuge from the
various provisions of the Rules of Court on the required
issuance of summons and notices (precondition to acquisition
of jurisdiction over persons and for persons to be considered
parties to a case), with the corresponding right to be heard on
their cause. We are not persuaded by the petitioners' claim
for protection as their active misrepresentation militates
against it; the petitioners cannot now use their own active
misrepresentations to shield them from individual liability. The
petitioners are now effectively claiming, given their peculiar
situation, not a right but an undeserved privilege.
(c) We recognized in our ruling in the very recent case of
Provident International Resources Corporation v. Venus (G.R.
No. 167041) promulgated last June 17, 2008, the merits of the
RTC decision on the issue of which - between the registered
stock and transfer book (STB) of the plaintiff PIRC and the real
PIRC's 1979 registered STB - is valid. We note that this
recently-decided case is practically between the same parties
litigating on opposite sides in the present case. We said in
G.R. No. 167041 that the RTC decision effectively upheld the
validity of the 1979-registered STB. We similarly recognize - in
the context of the present case - the finding in the RTC
decision that the members of the real PIRC, and not that of
the plaintiff PIRC, are the bona fide stockholders and officers
of PIRC. This finding, coupled with other factual and legal
findings stated in the RTC decision and in this Decision,
constitutes sufficient basis to hold the petitioners personally
and individually liable for the return of PAGCOR's wrongfully
remitted lease rentals to, and payment of damages to the
members of, the real PIRC.
WHEREFORE, premises considered, we hereby DISMISS the
petition for forum shopping and for lack of merit. Costs
against the petitioners.
SO ORDERED.
Quisumbing, (Chairperson), Carpio Morales, Tinga, and Chico-
Nazario, JJ., concur.
* Designated as additional Member in view of the inhibition of
Associate Justice Presbitero J. Velasco, Jr..
[1] Pursuant to Rule 45 of the Revised Rules of Court.
[2] Penned by Associate Justice Lucenito Tagle (retired, now
COMELEC Commissioner), with Associate Justice Rodrigo V.
Cosico (retired) and Associate Justice Regalado S. Maambong,
concurring, rollo, pp. 109-129.
[3] Id., pp. 54-60.
[4] Lazaro Madara, Alfredo D. Roa III and Joaquin T. Venus v.
Hon. Norma C. Perello, Presiding Judge of Branch 276,
Regional Trial Court, Muntinlupa City, Felix M. Falcotelo,
Sheriff-in-Charge Muntinlupa City, Philippine Amusement and
Gaming Corporation, and Provident International Resources
Corporation, rep. by Edward T. Marcelo, Edward T. Marcelo,
Constancio D. Francisco, Anna Melinda Marcelo-Revilla, Lydia
J. Chuanico, Daniel T. Pascual, Linda J. Marcelo, John J.
Marcelo, Celia C. Caburnay, Celedonio P. Escaño, Jr., and the
Register of Deeds of Muntinlupa City.
[5] Id., pp. 133-144.
[6] Id., pp. 145-157.
[7] Id., pp. 158-166.
[8] Id., pp. 167-211.
[9] See RTC Decision, id., pp. 212-247; specifically, pp. 215-
216, 225.
[10] Id., pp. 246-247.
[11] Id., pp. 363-364.
[12] See CA Decision, id., pp. 109-129.
[13] Id., pp. 992-999.
[14] Id., pp. 1000-1007.
[15] Id., pp. 1009-1016.
[16] Id., pp. 365-415.
[17] Id.
[18] Id., pp.416-417.
[19] Id., pp. 248-272.
[20] Id., pp. 1018-1021.
[21] Id., pp. 273-274.
[22] Id., pp. 1079-1084; As stated in the pleading, PIRC's
counsel filed the motion in behalf of the plaintiff Roa group.
[23] Id., pp. 1086-1106.
[24] Id., pp. 275-291.
[25] Id., specifically pp. 109-110.
[26] Id., pp. 1108-1112.
[27] Id., pp. 1114-1323, Petition in CA-G.R. SP No. 91950.
[28] Id.
[29] Id., pp. 305-314.
[30] Id., pp.89-98.
[31] Id., pp. 99-100.
[32] See: Spouses Julita dela Cruz v. Pedro Joaquin, G.R. No.
162788, July 28, 2005, 464 SCRA 576.
[33] See: Top Rate Construction & General Services, Inc. v.
Paxton Development Corporation, G.R. No. 151081,
September 11, 2003, 410 SCRA 604.
[34] Young v. Seng, G.R. No. 143464, March 5, 2003, 398
SCRA 629.
[35] Municipality of Taguig v. Court of Appeals, G.R. No.
142619, September 13, 2005, 469 SCRA 580; Rule 7, Section
5 of the Revised Rules of Court.
[36] Rollo, pp. 50-55; CA decision, pp. 14-19.
G.R. No. 154974 February 4, 2008
KAUNLARAN LENDING INVESTORS, INC. AND LELIA CHUA SY,
petitioners,
vs.
LORETA UY, respondent.
DECISION
CARPIO MORALES, J.:
From the Court of Appeals' decision reversing that of the trial
court which dismissed respondent's complaint, petitioners
come to this Court.
Respondent Loreta Uy (Loreta) filed on September 12, 1988
before the Regional Trial Court (RTC) of Dagupan City a
complaint,1 docketed as Civil Case No. D-9136, for annulment
of real estate mortgage and related documents plus damages
against petitioners Kaunlaran Lending Investors, Inc. (KLII)
and Lelia Chua Sy (Lelia), along with Wilfredo Chua (Wilfredo)
and Magno Zareno (Magno).
In Loreta's complaint, she alleged as follows:
Sometime in 1987, her son Jose U. Sim (Jose), her nephew
Virgilio Sim (Virgilio), and Wilfredo agreed to establish a
business of buy and sell of second-hand motor vehicles in
which Virgilio would be the manager, Wilfredo would scout for
a financier, and Jose would provide the security for any loan.
Through the efforts of Wilfredo, Lelia, then a Branch Manager
of the Far East Bank and Trust Co., Inc. (FEBTC) in Dagupan
City who was alleged to be the owner of the controlling
interest in KLII, agreed to arrange for the grant of a loan.
Wilfredo thus asked Jose in whose favor his mother Loreta
issued a Special Power of Attorney reading:
That I, LORETA Q. UY, of legal age, Filipino, widow and a
resident of Dagupan City, by these presents, do hereby NAME,
CONSTITUTE and APPOINT my son JOSE U. SIM, likewise of
legal age, Filipino, married and a resident of Dagupan City, to
be my true and lawful attorney-in-fact, for me in my name,
place and stead, to do the following acts, to wit:
1. To obtain a loan from any bank, financial institutions [sic] or
person in such amount as may be extended, and to secure
the payment thereof by constituting in favor of the creditor a
real estate mortgage on the herein-below described parcels of
land and all improvements thereon, to wit:
TCT NO. 78622
xxxx
TCT NO. 78623
2. To receive the check and/or cash proceeds of the loan; and,
3. To sign such documents, papers and other papers [sic]
relative thereto.2 (Underscoring supplied),
to turn over the land titles of two parcels of land located in
Quezon City,3 covered by Transfer Certificates of Title Nos.
78622 and 78623 in the name of his (Jose's) mother Loreta, to
serve as security for the loan.
Jose thus entrusted his mother's land titles and related
documents to Wilfredo who in turn delivered them to Lelia.
Lelia thereafter sent Jose to Manila, together with a certain Ed
and a certain Doc of KLII, to have the lands appraised at the
main office of FEBTC.
Wilfredo subsequently brought to Loreta's residence loan
forms consisting of a promissory note he had pre-signed as
co-maker, a real estate mortgage, and a loan disclosure for
Loreta's signature. After Jose examined the forms, Loreta
signed them.
Soon Jose and Virgilio went to Manila to canvass prices of
second-hand motor vehicles. While the two were in Manila,
Magno, then the manager of KLII, brought to Loreta's
residence the loan forms she had earlier signed and another
set of loan forms, together with a blank Solidbank check
drawn from the account of KLII and a check voucher. Magno
explained to Loreta, in the presence of her daughter-in-law
Arlene A. Sim (Arlene)-wife of Jose, that the new set of loan
forms would be sent to Manila and that the proceeds of the
loan would be promptly delivered to her residence once she
affixes her signature on the said check and voucher.
When Jose returned home and learned about what transpired
during his absence, he confronted Magno at the KLII office and
was told that the documents bearing on the loan application
were already sent to Lelia and that Loreta's signatures on the
blank Solidbank check and the check voucher were procured
on Lelia's instructions.
Virgilio and Jose later tried to withdraw the loan application
and the titles to Loreta's properties but Lelia told them that it
was no longer possible.
In a subsequent conference among Lelia, Jose, Virgilio, and
Wilfredo, Lelia admitted having applied the loan proceeds
amounting to P800,000 to Wilfredo's personal debt to her.
Continuing, Loreta alleged:
A verification from the Register of Deeds of Quezon City4
revealed that the real estate mortgage in favor of KLII to
secure a P800,000 loan was annotated on Loreta's titles. The
copy of the document on file at the office of the Register of
Deeds bore only Loreta's signature and it was notarized in the
absence of Loreta.
Loreta and Jose thus sent telegrams to KLII and to the
Register of Deeds of Quezon City requesting the setting aside
of the transaction and the denial of registration of the
mortgage, respectively, but to no avail.
Concluding that the real estate mortgage, promissory note,
Solidbank check and "the other documents related thereto"
were absolute nullities due to the absence of consideration
and vitiated consent, Loreta prayed for their annulment5 and
for damages.6
In a related move, Loreta instituted a criminal complaint for
estafa against Lelia, Wilfredo, and Magno, docketed as I.S. No.
88-498 at the Office of the City Fiscal of Dagupan City.7 An
Information for Estafa against the three was subsequently
filed before the Dagupan City RTC, which was raffled to
Branch 41 thereof and docketed as Criminal Case No. D-
9840.8
In her Answer with Counterclaim,9 Lelia denied being the
owner of the controlling interest of KLII, claiming that she was
only the lessor of the building which housed KLII's office. And
she denied knowledge of the P800,000 loan of Loreta from
KLII, she claiming that
The instant complaint is baseless and false, and was
maliciously instigated by Jose U. Sim, using his mother as the
complainant, purposely to harass and embarrass the herein
defendant for having been slighted when the lat[t]er rejected
his loan application and his request to intercede in his behalf
in influencing the Kaunlaran Lending Investors to agree in the
restructure of his alleged overdue account with it.10
Lelia thus prayed for the award of actual, moral and
exemplary damages, attorney's fees, litigation expenses, and
the costs of the suit.11
In his Answer with Compulsory Counterclaim,12 Wilfredo
claimed that his only participation in the transaction was to
introduce Jose to Lelia and to sign as co-maker of the loan
application. While he admitted that he had already signed the
loan documents when they were brought to Loreta's residence
for her signature, he claimed that it was Jose, not he, who
brought them to Loreta.
In their joint Answer with Counterclaim,13 KLII and Magno
gave the following version:
After the application for loan was approved, Wilfredo and
Loreta signed the promissory note and Loreta signed the real
estate mortgage in the presence of Magno, Gonzales, Atty.
Teofilo Guadiz III (Atty. Guadiz) who notarized the same, and
other employees.
Atty. Guadiz and Rolando Tan, president and treasurer of KLII,
respectively, thereupon signed and issued Solid Bank Check
No. 0232250 for the amount of P800,000 in favor of Loreta
who immediately endorsed it to KLII which changed it with
cash.
After Wilfredo and Loreta received the cash proceeds of the
check, Loreta signed a discount statement and the check as
proof of the receipt.
In the meantime, Jose, who had a pending long overdue loan
with KLII, requested Magno for a restructuring of his loan
account, but Magno informed him that the request could not
be granted without Jose paying at least 50% of the principal
amount and the interests and penalties in full. It appears that
Jose could not comply with the condition; hence, his request
was denied.
KLII later filed a petition to extra-judicially foreclose the
mortgage executed by Jose.
The three defendants surmised that Loreta filed Civil Case No.
D-9136 upon the "malicious instigation"14 of Jose. They thus
counterclaimed for actual, moral and exemplary damages,
attorney's fees, litigation expenses, and the costs of the
suit.15
Magno and KLII corroborated Lelia's denial of being the owner
of the controlling interest in the company, she being merely
the lessor of the building where KLII holds office.
On joint motion16 of the prosecution and Loreta, Branch 41 of
the Dagupan City RTC, by Order dated March 12, 1991,
consolidated Criminal Case No. D-9840 with Civil Case No. D-
9136.17
By Decision of March 3, 1994, the trial court dismissed the
civil case18 in light of the following findings:
1. That defendant Lelia Chua Sy is a part owner of Kaunlaran
Lending Investors, Inc. is negated by the fact that the KLI[I]
Board of Directors, were: Atty. Teofilo Guadiz III, Helen
Siquiat, Joseph Lee, Rolando Tan, Adson Chua and Jose Sy.
Kaunlaran Lending Investors, Inc. is a lessee of [Lelia Chua
Sy's] property. x x x
2. That Kaunlaran Lending Investors, Inc. had no money for
the loan of P800,000.00 is negated by the fact that on January
28, 1988, KLI[I] financier Salome Cenidoza extended a loan to
KLI[I] in the same amount of P800,000.00; and the books of
Kaunlaran Lending Investors, Inc. indicated that KLI[I] had
P1,700,288.10 cash on hand, as testified by Aurelia Lambino,
KLI[I] book keeper. Before January 28, 1988, KLI[I] had
granted loans of P1.5 million to Susan Go; P800,000.00 to
Maramba; and P300,000.00 to Jose Sim.
3. That the check in question was not actually funded; was
never encashed to the Solid bank and not a bonafide check; is
negated by the fact that said check was encashed with the
drawer KLI[I], which is a normal practice[,] and the discount
disclosure xxx showing that she received P800,000.00 cash.
The evidence is clear that on January 28, 1988, Loreta Uy and
Wilfredo Chua received P800,00.00 cash from Kaunlaran
Lending Investors, Inc. What happened to the money after
that[,] has not been clarified.
Granting arguendo, that Loreta Uy did not benefit with the
amount of P800,000.00, then where is the money? Since
defendant Wilfredo Chua was with Loreta Uy when the latter
received the loan proceeds, the disputable presumption is
that he appropriated the amount for his own benefit. Thus
defraud[ing] Loreta Uy in said amount. But Wilfredo Chua did
not testify to refute or dispute the presumption; thus, he can
be held [liable] for damages.
xxxx
There is no iota of evidence to show that defendant Lelia Chua
Sy ever conspired with defendant Wilfredo Chua, so she
cannot be liable for damages.19 (Emphasis and underscoring
supplied)
Thus the trial court disposed:
WHEREFORE, judgment is hereby rendered:
1. Dismissing the complaint as against defendants Kaunlaran
Lending Investors, Inc., Lelia Chua Sy and Magno F. Zareno;
2. Declaring the Real Estate Mortgage, Promissory Note and
related documents in question valid and legal;
3. Ordering the plaintiff to pay to defendant Kaunlaran
Lending Investors, Inc. the principal amount of P800,000.00,
plus interest at 48% per annum starting March 28, 1988 until
fully paid;
4. Ordering defendant Wilfredo Chua to pay to plaintiff:
a. the amount of P800,000.00, plus interest at 12% per
annum starting March 28, 1988, until fully paid;
b. P100,000.00, as moral damages;
c. P50,000.00, as exemplary damages;
d. P20,000.00, as attorney's fees; and
e. P3,000.00, as litigation expenses.
SO ORDERED.20 (Underscoring supplied)
Parenthetically, the records of the case before this Court do
not show how the trial court decided the criminal case.
All parties, except Magno who died on October 7, 1991,21
appealed22 including Lelia. KLII's appeal was only with
respect to the non-award to it of damages, litigation
expenses, and attorney's fees.
The Court of Appeals, by Decision23 of April 11, 2002,
reversed the trial court's decision, declaring the real estate
mortgage and promissory note null and void. Thus it disposed:
WHEREFORE, the appealed decision is REVERSED and SET
ASIDE, and another is rendered declaring null and void the
promissory note and deed of real estate mortgage in dispute,
and ordering the defendants-appellants to pay, jointly and
severally, the plaintiff the amount of P100,000.00 for and as
attorney's fees, inclusive of expenses of litigation. Costs
against the appellants.
SO ORDERED.24 (Underscoring supplied)
Lelia, Wilfredo, and KLII moved for reconsideration25 which
was denied,26 prompting KLII and Lelia to file before this
Court the present petition which faults the appellate court to
have
1. gravely abused its discretion and evidently misappreciated
the testimony of Magno Zareno by giving it credence, contrary
to the findings of [the trial court] which heard and saw him
testify;
2. erred in giving more credence to the witnesses for the
private respondent, in direct contrast to the findings of [the
trial court] which heard the witnesses and observed their
demeanor[;]
3. erred in awarding attorney's fees of P100,000.00, when the
award of moral and exemplary damages are not awarded.
Moreover, the reason for the award was not explained in the
decision.
In her Comment,27 Loreta moves for the dismissal of the
petition due to defective verification and certificate of non-
forum shopping, adding that the petition raises factual issues.
Meanwhile, Loreta died on September 29, 200228 and has
been substituted by her heirs Jose and her daughter Rosalia
Sim Reate.29
For failure of KLII to present proof that its president, Rolando
Tan, was authorized to sign the verification and certificate of
non-forum shopping on its behalf, the petition must be
denied. Petitioners' argument that
the certification was made by the President, who is given
general supervision and control as chief executive officer from
which [it] is to be inferred that contracts or acts done by the
President in the ordinary course of business are presumed to
be duly authorized, unless the contrary appears. In fact the
by-laws of the Petitioner KLI[I] xxx gives him that authority.30
fails in light of this Court's ruling that
In case of a corporation, it has long been settled that the
certificate [of non-forum shopping] must be signed for and on
its behalf by a specifically authorized officer or agent who has
personal knowledge of the facts required to be disclosed.
xxxx
Consequently, without the needed proof from the board of
directors, the certificate would be considered defective. Thus,
xxx even the regular officers of a corporation, like the
chairman and president, may not even know the details
required in a certificate of non-forum shopping; they must
therefore be authorized by the board of directors just like any
other officer or agent.31 (Italics in the original)
The merits of the petition, however, justify the relaxation of
the rule on verification and certificate of non-forum shopping,
for from a review of the records Loreta has not proven by
preponderance of evidence that she was deceived into signing
the documents required for the release of the proceeds of the
loan.
In overturning the finding of the trial court, the Court of
Appeals credited the testimony of Magno, who testified as a
hostile witness for Loreta, that Lelia sent him to Loreta's
house to secure her signature on the loan documents in blank,
and that Loreta did not receive any proceeds of the loan.32
The Court of Appeals did not proffer any reason, however, for
deviating from the trial court's assessment of Magno's
credibility,33 despite the oft-repeated doctrine that "findings
of fact of the trial court carry great weight and are entitled to
respect on appeal absent any strong and cogent reason to the
contrary, since, it is in a better position to decide the question
of credibility of witnesses."34 Furthermore, Magno's
testimony should be received with caution because it
contradicts the earlier statements he had made under oath,
such as the Counter-Affidavit35 and Rejoinder36 he filed in
I.S. No. 88-498 and his verification of the joint Answer with
Counterclaim he and KLII filed in Civil Case No. D-9136.37
x x x [C]ourts do not generally look with favor on any
retraction or recanted testimony, for it could have been
secured by considerations other than to tell the truth and
would make solemn trials a mockery and place the
investigation of the truth at the mercy of unscrupulous
witnesses. A recantation does not necessarily cancel an
earlier declaration, but like any other testimony the same is
subject to the test of credibility and should be received with
caution.38
x x x The mere fact that a witness says that what he had
declared is false and what he now says is true, is not sufficient
ground for concluding that the previous testimony is false. No
such reasoning has ever crystallized into a rule of credulity.
The rule is that a witness may be impeached by a previous
contradictory statement (Section 13, Rule 132, Rules of
Court): not that a previous testimony is presumed to be false
merely because a witness now says that the same is false.39
(Underscoring supplied)
The Court of Appeals credited too the testimony of Jacobo
Malicdem, a bookkeeper of Solidbank against which the
P800,000.00 KLII check payable to Loreta was drawn, that KLII
did not have the said amount in the bank as of January and
February 1988.40 Gratuitously assuming that to have been
the case, it is irrelevant given the factual finding of the trial
court that the check was converted to cash by the drawer-KLII
itself,41 which cash was received by Loreta as proven by her
signature on the check and on the discount statement
acknowledging receipt thereof.42
WHEREFORE, the petition is GRANTED. The decision of the
Court of Appeals dated April 11, 2002 is SET ASIDE, and the
decision of Branch 41 of the Regional Trial Court of Dagupan
City in Civil Case No. D-9136 dated March 3, 1994 is
REINSTATED.
SO ORDERED. issued on June 20, 2005,[3] denied the petitioners' motion for
Quisumbing,Chairperson, Carpio, Tinga, Velasco, Jr., JJ., reconsideration.
concur.
Footnotes BACKGROUND FACTS
1 Records, pp. 1-7.
2 Exhibit "H," exhibits folder III, exhibits in exhibits folder III The present controversy traces its roots to the ejectment suit
start from Exhibits "N" to "P," then start again from Exhibits filed by the petitioners against Clarita Alcala (the respondent)
"A" to "F." before the Metropolitan Trial Court (MTC), Branch 4, in Manila.
3 Exhibits "A" and "B," exhibits folder III.
4 Records, p. 4. The petitioners alleged that they are the unregistered owners
5 Id. at 6. of Apartment No. 1411 located at Echabelita Street, Paco,
6 Id. at 6-7. Manila, as the petitioner Maria Lourdes is one of the heirs and
7 Id. at 4. successors-in-interests of Cornelio Arreola and Antonina
8 Vide records, p. 181. Pascua, the registered owners of the property.[4]
9 Id. at 16-26.
10 Id. at 23-24. Since the petitioners were migrating to the United States,
11 Id. at 25. they offered Apartment No. 1411 for lease to the respondent
12 Id. at 47-49. at the rate of P1,500.00 per month beginning January 1980;
13 Rollo, pp. 92-100. the latter accepted the offer. The lease contract, initially
14 Id. at 98. verbal, was consummated by the respondent's payment of
15 Id. at 98-99. two (2) months' rental fees and the petitioners' delivery to the
16 Records, pp. 177-178. respondent of the keys to Apartment No.1411.[5]
17 Id. at 196.
18 The parties agreed on separate decisions for the criminal Due to the respondent's subsequent failure to pay the agreed
case and the civil case. Id. at 284. rentals despite written demand, the petitioners filed a
19 Id. at 283-284. complaint for unlawful detainer against her on April 26, 2002
20 Id. at 284-285. before the MTC.[6] As the petitioners were already US
21 Id. at 212. residents at that time, they signed the required
22 Id. at 286-290. Verification/Certification of Non-Forum Shopping[7] of their
23 Penned by Court of Appeals Associate Justice Salvador J. complaint before a notary public in the state of Washington on
Valdez, Jr. with the concurrence of Associate Justices March 18, 2002, and had this Verification/Certification
Mercedes Gozo-Dadole and Juan Q. Enriquez, Jr.; CA rollo, pp. authenticated by the Philippine Consulate General in San
316-346. Francisco on March 27, 2002.[8]
24 Id. at 346.
25 Id. at 355-359. The respondent contended in her defense that the petitioners
26 Id. at 376. had no cause of action against her; she was already the
27 Rollo, pp. 215-225. rightful owner of Apartment No. 1411 by virtue of a sale
28 Id. at 259-262. between her and petitioners,[9] as evidenced by the
29 Id. at 264-270. Memorandum of Agreement dated August 8, 1987.[10]
30 Id. at 227-228. Citation omitted.
31 Metro Drug Distribution, Inc. v. Narciso, G.R. No. 147478, On April 25, 2003, the MTC ruled in the petitioners' favor.[11]
July 17, 2006, 495 SCRA 286, 293. The respondent appealed the MTC decision to the Regional
32 CA rollo, pp. 338-341. Trial Court (RTC), Branch 50, Manila, which reversed the MTC
33 Vide records, p. 284: ruling in its decision dated November 3, 2004.[12]
The testimony of Magno Zareno which is a complete turn
about from his counter-affidavit in I.S. No. 88-498, dated May The petitioners responded to the reversal by filing a Petition
18, 1988, proved only one thing – [t]hat he was not credible[,] for Review[13] (CA Petition) with the CA on March 31, 2005.
and x x x his testimony, not credible by itself; hence, the On the same date, they also formally manifested[14] with the
same cannot be given weight or credence. CA that - to comply with the verification and certification
34 People v. Atadero, 435 Phil. 888, 905 (2002). requirements under Sections 1 and 2 of Rule 42 of the Rules
35 Exhibit "6," exhibits folder II, pp. 12-14. of Court - they were in the meantime submitting a photostatic
36 Exhibit "3," exhibits folder I, pp. 2-3. copy of the Verification/Certification (executed and notarized
37 Rollo, p. 100. in the State of Washington on March 17, 2005) as the original
38 Francisco v. National Labor Relations Commission, G.R. No. was still in the Philippine Consulate in San Francisco for
170087, August 31, 2006, 500 SCRA 690, 701-702. authentication. They promised to submit the original
39 People v. Mindac, G.R. No. 83030, December 14, 1992, 216 document as soon as the consulate completed the
SCRA 558, 572. authentication process. Indeed, on April 8, 2005, petitioners
40 CA rollo, p. 341. submitted to the CA the original authenticated
41 Records, p. 283. Vide TSN, March 3, 1992, pp. 10-14; TSN, Verification/Certification and moved that the appellate court
August 13, 1993, p. 6; TSN; October 19, 1993, pp. 7-10. consider the submission as full compliance with the
42 Exhibit "E," exhibits folder III. verification requirements of the Rules.[15]

[G.R. No. 168667, July 23, 2008] Meanwhile, the CA issued a Resolution dated April 8, 2005
(April 8 Resolution) dismissing the petition due to the
SPOUSES ALFREDO D. VALMONTE AND MARIA LOURDES A. petitioners' failure to attach the complaint, the answer, the
VALMONTE, PETITIONERS, VS. CLARITA ALCALA, JOHN DOE OR position papers filed with the MTC, the memorandum filed
JANE DOE, RESPONDENTS. with the RTC, and other material portions of the record
supporting the allegations of the petition. The petitioners
DECISION received a copy of this April 8 Resolution on April 15, 2005.

BRION, J.:
This Petition for Review on Certiorari[1] asks us to set aside
two Court of Appeals (CA) resolutions issued in CA-G.R. No.
88918: the first, issued on April 8, 2005,[2] dismissed the
Petition for Review filed by the spouses Alfredo Valmonte and
Maria Lourdes Valmonte (the petitioners); and the second,
On April 28, 2005, the petitioners moved for the
reconsideration[16] of the April 8 Resolution, attaching
thereto the missing pleadings. The CA denied the motion in its
Resolution dated June 20, 2005[17] reasoning that:
Notwithstanding the petitioners' superficial explanation for
their failure to attach the pertinent portions of the record, this
Court could have granted the motion since petitioners
attached, nonetheless, other relevant documents to the
Motion, if not for the observation that while the
verification/certification was purportedly executed on March
17, 2005, the petition is dated March 31, 2005. Petitioners
could not have actually read and understood the petition or
attested to the truth of the contents thereof because at the
time they executed the verification/certification, the petition
was still inexistent.
WHEREFORE, in view of the foregoing, the petitioners'
Motion for Reconsideration is hereby DENIED for lack of merit.
[Emphasis supplied]
The petitioners now come before this Court on the claim that
the dismissal of their petition by the CA is a reversible error
that we should rectify.
ASSIGNMENT OF ERROR
The petitioners assert that the CA's conclusion, drawn from
the variance between the dates of the
Verification/Certification they executed abroad and the CA
Petition, is erroneous; the variance does not mean that they
did not actually read the petition before this was filed in court.
THE COURT'S RULING
We find the petition meritorious. The CA's conclusion results
from an overly technical reading of the verification
requirements, and from a failure to appreciate the
circumstances of parties litigating in Philippine courts while
they are overseas.
Generally, a pleading is not required to be verified unless
required by law or by the Rules of Court.[18] One such
requirement is found in Section 1 of Rule 42 which requires a
party appealing from a decision of the RTC rendered in the
exercise of its appellate jurisdiction to file a verified petition
for review with the CA.
Verification, when required, is intended to secure an
assurance that the allegations of a pleading are true and
correct; are not speculative or merely imagined; and have
been made in good faith.[19] To achieve this purpose, the
verification of a pleading is made through an affidavit or
sworn statement confirming that the affiant has read the
pleading whose allegations are true and correct of the
affiant's personal knowledge or based on authentic records.
[20]
Apparently, the CA concluded that no real verification, as
above required, had been undertaken since the CA Petition
was dated March 31, 2005 while the Verification/Certification
carried an earlier date - March 17, 2005; the petition "was still
inexistent" when the Verification/Certification was executed.
We find this conclusion erroneous for the following reasons:
First, the variance in dates does not necessarily contradict the
categorical declaration made by petitioners in their affidavit
that they read and understood the contents of the pleading.
The petitioners' claim in this regard is that they read a copy of
the CA Petition through an electronic mail (e-mail) sent to
them by their lawyers.[21] We find this claim, under the
circumstances more fully discussed below, to be a reasonable
explanation of why a variance in dates existed. We should
not lose sight of the reality that pleadings are prepared and
signed by the counsel at the instructions of the client; the
latter merely provides the supporting facts of the pleading
and, as needed, verifies that the allegations are true and
correct. In short, the pleading and the verification are
prepared separately and a variance in their dates is a matter
that may satisfactorily be explained. To demand the litigants
to read the very same document that is to be filed before the
courts is too rigorous a requirement; what the Rules require is
for a party to read the contents of a pleading without any
specific requirement on the form or manner in which the
reading is to be done. That a client may read the contents of
a pleading without seeing the same pleading to be actually
filed with the court is, in these days of e-mails and other
technological advances in communication, not an explanation
that is hard to believe. Apparently in this case, counsel sent a
copy of the draft petition by e-mail and finalized it as soon as
it was approved by the petitioners. The latter, on the other
hand, complied with their end not only by approving the terms
of the petition, but also by sending a copy of their sworn
statement (as yet unauthenticated) in order to file the petition
soonest, thereby complying with the required timeliness for
the filing of the petition. To our mind, beyond the manner of
these exchanges, what is important is that efforts were made
to satisfy the objective of the Rule - to ensure good faith and
veracity in the allegations of a pleading - thereby allowing the
courts to act on the case with reasonable certainty that the
petitioners' real positions have been pleaded.[22]
Second, the "circumstances" we mentioned above refer to the
petitioners' unique situation as parties residing overseas who
are litigating locally through their local counsel. While these
overseas litigants are not excused from complying with our
Rules such as the strict observance of the periods for appeal
and the verification requirement, we must take into account
the attendant realities brought into play because they are
suing from overseas or via long distance communications with
their counsel. In the verification requirement, there are added
formalities required for the acceptance in the Philippines of
statements sworn overseas before foreign notaries; we
require their authentication by our consulates.[23] This is a
process whose completion time may vary depending, among
others, on various factors such as the location of the
requesting party from the consulate; the peculiarities of
foreign laws on notaries; the volume of transactions in a
consulate, noting particularly the time of year when the
authentication is requested; and the mode of sending the
authenticated documents to the Philippines. Apparently
compelled by one or a combination of these reasons, the
petitioners in fact manifested when they filed their petition
(on March 31, 2005) that they were submitting a photostatic
copy of the Verification/Certification executed in Washington
on March 17, 2005 since the original was still with the
Philippine Consulate in San Francisco for authentication.[24]
We take judicial notice that the petitioners' request for
authentication coincided with the observance of the Holy
Week - a traditional period of prayer and holidays in the
Philippines, for the Philippines' foreign embassies and
consulates, and even for Filipinos overseas.[25] We find it
significant that, conformably with their Manifestation, the
petitioners' counsel filed on April 8, 2005 the duly sworn and
authenticated Verification as soon as counsel received it.
Under these circumstances, there is every reason for an
equitable and relaxed application of the rules to the
petitioners' situation.
Third, we discern utmost good faith on the part of the
petitioners when they filed their Manifestation about their
problem, intent, and plan of compliance with the verification
requirement. They in fact stated early on through this
Manifestation that their verification had been executed on
March 17, 2005 in Washington, that is, at a date much earlier
than the filing of their petition and manifestation.
Unfortunately, the CA failed to note the variance in dates at
the earliest opportunity; thus, the CA dismissed the petition
on some other ground,[26] only to hark back later on to the
variance in dates in their reconsideration of the earlier
dismissal. Given this good faith and the early disclosure, it
was basically unfair for the CA - who had earlier overlooked
the variance in dates - to subsequently make this ground the
basis of yet another dismissal of the petition. The CA - after
overlooking the variance in dates at the first opportunity -
should have at least asked for the petitioners' explanation on
why the variance should not be an additional ground for the
dismissal of the petition, instead of reflecting in their order on
reconsideration that it could have granted the motion for
reconsideration based on attachments already made, but
there existed another reason - the variance in dates - for
maintaining the dismissal of the petition.
Fourth, we note that most of the material allegations set forth
by petitioners in their CA Petition are already in their
complaint for unlawful detainer filed before the MTC on April
26, 2002. Attached to the complaint was a
Verification/Certification[27] dated March 18, 2002
(authenticated by the Philippine Consulate in San Francisco on
March 27, 2002) in which petitioners declared under oath that
they had caused the preparation of the complaint through
their lawyers and had read and understood the allegations of
the complaint. The material facts alleged in the CA Petition
are likewise stated in the records of the case, as part of the
findings of facts made by the MTC and the RTC. Verification
as to the truth of these facts in the petition for review before
the CA was, therefore, strictly a redundancy; its filing
remained a necessity only because the Rules on the filing of
a petition for review before the CA require it. This
consideration could have led to a more equitable treatment of
the petitioners' failure to strictly comply with the Rules,
additionally justified by the fact that the failure to comply with
the rules on verification is a formal rather than a jurisdictional
defect.[28]
In sum, we find sufficient justification to rule - under the
circumstances of this case - that the CA committed a
reversible error when it dismissed the petition for failure to
strictly follow the verification requirements. Stated otherwise,
we do not consider the variance between the dates as fatal to
the petitioners' case because the variance did not necessarily
lead to the conclusion that no verification was made, or that
the verification was false. More importantly, the variance
totally lost significance after the petitioners sent from the US
and submitted to the CA the required Verification/Certification
in compliance with their previously manifested intent. As this
Court noted in a case where compliance with a certificate of
non-forum shopping was at issue, the fact that the Rules
require strict compliance merely underscores its mandatory
nature; it cannot be dispensed with or its requirements
altogether disregarded, but it does not thereby interdict
substantial compliance with its provisions under justifiable
circumstances, as we find in this case.[29]
WHEREFORE, we hereby GRANT the Petition. The CA
Resolutions dated April 8, 2005 and June 20, 2005 in CA G.R.
No. 88918 are REVERSED and SET ASIDE. The case is
REMANDED to the CA for appropriate proceedings under CA-
GR No. 88918.
SO ORDERED.
Quisumbing, (Chairperson), Carpio-Morales, Tinga, and
Velasco, Jr., JJ., concur.
[1] Filed under Rule 45 of the Rules of Court.
[2] Penned by Associate Justice Remedios A. Salazar-
Fernando, with Associate Justice Rosmari D. Carandang and
Associate Justice Monina Arevalo-Zenarosa, concurring; rollo,
pp. 61-62.
[3] Id., pp. 117-119.
[4] Id., p. 94.
[5] Id., p. 133-134.
[6] Id., pp. 132-141.
[7] Id., p. 141.
[8] Id., p. 139.
[9] Id., pp. 142-149.
[10] Id., p. 219.
[11] Id., pp. 100 -106.
[12] Id., pp. 92-98.
[13] Id., pp. 63-91.
[14] Id., pp. 292-299.
[15] Id., pp. 300-306.
[16] Id., pp. 120-131.
[17] Supra, note 3.
[18] RULES OF COURT, Rule 7, Sec. 4.
[19] Bank of the Philippine Islands v. Court of Appeals, G.R.
No. 146923, April 30, 2003, 402 SCRA 449, 454.
[20] Supra, note 18.
[21] Rollo, p. 292.
[22] Quimpo v. Dela Victoria, G.R. No. L-31822, July 31, 1972,
46 SCRA 139, 144, citing Villasanta v. Bautista, 36 SCRA 160,
170-171 [1970].
[23] Rule 132, Sec. 24 of the RULES OF COURT states: Proof of
Official Record. - The record of public documents referred to
in paragraph (a) of section 19, when admissible for any
purpose, may be evidenced by an official publication thereof
or by a copy attested by the officer having the legal custody
of the record, or by his deputy, and accompanied, if the
record is not kept in the Philippines, with a certificate that
such officer has custody. If the office in which the record is
kept is in a foreign country, the certificate may be made by a
secretary of the embassy or legation, consul-general, consul,
vice-consul, or consular agent or by any officer in the foreign
service of the Philippines station in the foreign country in
which the record is kept, and authenticated by the seal of his
office. [Emphasis supplied]
[24] Supra, note 14.
[25] The request for authentication was received by the
Philippine Consulate Office in San Francisco on March 22,
2005. March 24 and 25, 2005 (Maundy Thursday and Good
Friday, respectively) are considered Regular Non-Working
Holidays pursuant to R.A. No. 9177, while March 26, 2005
(Black Saturday) was declared as special non-working day
pursuant to Proclamation No. 808, series of 2005. The
verification/certification was authenticated on March 28,
2005, and received by petitioners on April 5, 2005.
[26] The Resolution of April 8, 2005 dismissed the petition for
failure to attach material portions of the records that would
support the allegations in the petition; supra, note 2.
[27] Supra, note 7.
[28] Uy v. Land Bank of the Philippines, G.R. No. 136100, July
24, 2000, 336 SCRA 419. See also: Sy vs. Habacon-Garayblas,
G.R. No. MTJ-93, December, 21, 1993, 228 SCRA 644;
Buenaventura vs. Halili-Uy, G.R. No. L-28156, March 31, 1987,
149 SCRA 22; Quimpo vs. Dela Victoria, G.R. L-31822, July 31,
1972, 46 SCRA 139; Valino vs. Munoz, G.R. No. L-26151,
October 22, 1970, 35 SCRA 413; Republic vs. Lee Wai Lam,
G.R. No. 22607, July 30, 1969, 28 SCRA 1043.
[29] Huntington Steel Products, Inc. v. National Labor
Relations Commission, G.R. No. 158311, November 17, 2004,
442 SCRA 551, 559.
G.R. No. 162924 February 4, 2010
MID-PASIG LAND DEVELOPMENT CORPORATION, Petitioner,
vs.
MARIO TABLANTE, doing business under the name and style
ECRM ENTERPRISES; ROCKLAND CONSTRUCTION COMPANY;
LAURIE LITAM; and MC HOME DEPOT, INC., Respondents.
DECISION
NACHURA, J.:
Assailed in the instant petition are the two (2) Resolutions1 of
the Court of Appeals (CA) dated November 20, 2003 and
March 22, 2004, dismissing the petition for certiorari before it
on technical grounds and denying the motion for
reconsideration thereof, respectively.
The background facts are as follows:
Petitioner is the registered owner of a piece of land situated in
Pasig City, bounded by Meralco Avenue, Ortigas Avenue, Doña
Julia Vargas Avenue, and Valle Verde Subdivision. On
December 6, 1999, petitioner, represented by its Chairman
and President, Ronaldo Salonga, and ECRM Enterprises,
represented by its proprietor, Mario P. Tablante, executed an
agreement whereby the former would lease to the latter an
area, approximately one (1) hectare, of the aforesaid land, for
a period of three (3) months, to be used as the staging area
for the Home and Garden Exhibition Fair. On March 6, 2000,
the date of the expiration of the Lease Agreement, Tablante
assigned all his rights and interests under the said agreement
to respondents Laurie M. Litam and/or Rockland Construction
Company, Inc. (Rockland) under a Deed of Assignment of the
same date. Petitioner eventually learned that respondent
Tablante had executed a Contract of Lease with respondent
MC Home Depot, Inc. on November 26, 1999 over the same
parcel of land. Thereafter, respondent MC Home Depot, Inc.
constructed improvements on the land and subdivided the
area into fifty-nine (59) commercial stalls, which it leased to
various entities. Upon the expiration of the lease on March 6,
2000, petitioner demanded that respondents vacate the land.
A final demand was made in a letter dated December 20,
2000.2
In order to forestall ejectment from the premises, respondent
Rockland filed a case for Specific Performance with the
Regional Trial Court (RTC), Branch 266, Pasig City, on January
11, 2001, compelling petitioner to execute a new lease
contract for another three (3) years, commencing in July 2000.
This was docketed as Civil Case No. 68213. Petitioner moved
to dismiss the complaint on the ground that it was
anticipatory in nature.
Consequently, on August 22, 2001, petitioner filed Civil Case
No. 8788 for unlawful detainer against herein respondents,
raffled to the Municipal Trial Court (MTC), Pasig City, Branch
70. Simultaneously, petitioner filed a supplemental motion to
dismiss Civil Case No. 68213, on the ground of litis pendentia.
Petitioner’s motion to dismiss was denied. The denial was
questioned and eventually elevated to the Supreme Court.3
Meantime, on April 29, 2002, the MTC rendered judgment in
the unlawful detainer (ejectment) case. In the main, the trial
court ruled that the issue did not involve material or physical
possession, but rather, whether or not ECRM had the right to
exercise an option to renew its lease contract. The MTC stated
that, considering that this issue was incapable of pecuniary
estimation, jurisdiction over the case was vested in the RTC.
The trial court, therefore, disposed, as follows:
WHEREFORE, judgment is hereby rendered DISMISSING the
complaint for lack of merit. In the meantime, the plaintiff is
hereby ordered to pay the defendants attorney’s fees and
expenses of litigation in the amount of TWENTY THOUSAND
PESOS (P20,000.00).4
On appeal, the RTC, Pasig City, Branch 160, affirmed in toto.
In its decision dated July 10, 2003, the RTC ruled that:
Relative to the issue raised by the appellant that the lower
court erred in finding it had no jurisdiction over the subject
matter of this case as the question of whether or not ECRM
under the provisions of the lease agreement (pars. 3 and 13)
has the right to exercise an option to renew its lease contract
is one incapable of pecuniary estimation and therefore
jurisdiction is vested in the Regional Trial Court. Republic Act
No. 7691 grants Metropolitan Trial Courts the exclusive
jurisdiction over cases of forcible entry and unlawful detainer.
Since it has been sufficiently established under the facts
obtaining that the contract of lease has been renewed before
the expiration of the lease period, and the appellant has
consented to the renewal and assignment of the lease, it
necessarily follows that the issue on whether the lower court
erred in finding that it did not have jurisdiction over the
subject matter raised by the appellant, deserves scant
consideration and this court need not delve into it anymore.5
A petition for certiorari was consequently filed with the CA.
In the assailed resolution dated November 20, 2003, the CA
resolved to dismiss the petition on the following grounds:
1) The verification and certification against non-forum
shopping was signed by a certain Antonio A. Merelos as
General Manager of the petitioner-corporation without
attaching therewith a Corporate Secretary’s certificate or
board resolution that he is authorized to sign for and on
behalf of the petitioner; and
2) Lack of pertinent and necessary documents which are
material portions of the record as required by Section 2, Rule
42 of the Rules of Civil Procedure.6
The motion for reconsideration was denied;7 hence, the
instant petition assigning the following errors:
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR
IN HOLDING THAT THE VERIFICATION AND CERTIFICATION
AGAINST FORUM-SHOPPING IN THE PETITION FAILED TO
ATTACH THE BOARD RESOLUTION SHOWING THE AUTHORITY
OF THE AFFIANT.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR
IN HOLDING THAT THE PETITION LACKED THE PERTINENT AND
NECESSARY DOCUMENTS REQUIRED BY THE RULES.
THE COURT OF APPEALS COMMITTED REVERSIBLE ERROR
IN DISMISSING THE PETITION THUS EFFECTIVELY UPHOLDING
THE DECISION OF THE REGIONAL TRIAL COURT, TO WIT: (a)
THAT THE LEASE AGREEMENT WAS UNILATERALLY RENEWED
AND THAT PETITIONER IS ESTOPPED FROM DENYING SUCH
UNILATERAL RENEWAL; (b) THAT RESPONDENTS
TABLANTE/ECRM, ROCKLAND AND MC HOME DEPOT COULD
VALIDLY OCCUPY THE PROPERTY IN THE ABSENCE OF ANY
VALID LEASE AGREEMENT CONSENTED TO BY PETITIONER; (c)
PETITIONER [IS] LIABLE FOR ATTORNEY’S FEES AND COSTS OF
SUIT.8
The petition is granted.
In Cagayan Valley Drug Corporation v. Commissioner of
Internal Revenue,9 the Court had occasion to explain that:
It must be borne in mind that Sec. 23, in relation to Sec. 25 of
the Corporation Code, clearly enunciates that all corporate
powers are exercised, all business conducted, and all
properties controlled by the board of directors. A corporation
has a separate and distinct personality from its directors and
officers and can only exercise its corporate powers through
the board of directors. Thus, it is clear that an individual
corporate officer cannot solely exercise any corporate power
pertaining to the corporation without authority from the board
of directors. This has been our constant holding in cases
instituted by a corporation.
In a slew of cases, however, we have recognized the authority
of some corporate officers to sign the verification and
certification against forum shopping. In Mactan-Cebu
International Airport Authority v. CA, we recognized the
authority of a general manager or acting general manager to
sign the verification and certificate against forum shopping; x
x x.
In sum, we have held that the following officials or employees
of the company can sign the verification and certification
without need of a board resolution: (1) the Chairperson of the
Board of Directors, (2) the President of a corporation, (3) the
General Manager or Acting General Manager, (4) Personnel
Officer, and (5) an Employment Specialist in a labor
case.1avvphi1
While the above cases do not provide a complete listing of
authorized signatories to the verification and certification
required by the rules, the determination of the sufficiency of
the authority was done on a case to case basis. The rationale
applied in the foregoing cases is to justify the authority of
corporate officers or representatives of the corporation to sign
the verification or certificate against forum shopping, being
"in a position to verify the truthfulness and correctness of the
allegations in the petition."10
From the foregoing, it is thus clear that the failure to attach
the Secretary’s Certificate, attesting to General Manager
Antonio Merelos’s authority to sign the Verification and rendered the issue of the right of possession over the subject
Certification of Non-Forum Shopping, should not be property moot and academic, the main case is hereby
considered fatal to the filing of the petition. Nonetheless, the considered CLOSED AND TERMINATED.
requisite board resolution was subsequently submitted to the
CA, together with the pertinent documents.11 Considering No pronouncement as to costs.
that petitioner substantially complied with the rules, the
dismissal of the petition was, therefore, unwarranted. Time SO ORDERED.
and again, we have emphasized that dismissal of an appeal
on a purely technical ground is frowned upon especially if it ANTONIO EDUARDO B. NACHURA
will result in unfairness. The rules of procedure ought not to Associate Justice
be applied in a very rigid, technical sense for they have been
adopted to help secure, not override, substantial justice. For WE CONCUR:
this reason, courts must proceed with caution so as not to
deprive a party of statutory appeal; rather, they must ensure ANTONIO T. CARPIO*
that all litigants are granted the amplest opportunity for the Associate Justice
proper and just ventilation of their causes, free from the RENATO C. CORONA
constraint of technicalities.12 Associate Justice PRESBITERO J. VELASCO, JR.
Associate Justice
After a finding that the CA erred in dismissing the petition
before it, a remand of the case is in order. However, a perusal DIOSDADO M. PERALTA
of the records reveals that this is no longer necessary in light Associate Justice
of relevant developments obtaining in the case at bar.
ATTESTATION
Petitioner, in its Memorandum dated October 28, 2005,
alleged that respondents’ possessory claims had lapsed and, I attest that the conclusions in the above Decision had been
therefore, had become moot and academic. Respondent reached in consultation before the case was assigned to the
Rockland prayed that a three-year lease period be granted to writer of the opinion of the Court’s Division.
it in order that it would be able to plan its activities more
efficiently. Since the claimed "lease contract" had already RENATO C. CORONA
expired as of July or August 2003, there appears no reason Associate Justice
why respondents should continue to have any claim to further Chairperson, Third Division
possession of the property.13
CERTIFICATION
Respondent Rockland also stated in its Memorandum dated
March 16, 2006 that it was no longer in possession of the Pursuant to Section 13, Article VIII of the Constitution and the
subject property considering that: Division Chairperson's Attestation, I certify that the
conclusions in the above Decision had been reached in
50. In a Resolution dated 17 September 2004, in the case of consultation before the case was assigned to the writer of the
"Rockland Construction Company, Inc. vs. Mid-Pasig Land opinion of the Court’s Division.
Development Corporation, et al.," docketed as SCA No. 2673,
and the Omnibus Order dated 12 November 2004, affirming REYNATO S. PUNO
the aforesaid Resolution, Branch 67 Pasig City Regional Trial Chief Justice
Court Presiding Judge Mariano M. Singzon awarded possession Footnotes
(albeit erroneously) of subject property to Pasig Printing * Additional member in lieu of Associate Justice Jose Catral
Corporation, an intervenor in the SCA case. Mendoza per Special Order No. 818 dated January 18, 2010.
1 Penned by Associate Justice Andres B. Reyes, Jr., with
51. At present, petitioner does not have a cause of action Associate Justices Buenaventura J. Guerrero and Regalado E.
against herein respondent Rockland. Respondent is not Maambong, concurring; rollo, pp. 154 and 42.
unlawfully withholding possession of the property in question 2 Rollo, pp. 71-72.
as in fact respondent is not in possession of the subject 3 Docketed as G.R. No. 153751. On October 8, 2003, the
property. The issue of possession in this ejectment case has Court granted the petition filed by Mid-Pasig Land
therefore been rendered moot and academic.14 Development Corporation. The Court ruled that the Specific
Performance case pending with the RTC should be dismissed
This allegation was confirmed by respondent MC Home Depot, on the ground of litis pendentia. Upon a finding that the
Inc. in its Comment/Memorandum dated May 22, 2007 question of possession of the subject property is the core
submitted to the Court. It stated therein that "the passage of issue, the proper case to resolve the controversy between the
time has rendered the issue of possession moot and academic parties was the ejectment case pending with the MTC, Pasig
with respect to respondent Rockland, as the three-year period City, Branch 70.
has long been expired in 2003."15 Furthermore, respondent 4 Rollo, p. 103.
MC Home Depot, Inc. asserts that it is in rightful possession of 5 Id. at 112.
the land on the strength of a Memorandum of Agreement 6 Id. at 154.
dated November 22, 2004 between the latter and Pasig 7 Id. at 159.
Printing Corporation. By petitioner’s admission that while it 8 Id. at 26.
remains the registered owner of the land, possession of the 9 G.R. No. 151413, February 13, 2008, 545 SCRA 10.
same had been adjudicated in favor of Pasig Printing 10 Id. at 18-19. (Emphasis supplied.)
Corporation, another entity without any contractual 11 Rollo, pp. 353, 470-471.
relationship with petitioner, on the strength of an Order from 12 MCC Industrial Sales Corporation v. Ssangyong
the RTC of Pasig City. Considering that Pasig Printing Corporation, G.R. No. 170633, October 17, 2007, 536 SCRA
Corporation has the jus possessionis over the subject 408.
property, it granted the MC Home Depot, Inc. actual 13 Rollo, p. 368.
occupation and possession of the subject property for a period 14 Id. at 413-414.
of four (4) years, renewable for another four (4) years upon 15 Id. at 474.
mutual agreement of the parties.16 16 Id. at 342, 472- 474.

WHEREFORE, the petition is GRANTED. The assailed G.R. No. 94093 August 10, 1993
Resolutions of the Court of Appeals are REVERSED and SET
ASIDE. However, in view of the developments which have
FAR EAST MARBLE (PHILS.), INC., LUIS R. TABUENA, JR. and
RAMON A. TABUENA, petitioners,
vs.
HONORABLE COURT OF APPEALS and BANK OF PHILIPPINE
ISLANDS, respondents.
Minerva C. genevea for petitioners.
Sabino B. Padilla IV for Bank of the Philippines Islands.
MELO, J.:
This has reference to a petition for review by certiorari
seeking the reversal of the decision of the Court of Appeals
dated June 26, 1990, in CA-G.R. CV No. 14404 (Bellosillo (P),
Marigomen, Sempio-Diy, JJ.) which set aside the order of the
Regional Trial Court of the National Capital Judicial Region
(Manila, Branch XIV), dated June 1, 1987 and remanded the
case to the court a quo for further proceedings on the grounds
that the complaint for foreclosure of chattel mortgage with
replevin had not prescribed and that, there being a cause of
action, further proceedings, including the resolution of the
motion for summary judgment may be pursued.
The antecedent facts of the case may be chronicled as
follows:
On February 5, 1987, herein respondent Bank of the
Philippines Islands (BPI) filed a complaint for foreclosure of
chattel mortgage with replevin against petitioner Far East
Marble (Phils.), Inc. (Far East), Ramon A. Tabuena and Luis R.
Tabuena, Jr. which was docketed as Civil Case No. 87-39345
of Branch XIV of the Regional Trial Court of the National
Capital Judicial Region stationed in Manila.
The complaint pertinently alleged:
FIRST CAUSE OF ACTION AGAINST FAR EAST
2. That on various dates and for valuable consideration, the
defendant Far East received from Commercial Bank and Trust
Company . . . now merged with and into the plaintiff bank . . .
several loans evidenced by promissory notes executed by said
Far East, photo copies of which are attached hereto and made
integral parts hereof as Annexes A, B and C.
3. That said promissory notes . . . .have long matured but
despite repeated requests and demands for payment thereof
with interests and related charges due, Far East has failed and
refused to pay. The account due on said promissory notes
with interests and related charges as of 10 September 1986 is
P4,471,854.32 itemized in a statement of account, copy of
which is attached hereto and made a part hereof as Annex D
4. That because of Far East's failure and refusal in bad faith to
pay its long past due obligations under the promissory notes
above alleged, plaintiff was constrained to file this suit . . .
SECOND CAUSE OF ACTION AGAINST FAR EAST
6. That on various dates and for valuable consideration, the
defendant Far East received from and was extended by . . .
plaintiff
Bank . . . credit facilities in the form of Trust Receipts, photo
copies of which are hereto attached and made integral parts
hereof as Annexes E, F, G, H, I and J.
7. That said Trust Receipts . . . have long matured and despite
repeated requests and demands for payment thereof with
interests and related charges due Far East has failed and
refused to pay. The amount due on said Trust Receipts with
interests and related charges as of 10 September 1986 is
P2,170,476.62 as itemized in a statement of account, copy of
which is attached hereto and made an integral part hereof as
Annex K.
8. That because of far East's failure and refusal to pay its long
past due obligations under the Trust Receipts above alleged,
plaintiff was constrained to file this suit . . .
xxx xxx xxx
10. That in September 1976 Far East executed in favor of . . .
plaintiff Bank . . . a Chattel Mortgage, photocopy of which is
attached hereto and made an integral part hereof as Annex L,
to secure the payment of its loan obligations including
interests and related charges. . .
xxx xxx xxx
CAUSE OF ACTION AGAINST INDIVIDUAL DEFENDANTS RAMON
A. TABUENA AND LUIS R. TABUENA, JR.
13. That in September 1976, defendants Ramon A. Tabuena
and Luis R. Tabuena, Jr. executed in favor of . . . plaintiff
Bank . . . a "continuing guaranty" photocopy of which is
attached hereto and made a part hereof as Annex M, whereby
they bind themselves, jointly and severally, to answer for the
loan obligations to the Bank of defendant Far East.
14. That despite requests and demands for their payment of
Far East's long past due accounts, said defendants Ramon A.
Tabuena and Luis R. Tabuena, Jr. have failed and refused to
pay said Far East accounts and have already defaulted in their
solidary obligation under said "continuing Guaranty."
15. That because of the failure and refusal of defendants
Ramon A. Tabuena and Luis R. Tabuena, Jr. in bad faith to pay
Far East's past due accounts under their solidary obligation
stipulated in said "Continuing Guaranty,". . . plaintiff has been
constrained to file suit against them . . .
(pp. 32-36, Rollo.)
On March 10, 1987, Far East filed an answer with compulsory
counterclaim admitting the genuineness and due execution of
the promissory notes attached as Annexes A, B, and C to the
complaint, but alleging further that said notes became due
and demandable on November 19, 1976, respectively. On the
basis of the maturity dates of the notes, Far East thereupon
raised the affirmative defenses of prescription and lack of
cause of action as it denied the allegation of the complaint
that BPI had made previous repeated requests and demands
for payment. Far East claimed that during the more than 10
years which elapsed from the dates of maturity of said
obligations up to the time the action for foreclosure of the
chattel mortgage securing said obligations was filed, it had
not received from BPI or its predecessor any demand for
payment and thus, it had "labored under the belief that they
[the obligations] have already been written off" in the books
of BPI. Moreover, Far East denied the genuineness and due
execution of the trust receipts and of the Statement of
Account (pp. 78-79, Rollo). A motion to hear affirmative
defenses was attached to the answer.
On March 16, 1987, BPI filed an opposition to the motion to
hear affirmative defenses, alleging that its cause of action
against Far East have not prescribed, since within 10 years
from the time its cause of action accrued, various written
extrajudicial demands (attached thereto as Annexes "A" and
"A-1") were sent by BPI and received by Far East. Moreover,
BPI offered several written documents whereby Far East
supposedly acknowledged its debt to BPI (Annexes "B" to "B-
6). Withal, BPI maintained, the ten-years prescriptive period to
enforce its written contract had not only been interrupted, but
was renewed.
On the same date, BPI filed a motion for summary judgment
on the ground that since Far East had admitted the
genuineness and due execution of the promissory notes and
the deed of chattel mortgage annexed to its complaint, there
was no genuine issue as to any material fact, thus entitling
BPI to a favorable judgment as a matter of law in regard to its
causes of action and on its right to foreclose the chattel
mortgage.
On June 1, 1987, the trial court issued an order to the
following effect:
WHEREFORE, the Court issues this Order:
1 — Dismissing the complaint against the defendant Far East
Marble (Phils.) Inc. for lack of cause of action and on grounds
of pre[s]cription:
2 — Denying for lack of merit the Motion for Summary
Judgment and the Supplemental Motion for Summary
Judgment;
3 — Striking off from the records the order of March 6, 1987
and recalling the writ of replevin issued by this Court, and
dismissing all the contempt charges;
4 — Ordering the Sheriff to desist permanently from enforcing
the writ of seizure and to return all the property seized by him
under the Writ of Replevin, to the defendant Far East Marble
(Phils.) Inc. immediately from receipt of a copy of this order,
and in case of his failure to do so, the value thereof shall be
charged against the replevin bond. (pp. 89-90, Rollo.)
An appeal therefrom was forthwith interposed by BPI,
assailing the findings of the trial court with respect to its
finding that BPI's cause of action has prescribed and the
consequent denial of the motion for summary judgment.
On June 26, 1990, the Court of Appeals rendered a decision
setting aside the June 1, 1987 order of the court of origin and
remanding the case to said court for further proceedings,
"including the resolution anew of plaintiff's motion for
summary judgment . . ., reception of the evidence of the
parties and, thereafter, to decide the case as the facts may
warrant." (pp. 98-99, Rollo.)
Hence, the instant petition for review on certiorari filed by Far
East, anchored on the following assigned errors:
I mortgage only in 1987 (or more than 10 years from the time
THE COURT OF APPEALS ERRED WHEN IT DISREGARDED THE
FINDINGS OF THE TRIAL COURT THAT PRESCRIPTION HAS SET
IN OBLIVIOUS OF THE FACT THAT THIS FINDING WAS
REACHED AFTER DUE HEARING.
II
THE COURT OF APPEALS GRAVELY ERRED IN RULING FOR A
REOPENING OF THE TRIAL FOR THE RECEPTION OF EVIDENCE
ON BOTH ISSUES OF PRESCRIPTION AND SUMMARY
JUDGMENT WHEN THESE WERE ALREADY TRIED AND
WEIGHED BY THE TRIAL COURT.
III
THE COURT OF APPEALS ERRED IN ASSUMING JURISDICTION
OVER THE CASE CONSIDERING THAT THE ISSUES RAISED
THEREIN INVOLVE PURE QUESTIONS OF LAW. (p. 14, Rollo.)
The issue of jurisdiction being basis, we shall endeavor to
dispose of it ahead of the other topics raised by petitioners
Petitioner Far East maintains the position that the Court of
Appeals stepped beyond the limits of its authority when it
assumed jurisdiction over the appeal filed by BPI inasmuch as
said appeal raised only the pure questions of law or whether
or not the trial court erred: (1) in dismissing BPI's complaint
for lack of cause of action; (2) in finding that BPI's cause of
action had prescribed; and (3) in ruling that BPI is not entitled
to summary judgment on its causes of action against Far East.
Consequently, Far East contends, BPI should have taken its
case directly to this Court.
There is no dispute with respect to the fact that when an
appeal raises only pure questions of law, it is only this Court
which has jurisdiction to entertain the same (Article VIII,
Section 5 (2) (e), 1987 Constitution; Rule 45, Rules of Court;
see also Santos, Jr. vs. Court of Appeals, 152 SCRA 378
[1987]). On the other hand, appeals involving both questions
of law and fact fall within the exclusive appellate jurisdiction
of the Court of Appeals. At this point, there seems to be a
need to distinguish a question of law from a question of fact.
It has been held in a number of cases (Medina vs. Asistio, Jr.,
191 SCRA 218 [1990]; Gan vs. Licup Design Group, Inc., G.R.
NO. 94264, July 24, 1990, En Banc, Minute Resolution; Pilar
Development Corp. vs. Intermediate Appellate Court, et al.,
146 SCRA 215 [1986]; Ramos vs. Pepsi-Cola Bottling Co., 19
SCRA 289 [1967]; Consolidated Mines, Inc. vs. Court of Tax
Appeals, et al., 58 SCRA 618 [1974]), that there is a "question
of law" when there is doubt or difference of opinion as to what
the law is on certain state of facts and which does not call for
an examination of the probative value of the evidence
presented by the parties-litigants. On the other hand, there is
a "question of fact" when the doubt or controversy arises as
to the truth or falsity of the alleged facts. Simply put, when
there is no dispute as to fact, the question of whether or not
the conclusion drawn therefrom is correct is a question of law.
In the case at bar, BPI alleged in its complaint (Rollo, p. 42)
that on various dates and for valuable consideration, it
extended to Far East several loans, evidenced by promissory
notes, and credit facilities in the form of trust receipts, and
that despite repeated requests and demands for payment
thereof, Far East had failed and refused to pay. Thus BPI
sought foreclosure of the chattel mortgage securing such
indebtedness.
In its answer (Rollo, p. 78), Far East admitted the genuineness
and due execution of the promissory notes involved in the
case, but denied BPI's allegation that repeated demands for
payment were made by BPI on it. Far East then raised the
affirmative defenses of prescription and lack of cause of
action, arguing that since the promissory notes matured in
1976 while BPI filed its action to foreclose the chattel
its cause of action accrued), and there being no demand for
payment which would interrupt the period of prescription for
instituting said action, BPI's claims have prescribed.
BPI, however, countered that its allegation of repeated
demands on Far East for payment sufficiently stated a cause
of action; that within ten years from the time its cause of
action accrued in 1976, it sent written extrajudicial demands
on Far East requesting payment of its due and outstanding
obligations; that within that 10-years period, it received
written acknowledgments of debt from Far East; and, that
these demands for payment and acknowledgments of debt
effectively interrupted and renewed the prescriptive period.
Worth noting is the fact that the acknowledgment of debt and
the demands for payment, including the affidavits of BPI's
counsel who prepared the demand letter and that of BPI's
messenger who allegedly personally delivered said letters to
Far East were duly annexed to BPI's pleadings.
From the foregoing exchange of pleading, the conflicting
allegations of fact by the contending parties sprung forth. It is
thus quite obvious that the controversy centered on, and the
doubt arose with respect to, the very existence of previous
demands for payment allegedly made by BPI on petitioner Far
East, receipt of which was denied by the latter. This dispute or
controversy inevitably raised a question of fact. Such being
the case, the appeal taken by BPI to the Court of Appeals was
proper.
We now come to petitioner's first two assigned errors.
The trial court's finding that BPI's claims due to prescription,
can no longer prosper, is inextricably connected with, and
underpinned by, its other conclusion that BPI's allegation that
it made "repeated requests and demands for payment" is not
sufficient to state a cause of action. Moreover, in its
questioned Order (Rollo, p. 88) dated June 1, 1987, the trial
court held that:
Apart from the fact that the complaint failed to allege that the
period of prescription was interrupted, the phrase "repeated
requests and demands for payment" is vague and incomplete
as to establish in the minds of the defendant, or to enable the
Court to draw a conclusion, that demands or acknowledgment
[of debt] were made that could have interrupted the period of
prescription. (p. 88, Rollo.).
Seemingly, therefore, the trial court believed that the
interruption of the prescriptive period to institute an action is
an ULTIMATE FACT which had to be expressly and
indispensably pleaded by BPI in its complaint, and that failure
to so alleged such circumstance is fatal to BPI's cause of
action.
We believe and hold otherwise.
Section 3 of Rule 6 state that a "complaint is a concise
statement of the ultimate facts constituting the plaintiff's
cause or causes of action." Further elaborating thereon,
Section 1 of Rule 8 declares that every pleading, including, of
course, a complaint, "shall contain in a methodical and logical
form, a plain, concise and direct statement of the ultimate
facts . . . omitting the statement of mere evidentiary facts."
"Ultimate facts" are the essential and substantial facts which
either form the basis of the primary right and duty or which
directly make up the wrongful acts or omissions of the
defendant (Tantuico, Jr. vs. Republic of the Phil., et al., 204
SCRA 428 [1991]), while "evidentiary facts" are those which
tend to prove or establish said ultimate facts.
What then are the ultimate facts which BPI had to allege in its
complaint so as to sufficiently establish its cause of action?
Basically, a cause of action consists of three elements,
namely: (1) the legal right of the plaintiff; (2) the correlative
obligation of the defendant; and (3) the act or omission of the
defendant in violation of said legal right (Nabus vs. Court of
Appeals, et al., 193 SCRA 732 [1991]); Rebollido vs. Court of
Appeals et al., 170 SCRA 800 [1989]). These elements are
manifest in BPI's complaint, particularly when it was therein
alleged that: (1) for valuable consideration, BPI granted
several loans, evidenced by promissory notes, and extended
credit facilities in the form of trust receipts to Far East
(photocopies of said notes and receipts were duly attached to
the Complaint); (2) said promissory notes and trust receipts
had matured; and (3) despite repeated requests and demands
for payment thereof, Far East had failed and refused to pay.
Clearly then, the general allegation of BPI that "despite
repeated requests and demands for payment, Far East has
failed to pay" is sufficient to establish BPI's cause of action.
Besides, prescription is not a cause of action; it is a defense
which, having been raised, should, as correctly ruled by the
Court of Appeals (DBP vs. Ozarraga, 15 SCRA 48 [1965]), be
supported by competent evidence. But even as Far East
raised the defense of prescription, BPI countered to the effect
that the prescriptive period was interrupted and renewed by
written extrajudicial demands for payment and
acknowledgment by Far East of the debt.
A complaint is sufficient if it contains sufficient notice of the
cause of action even though the allegation may be vague or
indefinite, for in such case, the recourse of the defendant
would be to file a motion for a bill of particulars (Ramos vs.
Condez, 20 SCRA 1146 [1967]). It is indeed the better rule
that, pleadings, as well as remedial laws, should be liberally
construed so that the litigants may have ample opportunity to
prove their respective claims so as to avoid possible denial of
substantial justice due to legal technicalities (Adamo, et al. vs.
Intermediate Appellate Court, et al., 191 SCRA 195 [1990]).
In the case at bar, the circumstances of BPI extending loans
and credits to Far East and the failure of the latter to pay and
discharge the same upon maturity are the only ultimate facts
which have to be pleaded, although the facts necessary to
make the mortgage valid enforceable must be proven during
the trial (Ortiz v. Garcia, 15 Phil. 192 [1910]).
In fine, the finding of the trial court that prescription has set in
is primarily premised on a misappreciation of the sufficiency
of BPI's allegation as above discussed. The records will show
that the hearing conducted by the trial court was merely pro
forma and the trial judge did not sufficiently address the issue
of whether or not a demand for payment in fact made by BPI
and duly received by herein petitioner Far East.
WHEREFORE, the instant petition is hereby DENIED and the
decision of the Court of Appeals hereby AFFIRMED. No special
pronouncement is made as to costs.
SO ORDERED.
Feliciano, Bidin, Romero and Vitug, JJ., concur.
SECOND DIVISION
[G.R. No. 119800. November 12, 2003]
FILIPINAS TEXTILE MILLS, INC. and BERNARDINO VILLANUEVA,
petitioners, vs. COURT OF APPEALS and STATE INVESTMENT
HOUSE, INC. respondents.
DECISION
Tinga, J.:chanroblesvirtuallawlibrary
Before this Court is a Petition for Review on Certiorari
assailing the Decision[1] and Resolution[2] of the Court of
Appeals dated June 16, 1994 and April 19, 1995, respectively,
affirming the Decision[3] of the Regional Trial Court dated July
23, 1990 which found the petitioners Filipinas Textile Mills,
Inc. (Filtex) and Bernardino Villanueva (Villanueva) jointly and
severally liable to respondent State Investment House, Inc.
(SIHI) for the amount of
P7,868,881.11.chanroblesvirtuallawlibrary
The antecedent facts are as
follows:chanroblesvirtuallawlibrary
On December 6, 1985, SIHI instituted a Complaint[4] for the
collection of the sum of P3,118,949.75, with interest,
penalties, exemplary damages, attorneys fees and costs of
suit against herein petitioners Filtex and Villanueva.
chanroblesvirtuallawlibrary
In its Complaint, SIHI alleged that sometime in 1983, Filtex
applied for domestic letters of credit to finance the purchase
of various raw materials for its textile business. Finding the
application to be in order, SIHI issued on various dates
domestic letters of credit[5] authorizing Indo-Philippine Textile
Mills, Inc. (Indo-Phil), Texfiber Corporation (Texfiber), and
Philippine Polyamide Industrial Corporation (Polyamide) to
value on SIHI such drafts as may be drawn by said
corporations against Filtex for an aggregate amount not
exceeding P3,737,988.05. chanroblesvirtuallawlibrary
Filtex used these domestic letters of credit to cover its
purchase of various textile materials from Indo-Phil, Texfiber
and Polyamide. Upon the sale and delivery of the
merchandise, Indo-Phil, Texfiber and Polyamide issued several
sight drafts[6] on various dates with an aggregate value of
P3,736,276.71 payable to the order of SIHI, which were duly
accepted by Filtex. Subsequently, the sight drafts were
negotiated to and acquired in due course by SIHI which paid
the value thereof to Indo-Phil, Texfiber and Polyamide for the
account of Filtex. chanroblesvirtuallawlibrary
Allegedly by way of inducement upon SIHI to issue the
aforesaid domestic letters of credit and to value the sight
drafts issued by Indo-Phil, Texfiber and Polyamide, Villanueva
executed a comprehensive surety agreement[7] on November
9, 1982, whereby he guaranteed, jointly and severally with
Filtex, the full and punctual payment at maturity to SIHI of all
the indebtedness of Filtex. The essence of the comprehensive
surety agreement was that it shall be a continuing surety until
such time that the total outstanding obligation of Filtex to SIHI
had been fully settled.chanroblesvirtuallawlibrary
In order to ensure the payment of the sight drafts
aforementioned, Filtex executed and issued to SIHI several
trust receipts[8] of various dates, which were later extended
with the issuance of replacement trust receipts all dated June
22, 1984, covering the merchandise sold. Under the trust
receipts, Filtex agreed to hold the merchandise in trust for
SIHI, with liberty to sell the same for SIHIs account but without
authority to make any other disposition of the said goods.
Filtex likewise agreed to hand the proceeds, as soon as
received, to SIHI to apply against any indebtedness of the
former to the latter. Filtex also agreed to pay SIHI interest at
the rate of 25% per annum from the time of release of the
amount to Indo-Phil, Texfiber and Polyamide until the same is
fully paid, subject to SIHIs option to reduce the interest rate.
Furthermore, in case of delay in the payment at maturity of
the aggregate amount of the sight drafts negotiated to SIHI,
said amount shall be subject to two percent (2%) per month
penalty charge payable from the date of default until the
amount is fully paid.chanroblesvirtuallawlibrary
Because of Filtexs failure to pay its outstanding obligation
despite demand, SIHI filed a Complaint on December 6, 1985
praying that the petitioners be ordered to pay, jointly and
severally, the principal amount of P3,118,949.75, plus interest
and penalties, attorneys fees, exemplary damages, costs of
suit and other litigation expenses.chanroblesvirtuallawlibrary
In its Answer with Counterclaim,[9] Filtex interposed special
and affirmative defenses, i.e., the provisions of the trust
receipts, as well as the comprehensive surety agreement, do
not reflect the true will and intention of the parties, full
payment of the obligation, and lack of cause of action. For his
part, Villanueva interposed the same special and affirmative
defenses and added that the comprehensive surety
agreement is null and void and damages and attorneys fees
are not legally demandable.[10] The petitioners, however,
failed to specifically deny under oath the genuineness and
due execution of the actionable documents upon which the
Complaint was based.chanroblesvirtuallawlibrary
On July 23, 1990, the Regional Trial Court of Manila rendered
judgment[11] holding Filtex and Villanueva jointly and
severally liable to SIHI. Dissatisfied, Filtex and Villanueva filed
an Appeal,[12] primarily contending that they have fully paid
their indebtedness to SIHI and asserting that the letters of
credit, sight drafts, trust receipts and comprehensive surety
agreement upon which the Complaint is based are
inadmissible in evidence supposedly because of non-payment
of documentary stamp taxes as required by the Internal
Revenue Code.[13]chanroblesvirtuallawlibrary
In its assailed Decision, the Court of Appeals debunked the
petitioners contention that the letters of credit, sight drafts,
trust receipts and comprehensive surety agreement are
inadmissible in evidence ruling that the petitioners had in
effect, admitted the genuineness and due execution of said
documents because of their failure to have their answers
placed under oath, the complaint being based on actionable
documents in line with Section 7, Rule 8 of the Rules of Court.
[14] The appellate court also ruled that there remained an
unpaid balance as of January 31, 1989 of P868,881.11 for
which Filtex and Villanueva are solidarily liable.
[15]chanroblesvirtuallawlibrary
The appellate court denied the petitioners Motion for
Reconsideration[16] in its Resolution,[17] ruling that the
petitioners failed to raise new and substantial matters that
would warrant the reversal of its Decision. However, due to
certain typographical oversights, the Court of Appeals
modified its Decision and stated that the correct unpaid
balance as of January 31, 1989 was actually P7,868,881.11,
excluding litigation and other miscellaneous expenses and
filing fees.[18]chanroblesvirtuallawlibrary
In asking this Court to reverse and set aside the
aforementioned Decision and Resolution of the Court of
Appeals, the petitioners argued that the appellate court
should not have admitted in evidence the letters of credit,
sight drafts, trust receipts and comprehensive surety
agreement for lack of the requisite documentary stamps
thereon. They hypothesized that their implied admission of
the genuineness and due execution of these documents for
failure to specifically deny the same under oath should not be
equated with an admission in evidence of the documents and
an admission of their obligation. They also maintained that
they have fully paid the obligation and, in fact, have made an
excess payment in the amount of P415,722.53. In addition,
Villanueva asserted that the comprehensive surety agreement
which he executed is null and void, inadmissible in evidence
and contains material alterations. Thus, he claimed that he
should not be held solidarily liable with Filtex.
chanroblesvirtuallawlibrary
Traversing the allegations in the instant petition, SIHI stated
in its Comment[19] that in their respective answers to the
complaint, the petitioners expressly admitted the due
execution of the letters of credit, sight drafts and trust
receipts and their obligation arising from these documents.
Having done so, they could no longer question the
admissibility of these documents. Moreover, their allegation of
inadmissibility of these documents is inconsistent with their
defense of full payment. SIHI also reasoned that the
documentary stamps, assuming they are required, are for the
sole account of Filtex not only because the letters of credit
were issued at its instance and application but also because it
was the issuer and acceptor of the trust receipts and sight
drafts, respectively. As regards the petitioners allegation of
full payment, SIHI stressed that the appellate court had
already resolved this issue in its favor by ruling that there
remained an unpaid balance of P7,868,881.11 as of January
31, 1989 for which the petitioners were held solidarily liable.
Besides, by quoting substantial portions of their appellants
Brief in the instant petition, the petitioners merely repeated
the issues that have already been passed upon by the
appellate court. Finally, SIHI asserted the validity and
admissibility of the comprehensive surety
agreement.chanroblesvirtuallawlibrary
The threshold issue in this case is whether or not the letters of
credit, sight drafts, trust receipts and comprehensive surety
agreement are admissible in evidence despite the absence of
documentary stamps thereon as required by the Internal
Revenue Code.[20]chanroblesvirtuallawlibrary
We rule in the affirmative. As correctly noted by the
respondent, the Answer with Counterclaim[21] and Answer,
[22] of Filtex and Villanueva, respectively, did not contain any
specific denial under oath of the letters of credit, sight drafts,
trust receipts and comprehensive surety agreement upon
which SIHIs Complaint[23] was based, thus giving rise to the
implied admission of the genuineness and due execution of
these documents. Under Sec. 8, Rule 8 of the Rules of Court,
when an action or defense is founded upon a written
instrument, copied in or attached to the corresponding
pleading as provided in the preceding section, the
genuineness and due execution of the instrument shall be
deemed admitted unless the adverse party, under oath,
specifically denies them, and sets forth what he claims to be
the facts. chanroblesvirtuallawlibrary
In Benguet Exploration, Inc. vs. Court of Appeals,[24] this
Court ruled that the admission of the genuineness and due
execution of a document means that the party whose
signature it bears admits that he voluntarily signed the
document or it was signed by another for him and with his
authority; that at the time it was signed it was in words and
figures exactly as set out in the pleading of the party relying
upon it; that the document was delivered; and that any
formalities required by law, such as a seal, an
acknowledgment, or revenue stamp, which it lacks, are
waived by him. chanroblesvirtuallawlibrary
Moreover, under Section 173 of the Internal Revenue Code
the liability for payment of the stamp taxes is imposed on the
person making, signing, issuing, accepting, or transferring the
document. As correctly pointed out by SIHI, Filtex was the
issuer and acceptor of the trust receipts and sight drafts,
respectively, while the letters of credit were issued upon its
application. On the other hand, Villanueva signed the
comprehensive surety agreement. Thus, being among the
parties obliged to pay the documentary stamp taxes, the
petitioners are estopped from claiming that the documents
are inadmissible in evidence for non-payment thereof.
chanroblesvirtuallawlibrary
Interestingly, the petitioners questioned the admissibility of
these documents rather belatedly, at the appeal stage even.
Their respective answers[25] to SIHIs Complaint were silent
on this point. The rule is well-settled that points of law,
theories, issues and arguments not adequately brought to the
attention of the trial court need not, and ordinarily will not, be
considered by a reviewing court as they cannot be raised for
the first time on appeal because this would be offensive to the
basic rules of fair play, justice and due process.
[26]chanroblesvirtuallawlibrary
Hence, the petitioners can no longer dispute the admissibility
of the letters of credit, sight drafts, trust receipts and
comprehensive surety agreement. However, this does not
preclude the petitioners from impugning these documents by
evidence of fraud, mistake, compromise, payment, statute of
limitations, estoppel and want of consideration.
[27]chanroblesvirtuallawlibrary
This brings us to the petitioners contention that they have
already fully paid their obligation to SIHI and have, in fact,
overpaid by P415,722.53. This matter is purely a factual issue.
In Fortune Motors (Phils.) Corporation vs. Court of Appeals,
[28] it was held that the jurisdiction of this Court in cases
brought before it from the Court of Appeals under Rule 45 of
the Rules of Court is limited to reviewing or revising errors of
law. It is not the function of this Court to analyze or weigh
evidence all over again unless there is a showing that the
findings of the lower court are totally devoid of support or are
glaringly erroneous as to constitute serious abuse of
discretion. Factual findings of the Court of Appeals are
conclusive on the parties and carry even more weight when
said court affirms the factual findings of the trial court.
[29]chanroblesvirtuallawlibrary
It should be noted that the issue of overpayment as well as
the proof presented by the petitioners on this point merely
rehash those submitted before the Court of Appeals. The
appellate court affirmed the trial court and passed upon this
issue by exhaustively detailing the amounts paid as guaranty
deposit, the payments made and the balance due for every
trust receipt. This Court shall not depart from the findings of
the trial court and the appellate court, supported by the
preponderance of evidence and unsatisfactorily refuted by the
petitioners, as they are.chanroblesvirtuallawlibrary
As a final issue, Villanueva contended that the comprehensive
surety agreement is null and void for lack of consent of Filtex
and SIHI. He also alleged that SIHI materially altered the
terms and conditions of the comprehensive surety agreement
by granting Filtex an extension of the period for payment
thereby releasing him from his obligation as surety. We find
these contentions specious.chanroblesvirtuallawlibrary
In the first place, the consent of Filtex to the surety may be
assumed from the fact that Villanueva was the signatory to
the sight drafts and trust receipts on behalf of Filtex.[30]
Moreover, in its Answer with Counterclaim,[31] Filtex
admitted the execution of the comprehensive surety
agreement with the only qualification that it was not a means
to induce SIHI to issue the domestic letters of credit. Clearly,
had Filtex not consented to the comprehensive surety
agreement, it could have easily objected to its validity and
specifically denied the same. SIHIs consent to the surety is
also understood from the fact that it demanded payment from
both Filtex and Villanueva.chanroblesvirtuallawlibrary
As regards the purported material alteration of the terms and
conditions of the comprehensive surety agreement, we rule
that the extension of time granted to Filtex to pay its
obligation did not release Villanueva from his liability. As this
Court held in Palmares vs. Court of Appeals:
[32]chanroblesvirtuallawlibrary
The neglect of the creditor to sue the principal at the time the
debt falls due does not discharge the surety, even if such
delay continues until the principal becomes
insolventchanroblesvirtuallawlibrary
The raison detre for the rule is that there is nothing to prevent
the creditor from proceeding against the principal at any time.
At any rate, if the surety is dissatisfied with the degree of
activity displayed by the creditor in the pursuit of his
principal, he may pay the debt himself and become
subrogated to all the rights and remedies of the
creditor.chanroblesvirtuallawlibrary
It may not be amiss to add that leniency shown to a debtor in
default, by delay permitted by the creditor without change in
the time when the debt might be demanded, does not
constitute an extension of the time of payment, which would
release the surety. In order to constitute an extension
discharging the surety, it should appear that the extension
was for a definite period, pursuant to an enforceable
agreement between the principal and the creditor, and that it
was made without the consent of the surety or with a
reservation of rights with respect to him. The contract must
be one which precludes the creditor from, or at least hinders
him in, enforcing the principal contract within the period
during which he could otherwise have enforced it, and
precludes the surety from paying the debt.
[33]chanroblesvirtuallawlibrary
Lastly, with regard to Villanuevas assertion that the 25%
annual interest to be paid by Filtex in case it failed to pay the
amount released to suppliers was inserted by SIHI without his
consent, suffice it to say that the trust receipts bearing the
alleged insertion of the 25% annual fee are countersigned by
him. His pretension of lack of knowledge and consent thereto
is obviously contrived.chanroblesvirtuallawlibrary
In view of the foregoing, we find the instant petition bereft of
merit.chanroblesvirtuallawlibrary
WHEREFORE, premises considered, the petition is DENIED and
the assailed Decision and Resolution of the Court of Appeals
concurring with the decision of the trial court are hereby
AFFIRMED. Costs against the
petitioners.chanroblesvirtuallawlibrary
SO ORDERED.chanroblesvirtuallawlibrary
Bellosillo, (Chairman), Quisumbing, Austria-Martinez and
Callejo, Sr., JJ., concur.
Endnotes:
[1] Rollo, pp. 34-50. Penned by Associate Justice Bernardo Ll.
Salas, with Associate Justices Alfredo L. Benipayo and
Buenaventura J. Guerrero, concurring.
[2] Id. at 53-54.
[3] Id. at 55-57.
[4] Records, Civil Case No. 85-33881, pp. 1-9.
[5] Id. at 10-17.
[6] Id. at 18-25.
[7] Id. at 27-30.
[8] Id. at 31-42.
[9] Id. at 58-63.
[10] Id. at 93-96.
[11] Supra, note 1 at. 55-57.
[12] Id. at 59-90.
[13] Sec. 173.
[14] Supra, note 1 at 48.
[15] Id. at 50.
[16] Records, C.A. G.R. No. 28794, pp. 189-194.
[17] Supra, note 2.
[18] Supra, note 1 at 54.
[19] Id. at 93-134.
[20] Sec. 173. Stamp taxes upon documents, instruments,
and papers.Upon documents, instruments, and papers, and
upon acceptances, assignments, sales, and transfers of the
obligation, right, or property incident thereto, there shall be
levied, collected and paid for, and in respect of the
transaction so had or accomplished, the corresponding
documentary stamp taxes prescribed in the following sections
of this Title, by the person making, signing, issuing, accepting,
or transferring the same, wherever the document is made,
signed, issued, accepted or transferred when the obligation or
right arises from Philippine sources or the property is situated
in the Philippines and at the same time such act is done or
transaction had; Provided, That whenever one party to the
taxable document enjoys exemption from the tax herein
imposed, the other party thereto who is not exempt shall be
the one directly liable for the tax. chanroblesvirtuallawlibrary
Sec. 201. Effect of failure to stamp taxable document.An
instrument, document, or paper which is required by law to be
stamped and which has been signed, issued, accepted, or
transferred without being duly stamped, shall not be
recorded, nor shall it or any copy thereof or any record of
transfer of the same be admitted or used in evidence in any
court until the requisite stamp or stamps shall have been
affixed thereto and cancelled. (National Internal Revenue
Code)
[21] Supra, note 4 at 58-63.
[22] Id. at 93-96.
[23] Supra, note 4.
[24] G.R. No. 117434, 9 February 2001, 351 SCRA 445, citing
Hibberd vs. Rhode, 32 Phil. 476; Heirs of Amparo del Rosario
vs. Aurora Santos, et al. , 194 Phil. 670.
[25] Supra, notes 9 and 10.
[26] PAL vs. NLRC, 328 Phil. 814.
[27] Republic of the Philippines vs. Court of Appeals, 357 Phil.
174.
[28] 335 Phil. 315.
[29] Id. at 330.
[30] Supra, note 4 at 18-25, 31-42.
[31] Supra, note 9 at 59.
[32] 351 Phil. 664.
[33] Id. at 686-687.
***no original case boo...wait
In Warner Barnes & Co. Ltd. vs. Reyes, et al., G.R. No. L-9531,
May 14, 1958 (103 Phil., 662), this Court said that the rule
authorizing an answer to the effect that the defendant has no
knowledge or information sufficient to form a belief as to the
truth of an averment and giving such answer the effect of a
denial, does not apply where the fact as to which want of
knowledge is asserted, is so plainly and necessarily within the
defendant's knowledge that his averment of ignorance must
be palpably untrue. In said case the suit was one for
foreclosure of mortgage, and a copy of the deed of mortgage
was attached to the complaint; thus, according to this Court, it
would have been easy for the defendants to specifically allege
in their answer whether or not they had executed the alleged
mortgage. The same thing can be said in the present case,
where a copy of the promissory note sued upon was attached
to the complaint. The doctrine in Warner Barnes & Co., Ltd.
was reiterated in J.P. Juan & Sons, Inc. vs. Lianga Industries,
Inc. G.R. No. L-25137, July 28, 1969 (28 SCRA 807). And in Sy-
quia vs. Marsman, G.R. No. L-23426, March 1, 1968 (22 SCRA
927), this Court said:
'With regard to the plea of lack of knowledge or information
set up in paragraph 3 of the answer, this Court's decision in
Warner Barnes vs. Reyes, 103 Phil. 662, 665, is authority for
the proposition that this form of denial must be availed of with
sincerity and good faith, not for the purpose of confusing the
other party, nor for purposes of delay. Yet, so lacking in
sincerity and good faith is this part of the answer that
defendants-appellants go to the limit of denying knowledge or
information as to whether they (defendants) were in the
premises (Marsman Bldg.) on January 4, 1961, as averred in
paragraph 4 of the complaint. Yet whether such a fact was or
was not true could not be unknown to these defendants.
***
G.R. No. 126863 January 16, 2003
SPOUSES NAPOLEON L. GAZA and EVELYN GAZA, SPOUSES
RENATO PETIL and MELY PETIL, BRGY. SEC. VICTORIO A.
CONDUCTO and BRGY. TANOD ARTURO ALAON, petitioners,
vs.
RAMON J. LIM and AGNES J. LIM, respondents.
SANDOVAL-GUTIERREZ, J.:
The present petition for review on certiorari1 seeks to set
aside the Decision dated April 29, 1995 and the Resolution
dated October 10, 1996 of the Court of Appeals2 in CA-G.R. SP
No. 36997 reversing the Decision of the Regional Trial Court,
Branch 63, Calauag, Quezon in Civil Case No. C-1031 for
forcible entry.
The factual milieu of this case is as follows:
On February 20, 1961, Napoleon Gaza purchased a parcel of
land with an area of 5,270 square meters located in Barangay
Sta. Maria, Calauag, Quezon, from Angeles Vda. de Urrutia.
The Register of Deeds of Lucena City then cancelled the
latter's title and issued Transfer Certificate of Title (TCT) No.
T-47263 in the name of Napoleon Gaza.
Thereafter, Napoleon Gaza and his wife Evelyn engaged in the
lumber and copra business. They constructed a huge lumber
shed on the property and installed engines, machinery and
tools for a lumber mill. They also utilized a portion of the
property as storage for copra. In 1975, they ceased engaging
in business. They padlocked the gates of the property, leaving
it to the care of Numeriano Ernesto. When he died in 1991,
spouses Gaza designated Renato Petil as the new caretaker of
the land.
On the other hand, Ramon and Agnes Lim, both half-siblings
of Napoleon Gaza, claimed that they have used the same lot
for their lumber and copra business since 1975, as shown by
Lumber Certificate of Registration No. 2490, PCA Copra
Business Registration No. 6265/76 and Mayor's Permit dated
December 31, 1976. Sometime in November 1993, they
designated Emilio Herrera as caretaker of the property.
On November 28, 1993, the padlock of the main gate was
destroyed. According to Napoleon Gaza, the siblings Ramon
and Agnes Lim and Emilio Herrera, entered the property by
breaking the lock of the main gate. Thereafter, they occupied
a room on the second floor of the warehouse without the
consent of Renato Petil who was then outside the premises.
For their part, Ramon and Agnes Lim maintain that on
November 28, 1993, spouses Gaza detained Emilio Herrera
and his daughter inside the compound and destroyed the
padlocks of the gates. Thereafter, said spouses forcibly
opened Agnes Lim's quarters at the second floor of the
warehouse and occupied it.
On December 13, 1993, Ramon and Agnes Lim filed with the
Municipal Trial Court (MTC) of Calauag, Quezon an action for
forcible entry against spouses Napoleon and Evelyn Gaza,
docketed as Special Civil Action No. 845.
On December 21, 1993, spouses Gaza filed with the same
court their answer with compulsory counterclaim.
On June 1, 1994, the MTC dismissed the complaint and
counterclaim.
On appeal, the Regional Trial Court (RTC), Branch 63,
Calauag, Quezon, affirmed the MTC Decision with
modification, thus:
"WHEREFORE, in the light of the foregoing considerations the
judgment of the lower court is hereby AFFIRMED and the
appeal is DENIED with the modification that the plaintiffs are
ordered to pay the amount of P5,000.00 as moral damages
and P5,000.00 by way of exemplary damages to the
defendants spouses Napoleon Gaza and Evelyn Gaza.
"SO ORDERED."3
On April 29, 1995, Ramon and Agnes Lim filed with the Court
of Appeals a petition for review, docketed therein as CA-G.R.
SP No. 36997. In its Decision, the Court of Appeals4 reversed
and set aside the Decision of the RTC, thus:
"WHEREFORE, premises considered, the petition is hereby
GIVEN DUE COURSE. The decision of the Regional Trial Court
of Calauag, Quezon, Branch 63, affirming the decision of the
Municipal Trial Court, is hereby REVERSED and SET ASIDE and
a new one is rendered ordering the private respondents and
all persons claiming rights under them to vacate the premises
in question and surrender its possession to the petitioners.
"SO ORDERED."
Spouses Gaza filed a motion for reconsideration but was
denied. Hence, they filed with this Court the present petition
for review on certiorari ascribing to the Court of Appeals the
following errors:
"I. THE COURT OF APPEALS ERRED IN FAILING TO RULE THAT
THERE WAS NO IMPLIED ADMISSION ON THE PART OF
PETITIONERS THAT PRIVATE RESPONDENTS HAD BEEN IN
PRIOR AND ACTUAL PHYSICAL POSSESSION OF SUBJECT
PROPERTY SINCE 1975.
"II. THE COURT OF APPEALS GRAVELY ABUSED ITS
DISCRETION IN RESOLVING THE INSTANT CASE ON MERE
TECHNICALITIES AND IN APPLYING THE RULES OF PROCEDURE
IN A VERY RIGID MANNER, THEREBY DENYING PETITIONERS
SUBSTANTIAL JUSTICE.
"III. THE COURT OF APPEALS GRAVELY ABUSED ITS
DISCRETION IN IGNORING THE VOLUMINOUS EVIDENCE
ADDUCED BY THE PETITIONERS IN SUBSTANTIATING THEIR
PRIORITY IN POSSESSION OF SUBJECT PROPERTY, SAID ERROR
BECOMING EVEN MORE MANIFEST IN THE LIGHT OF THE
GLARING PAUCITY OF EVIDENCE OF PRIVATE RESPONDENTS
TO SUPPORT THEIR ALLEGED POSSESSION.
"IV. THE COURT OF APPEALS ERRED IN FAILING TO TAKE INTO
ACCOUNT THE FINAL AND EXECUTORY JUDGMENT OF
CONVICTION OF RESPONDENT AGNES LIM FOR TRESPASSING
INTO SUBJECT PROPERTY, CLEARLY EVIDENCING PETITIONERS'
PRIOR AND ACTUAL MATERIAL POSSESSION AND PRIVATE
RESPONDENTS' PREDISPOSITION FOR FALSEHOOD, THE
TRUTH OF THE MATTER BEING OF SAID PROPERTY AND THAT
IT IS PRIVATE RESPONDENTS WHO HAVE FORCIBLY ENTERED
THE PROPERTY IN DISPUTE.
"V. THE COURT OF APPEALS ERRED IN RESOLVING THE ISSUE
OF IMPLIED ADMISSION, NOT BEING ONE OF THE ISSUES
DELIMITED IN THE PRE-TRIAL ORDER OF 17 FEBRUARY
1994."5
We resolve the issues jointly.
Section 11, Rule 8 of the 1997 Rules of Civil Procedure, as
amended, provides that material averments in the complaint,
other than those as to the amount of unliquidated damages,
shall be deemed admitted when not specifically denied.
Section 10 of the same Rule provides the manner in which
specific denial must be made:
"Section 10. Specific Denial. — A defendant must specify each
material allegation of fact the truth of which he does not
admit and, whenever practicable, shall set forth the substance
of the matters upon which he relies to support his denial.
Where a defendant desires to deny only a part of an
averment, he shall specify so much of it as is true and
material and shall deny only the remainder. Where a
defendant is without knowledge or information sufficient to
form a belief as to the truth of a material averment made in
the complaint, he shall so state, and this shall have the effect
of a denial."
Three (3) modes of specific denial are contemplated by the
above provisions, namely: 1) by specifying each material
allegation of the fact in the complaint, the truth of which the
defendant does not admit, and whenever practicable, setting
forth the substance of the matters which he will rely upon to
support his denial; (2) by specifying so much of an averment
in the complaint as is true and material and denying only the
remainder; (3) by stating that the defendant is without
knowledge or information sufficient to form a belief as to the
truth of a material averment in the complaint, which has the
effect of a denial.6
The Court of Appeals held that spouses Gaza, petitioners,
failed to deny specifically, in their answer, paragraphs 2, 3
and 5 of the complaint for forcible entry quoted as follows:
"xxx xxx xxx
"2. That plaintiffs are the actual and joint occupants and in
prior continuous physical possession since 1975 up to Nov.
28, 1993 of a certain commercial compound described as
follows:
"A certain parcel of land situated in Bo. Sta. Maria, Calauag,
Quezon. Bounded on the N., & E., by Julian de Claro; on the
W., by Luis Urrutia. Containing an area of 5,270 square
meters, more or less. Declared under Ramon J. Lim's Tax Dec.
No. 4576 with an Ass. Value of P26,100.00
"3. That plaintiffs have been using the premises mentioned for
combined lumber and copra business. Copies of plaintiffs'
Lumber Certificate of Registration No. 2490 and PCA Copra
Business Registration No. 6265/76 are hereto attached as
Annexes "A" and "B" respectively; the Mayor's unnumbered
copra dealer's permit dated Dec. 31, 1976 hereto attached as
Annex "C";
"xxx xxx xxx
"5. That defendants' invasion of plaintiffs' premises was
accomplished illegally by detaining plaintiffs' caretaker Emilio
Herrera and his daughter inside the compound, then
proceeded to saw the chain that held plaintiffs' padlock on the
main gate of the compound and then busted or destroyed the
padlock that closes the backyard gate or exit. Later, they
forcibly opened the lock in the upstairs room of plaintiff Agnes
J. Lim's quarters and defendants immediately filled it with
other occupants now. Copy of the caretaker's (Emilio Herrera)
statement describing in detail is hereto attached as Annex
"D";
"xxx xxx xxx."7
The Court of Appeals then concluded that since petitioners did
not deny specifically in their answer the above-quoted
allegations in the complaint, they judicially admitted that
Ramon and Agnes Lim, respondents, "were in prior physical
possession of the subject property, and the action for forcible
entry which they filed against private respondents (spouses
Gaza) must be decided in their favor. The defense of private
respondents that they are the registered owners of the
subject property is unavailing."
We observe that the Court of Appeals failed to consider
paragraph 2 of petitioners' answer quoted as follows:
"2. That defendants specifically deny the allegations in
paragraph 2 and 3 of the complaint for want of knowledge or
information sufficient to form a belief as to the truth thereof,
the truth of the matter being those alleged in the special and
affirmative defenses of the defendants;"8
Clearly, petitioners specifically denied the allegations
contained in paragraphs 2 and 3 of the complaint that
respondents have prior and continuous possession of the
disputed property which they used for their lumber and copra
business. Petitioners did not merely allege they have no
knowledge or information sufficient to form a belief as to truth
of those allegations in the complaint, but added the following:
"SPECIAL AND AFFIRMATIVE DEFENSES
"That defendants hereby reiterate, incorporate and restate
the foregoing and further allege:
"5. That the complaint states no cause of action;
"From the allegations of plaintiffs, it appears that their
possession of the subject property was not supported by any
concrete title or right, nowhere in the complaint that they
alleged either as an owner or lessee, hence, the alleged
possession of plaintiffs is questionable from all aspects.
Defendants Sps. Napoleon Gaza and Evelyn Gaza being the
registered owner of the subject property has all the right to
enjoy the same, to use it, as an owner and in support thereof,
a copy of the transfer certificate of title No. T-47263 is hereto
attached and marked as Annex "A-Gaza" and a copy of the
Declaration of Real Property is likewise attached and marked
as Annex "B-Gaza" to form an integral part hereof;
"6. That considering that the above-entitled case is an
ejectment case, and considering further that the complaint
did not state or there is no showing that the matter was
referred to a Lupon for conciliation under the provisions of
P.D. No. 1508, the Revised Rule on Summary Procedure of
1991, particularly Section 18 thereof provides that such a
failure is jurisdictional, hence subject to dismissal;
"7. That the Honorable Court has no jurisdiction over the
subject of the action or suit;
"The complaint is for forcible entry and the plaintiffs were
praying for indemnification in the sum of P350,000.00 for
those copra, lumber, tools, and machinery listed in par. 4 of
the complaint and P100,000.00 for unrealized income in the
use of the establishment, considering the foregoing amounts
not to be rentals, Section 1 A (1) and (2) of the Revised Rule
on Summary Procedure prohibits recovery of the same,
hence, the Honorable Court can not acquire jurisdiction over
the same. Besides, the defendants Napoleon Gaza and Evelyn
Gaza being the owners of those properties cited in par. 4 of
the complaint except for those copra and two (2) live
carabaos outside of the subject premises, plaintiffs have no
rights whatsoever in claiming damages that it may suffer, as
and by way of proof of ownership of said properties cited in
paragraph 4 of the complaint attached herewith are bunched
of documents to form an integral part hereof;
"8. That plaintiffs' allegation that Emilio Herrera was illegally
detained together with his daughter was not true and in
support thereof, attached herewith is a copy of said Herrera's
statement and marked as Annex "C-Gaza."
xxx xxx xxx."9
The above-quoted paragraph 2 and Special and Affirmative
Defenses contained in petitioners' answer glaringly show that
petitioners did not admit impliedly that respondents have
been in prior and actual physical possession of the property.
Actually, petitioners are repudiating vehemently respondents'
possession, stressing that they (petitioners) are the registered
owners and lawful occupants thereof.
Respondents' reliance on Warner Barnes and Co., Ltd. vs.
Reyes10 in maintaining that petitioners made an implied
admission in their answer is misplaced. In the cited case, the
defendants' answer merely alleged that they were "without
knowledge or information sufficient to form a belief as to the
truth of the material averments of the remainder of the
complaint" and "that they hereby reserve the right to present
an amended answer with special defenses and
counterclaim."11 In the instant case, petitioners enumerated
their special and affirmative defenses in their answer. They
also specified therein each allegation in the complaint being
denied by them. They particularly alleged they are the
registered owners and lawful possessors of the land and
denied having wrested possession of the premises from the
respondents through force, intimidation, threat, strategy and
stealth. They asserted that respondents' purported possession
is "questionable from all aspects." They also averred that they
own all the personal properties enumerated in respondents'
complaint, except the two carabaos. Indeed, nowhere in the
answer can we discern an implied admission of the allegations
of the complaint, specifically the allegation that petitioners
have priority of possession.
Thus, the Court of Appeals erred in declaring that herein
petitioners impliedly admitted respondents' allegation that
they have prior and continuous possession of the property.
We now resolve the basic substantial issue. In an action for
forcible entry, the plaintiff must prove that he was in prior
possession of the land or building and that he was deprived
thereof by means of force, intimidation threat, strategy or
stealth.12 It must be stressed, though, that he cannot
succeed where it appears that, as between himself and the
defendant, the latter had a possession antedating his own.13
To ascertain this, it is proper to look at the situation as it
existed before the first act of spoliation occurred.14 Such
determination in this case requires a review of factual
evidence, generally proscribed in a petition like this.15
Considering, however, the conflicting factual findings of the
MTC and RTC on one hand, and Court of Appeals on the other,
this Court takes exception to the general rule in order to
resolve the factual issues raised by the parties.
Petitioners' possession of the property has been sufficiently
established by evidence. The title to the property (TCT No. T-
47263) is in the name of petitioner Napoleon Gaza. On record
is a deed of sale showing that he bought the land in 1961
from Angeles Vda. de Urrutia. Petitioner also presented
receipts of payment of realty taxes.
A disinterested witness, Barangay Secretary Victorio Conducto
of Sta. Maria, Calauag, Quezon, in his Affidavit attached to the
instant petition,16 stated that since 1968, spouses Gaza have
been in possession of the property and that respondents
never occupied the property even for business purposes.
Upon the closure of their business, petitioners designated
Numeriano Ernesto and Renato Petil as caretakers of the lot.
Upon the other hand, respondents' allegation of prior
possession of the premises is anchored on spurious
documents. The Lumber Certificate of Registration of Business
Name No. 78-2490, for one, does not specifically refer to the
disputed property. It was issued to them at a different
address. Tax Declaration No. 35-81-220 in the name of R. J.
Lim is not a certified true copy of the original.17 Also,
respondents' purported PCA Certificate of Registration No.
6265/76 as copra dealer18 and the Mayor's Permit19 are
expired documents. Not even their supposed caretaker, Emilio
Herrera, submitted an affidavit confirming that they are the
lawful possessors of the property.
Furthermore, respondent Agnes Lim was later convicted by
the MTC of Calauag, Quezon in Criminal Case No. 7405 for
trespassing into the subject property.20 The MTC Decision
confirms the falsity of respondents' claim of prior possession.
It bears emphasis that the MTC Decision was affirmed in toto
by the RTC of Calauag, Quezon, Branch 63 in Criminal Case
No. 2725-C. 21
Where a dispute over possession arises between two persons,
the person first having actual possession is the one who is
entitled to maintain the action granted by law; otherwise, a
mere usurper without any right whatever, might enter upon
the property of another and, by allowing himself to be ordered
off, could acquire the right to maintain the action of forcible
entry and detainer, however momentary his intrusion might
have been.22
In this case, evidence clearly shows that petitioners are the
true owners and, therefore, the lawful possessors of the land.
Verily, respondents' allegation of actual possession and that
petitioners deprived them of such possession by means of
force, intimidation and threat are clearly untenable.
WHEREFORE, the petition is GRANTED and the assailed
Decision of the Court of Appeals in CA-G.R. SP No. 36997
dated March 12, 1996 is REVERSED and SET ASIDE. The
Decision of the RTC, Branch 63, Calauag, Quezon in Civil Case
No. C-1031 affirming the MTC Decision dismissing
respondents' complaint is REINSTATED, with modification in
the sense that the award of moral and exemplary damages in
favor of petitioners is deleted.
SO ORDERED.
Puno, Panganiban, Corona, and Carpio Morales, JJ ., concur.
Footnotes
1 Filed under Rule 45 of the 1997 Rules of Civil Procedure, as
amended.
2 Penned by then Associate Justice Consuelo Ynares-Santiago,
now Justice of this Court, and concurred in by then Associate
Justice Arturo B. Buena, also of the Court of Appeals, now
retired Justice of this Court, and Associate Justice Ruben T.
Reyes.
3 Penned by Judge Rodolfo V. Garduque, Rollo, at 237–245.
4 Rollo, at 65–72.
5 Id., at 23–24.
6 Capital Motors Corporation vs. Yabut, 32 SCRA 1 (1970).
7 Rollo, at 15–17.
8 Answer with Compulsory Counterclaim, id., at 85.
9 Id., at 85–86.
10 103 Phil. 662 (1958), cited in Capitol Motors vs. Yabut, 32
SCRA 1, 4–5 (1970).
11 Id., at 663.
12 Benitez vs. Court of Appeals, 266 SCRA 242, 249 (1997).
13 Masallo vs. Cesar, 39 Phil. 134, 137 (1918).
14 Id.
15 Siguan vs. Lim, 318 SCRA 725, 735 (1999).
16 Annex "J," Rollo, at 214–216.
17 Rollo, at 226.
18 Id., at. 82.
19 Id., at 83.
20 Annex "AA" of the petition, Rollo, at 292–295.
21 Annex "BB" of the petition, id., at 296–301.
22 Masallo vs. Cesar, 39 Phil. 134, 137 (1918).
G.R. No. 150731 September 14, 2007
CASENT REALTY DEVELOPMENT CORP., petitioner,
vs.
PHILBANKING CORPORATION, respondent.
DECISION
VELASCO, JR., J.:
On appeal to this Court through Rule 45 of the Rules of Court
is the March 29, 2001 Decision1 and November 7, 2001
Resolution2 of the Court of Appeals (CA) in CA-G.R. CV No.
63979 entitled Philbanking Corporation v. Casent Realty
Development Corporation. The CA reversed the May 12, 1999
Order3 of the Makati City Regional Trial Court (RTC), Branch
145 in Civil Case No. 93-2612, which granted petitioner’s
demurrer to evidence and dismissed the complaint filed by
respondent.
The Facts
The facts according to the appellate court are as follows:
In 1984, petitioner Casent Realty Development Corporation
executed two promissory notes in favor of Rare Realty
Corporation (Rare Realty) involving the amounts of PhP
300,000 (PN No. 84-04) and PhP 681,500 (PN No. 84-05). It
was agreed in PN No. 84-04 that the loan it covered would
earn an interest of 36% per annum and a penalty of 12% in
case of non-payment by June 27, 1985, while the loan covered
by PN No. 84-05 would earn an interest of 18% per annum
and 12% penalty if not paid by June 25, 1985.4 On August 8,
1986, these promissory notes were assigned to respondent
Philbanking Corporation through a Deed of Assignment.5
Respondent alleged that despite demands, petitioner failed to
pay the promissory notes upon maturity such that its
obligation already amounted to PhP 5,673,303.90 as of July
15, 1993. Respondent filed on July 20, 1993 a complaint
before the Makati City RTC for the collection of said amount.
In its Answer,6 petitioner raised the following as
special/affirmative defenses:
1. The complaint stated no cause of action or if there was any,
the same was barred by estoppel, statute of frauds, statute of
limitations, laches, prescription, payment, and/or release;
2. On August 27, 1986, the parties executed a Dacion en
Pago7 (Dacion) which ceded and conveyed petitioner’s
property in Iloilo City to respondent, with the intention of
totally extinguishing petitioner’s outstanding accounts with
respondent. Petitioner presented a Confirmation Statement8
dated April 3, 1989 issued by respondent stating that
petitioner had no loans with the bank as of December 31,
1988.
3. Petitioner complied with the condition in the Dacion
regarding the repurchase of the property since the obligation
was fully paid. Respondent sent confirmation statements in
the latter months of 1989, which showed that petitioner had
no more outstanding loan; and
4. Assuming that petitioner still owed respondent, the latter
was already estopped since in October 1988, it reduced its
authorized capital stock by 50% to wipe out a deficit of PhP
41,265,325.12.9
Thus, petitioner, by way of compulsory counterclaim, alleged
that it made an overpayment of approximately PhP 4 million
inclusive of interest based on Central Bank Reference Lending
Rates on dates of overpayment. Petitioner further claimed
moral and exemplary damages and attorney’s fee, amounting
to PhP 4.5 million plus the costs of suit as a consequence of
respondent’s insistence on collecting.10
The parties failed to reach an amicable settlement during the
pre-trial conference. Thereafter, respondent presented its
evidence and formally offered its exhibits. Petitioner then filed
a Motion for Judgment on Demurrer to the Evidence,11
pointing out that the plaintiff’s failure to file a Reply to the
Answer which raised the Dacion and Confirmation Statement
constituted an admission of the genuineness and execution of
said documents; and that since the Dacion obliterated
petitioner’s obligation covered by the promissory notes, the
bank had no right to collect anymore.
Respondent subsequently filed an Opposition12 which alleged
that: (1) the grounds relied upon by petitioner in its demurrer
involved its defense and not insufficiency of evidence; (2) the
Dacion and Confirmation Statement had yet to be offered in
evidence and evaluated; and (3) since respondent failed to file
a Reply, then all the new matters alleged in the Answer were
deemed controverted.13
The trial court ruled in favor of petitioner and dismissed the
complaint through the May 12, 1999 Order, the dispositive
portion of which reads:
WHEREFORE, premises considered[,] finding defendant’s
Motion For Judgment On Demurrer To The Evidence to be
meritorious[,] the same is hereby GRANTED. Consequently,
considering that the obligation of the defendant to the plaintiff
having been extinguish[ed] by a Dacion en Pago duly
executed by said parties, the instant complaint is hereby
DISMISSED, with prejudice. Without Cost.14
The Ruling of the Court of Appeals
On appeal, respondent alleged that the trial court gravely
erred because the promissory notes were not covered by the
Dacion, and that respondent was able to prove its causes of
action and right to relief by overwhelming preponderance of
evidence. It explained that at the time of execution of the
Dacion, the subject of the promissory notes was the
indebtedness of petitioner to Rare Realty and not to the
"Bank"––the party to the Dacion. It was only in 1989 after
Rare Realty defaulted in its obligation to respondent when the
latter enforced the security provided under the Deed of
Assignment by trying to collect from petitioner, because it
was only then that petitioner became directly liable to
respondent. It was also for this reason that the April 3, 1989
Confirmation Statement stated that petitioner had no
obligations to repondent as of December 31, 1988. On the
other hand, petitioner claimed that the Deed of Assignment
provided that Rare Realty lost its rights, title, and interest to
directly proceed against petitioner on the promissory notes
since these were transferred to respondent. Petitioner
reiterated that the Dacion covered all conceivable amounts
including the promissory notes.15
The appellate court ruled that under the Rules of Civil
Procedure, the only issue to be resolved in a demurrer is
whether the plaintiff has shown any right to relief under the
facts presented and the law. Thus, it held that the trial court
erred when it considered the Answer which alleged the
Dacion, and that its genuineness and due execution were not
at issue. It added that the court a quo should have resolved
whether the two promissory notes were covered by the
Dacion, and that since petitioner’s demurrer was granted, it
had already lost its right to present its evidence.16
The CA found that under the Deed of Assignment, respondent
clearly had the right to proceed against the promissory notes
assigned by Rare Realty. Thus, the CA ruled, as follows:
WHEREFORE, premises considered, the Order dated May 12,
1999 of the Regional Trial Court, National Capital Judicial
Region, Branch 145, Makati City is hereby REVERSED and SET
ASIDE.
Judgment is hereby entered ORDERING [petitioner] Casent
Realty [Development] Corporation to:
1. pay [respondent] Philbanking Corporation the amount of
P300,000.00 with an interest of 36% per annum and a penalty
of 12% for failure to pay the same on its maturity date, June
27, 1985 as stipulated in Promissory Note No. 84-04;
2. pay [respondent] Philbanking Corporation the amount of
P681,500.00 with an interest of 18% per annum and a penalty
of 12% for failure to pay the same on its maturity date, June
25, 1985 as stipulated in Promissory Note No. 84-05; and
3. pay [respondent] Philbanking Corporation, the amount
representing 25% of total amount due as attorney’s fee as
stipulated in the promissory notes.
SO ORDERED.17
Petitioner filed a Motion for Reconsideration18 which was
denied by the CA in its November 7, 2001 Resolution.19
The Issues
WHETHER OR NOT THE COURT OF APPEALS ERRED IN
EXCLUDING THE PETITIONER’S AFFIRMATIVE DEFENSES IN ITS
ANSWER IN RESOLVING A DEMURRER TO EVIDENCE; AND
WHETHER OR NOT PETITIONER IS LIABLE TO PAY THE
RESPONDENT
In other words, the questions posed by this case are:
1. Does respondent’s failure to file a Reply and deny the
Dacion and Confirmation Statement under oath constitute a
judicial admission of the genuineness and due execution of
these documents?
2. Should judicial admissions be considered in resolving a
demurrer to evidence? If yes, are the judicial admissions in
this case sufficient to warrant the dismissal of the complaint?
Petitioner asserts that its obligation to pay under the
promissory notes was already extinguished as evidenced by
the Dacion and Confirmation Statement. Petitioner submits
that when it presented these documents in its Answer,
respondent should have denied the same under oath. Since
respondent failed to file a Reply, the genuineness and due
execution of said documents were deemed admitted, thus
also admitting that the loan was already paid. On the other
hand, respondent states that while it failed to file a Reply, all
the new matters were deemed controverted pursuant to
Section 10, Rule 6 of the Rules of Court. Also, the loan which
was covered by the Dacion refers to another loan of petitioner
amounting to PhP 3,921,750 which was obtained directly from
the respondent as of August 1986.20 Furthermore, petitioner
argued that assuming respondent admitted the genuineness
and due execution of the Dacion and Confirmation Statement,
said admission was not all-encompassing as to include the
allegations and defenses pleaded in petitioner’s Answer.
The Court’s Ruling
The petition is partly meritorious.
Rule 33, Section 1 of the 1997 Rules of Civil Procedure
provides:
Section 1. Demurrer to evidence.––After the plaintiff has
completed the presentation of his evidence, the defendant
may move for dismissal on the ground that upon the facts and
the law the plaintiff has shown no right to relief. If his motion
is denied, he shall have the right to present evidence. If the
motion is granted but on appeal the order of dismissal is
reversed he shall be deemed to have waived the right to
present evidence.
In Gutib v. Court of Appeals, we defined a demurrer to
evidence as "an objection by one of the parties in an action,
to the effect that the evidence which his adversary produced
is insufficient in point of law, whether true or not, to make out
a case or sustain the issue."21
What should be resolved in a motion to dismiss based on a
demurrer to evidence is whether the plaintiff is entitled to the
relief based on the facts and the law. The evidence
contemplated by the rule on demurrer is that which pertains
to the merits of the case, excluding technical aspects such as
capacity to sue.22 However, the plaintiff’s evidence should
not be the only basis in resolving a demurrer to evidence. The
"facts" referred to in Section 8 should include all the means
sanctioned by the Rules of Court in ascertaining matters in
judicial proceedings. These include judicial admissions,
matters of judicial notice, stipulations made during the pre-
trial and trial, admissions, and presumptions, the only
exclusion being the defendant’s evidence.
Petitioner points out that the defense of Dacion and
Confirmation Statement, which were submitted in the Answer,
should have been specifically denied under oath by
respondent in accordance with Rule 8, Section 8 of the Rules
of Court:
Section 8. How to contest such documents.––When an action
or defense is founded upon a written instrument, copied in or
attached to the corresponding pleading as provided in the
preceding section, the genuineness and due execution of the
instrument shall be deemed admitted unless the adverse
party, under oath, specifically denies them, and sets forth,
what he claims to be the facts; but the requirement of an oath
does not apply when the adverse party does not appear to be
a party to the instrument or when compliance with an order
for an inspection of the original instrument is refused.
Since respondent failed to file a Reply, in effect, respondent
admitted the genuineness and due execution of said
documents. This judicial admission should have been
considered by the appellate court in resolving the demurrer to
evidence. Rule 129, Section 4 of the Rules of Court provides:
Section 4. Judicial admissions.––An admission, verbal or
written, made by a party in the course of the proceeding in
the same case, does not require proof. The admission may be
contradicted only by showing that it was made through
palpable mistake or that no such admission was made.
On appeal to the CA, respondent claimed that even though it
failed to file a Reply, all the new matters alleged in the
Answer are deemed controverted anyway, pursuant to Rule 6,
Section 10:
Section 10. Reply.––A reply is a pleading, the office or function
of which is to deny, or allege facts in denial or avoidance of
new matters alleged by way of defense in the answer and
thereby join or make issue as to such new matters. If a party
does not file such reply, all the new matters alleged in the
answer are deemed controverted.
We agree with petitioner. Rule 8, Section 8 specifically applies
to actions or defenses founded upon a written instrument and
provides the manner of denying it. It is more controlling than
Rule 6, Section 10 which merely provides the effect of failure
to file a Reply. Thus, where the defense in the Answer is
based on an actionable document, a Reply specifically
denying it under oath must be made; otherwise, the
genuineness and due execution of the document will be
deemed admitted.23 Since respondent failed to deny the
genuineness and due execution of the Dacion and
Confirmation Statement under oath, then these are deemed
admitted and must be considered by the court in resolving the
demurrer to evidence. We held in Philippine American General
Insurance Co., Inc. v. Sweet Lines, Inc. that "[w]hen the due
execution and genuineness of an instrument are deemed
admitted because of the adverse party’s failure to make a
specific verified denial thereof, the instrument need not be
presented formally in evidence for it may be considered an
admitted fact."24
In any case, the CA found that:
From the facts of the case, the genuineness and due
execution of the Dacion en Pago were never put to issue.
Genuineness merely refers to the fact that the signatures
were not falsified and/or whether there was no substantial
alteration to the document. While due execution refers to
whether the document was signed by one with authority.25
The more important issue now is whether the Dacion and
Confirmation Statement sufficiently prove that petitioner’s
liability was extinguished. Respondent asserts that the
admission of the genuineness and due execution of the
documents in question is not all encompassing as to include
admission of the allegations and defenses pleaded in
petitioner’s Answer. In executing the Dacion, the intention of
the parties was to settle only the loans of petitioner with
respondent, not the obligation of petitioner arising from the
promissory notes that were assigned by Rare Realty to
respondent.
We AGREE.
Admission of the genuineness and due execution of the
Dacion and Confirmation Statement does not prevent the
introduction of evidence showing that the Dacion excludes the
promissory notes. Petitioner, by way of defense, should have
presented evidence to show that the Dacion includes the
promissory notes.
The promissory notes matured in June 1985, and Rare Realty
assigned these promissory notes to respondent through a
Deed of Assignment dated August 8, 1986. The Deed of
Assignment provides, thus:
Rare Realty Corporation, a corporation duly organized and
existing in accordance with law, with office at 8th Floor
Philbanking Building, Ayala Ave., Makati, Metro Manila (herein
called Assignor) in consideration of the sum of THREE MILLION
SEVEN HUNDRED NINETY THOUSAND & 00/100 pesos [PhP
3,790,000.00] and as security fee or in the payment of the
sum, obtained or to be obtained as loan or credit
accommodation of whatever form or nature from the
[PHILBANKING] CORPORATION, with office at Ayala Ave.,
Makati, Metro Manila (herein called Assignee), including
renewals or extensions of such loan or credit accommodation,
now existing or hereinafter incurred, due or to become due,
whether absolute or contingent, direct or indirect, and
whether incurred by the Assignor as principal, guarantor,
surety, co-maker, or in any other capacity, including interest,
charges, penalties, fees, liquidated damage, collection
expenses and attorney’s fee, the Assignor hereby assigns,
transfers and conveys to Assignee all its rights, title and
interest in and to: (a) contracts under which monies are or will
be due to Assignor, (b) moneys due or to be due thereunder,
or (c) letters of credit and/or proceeds or moneys arising from
negotiations under such credits, all which are herein called
moneys or receivables assigned or assigned moneys or
receivables, and are attached, or listed and described in the
Attached Annex A (for contracts) or Annex B (for letters of
credit).26
It is clear from the foregoing deed that the promissory notes
were given as security for the loan granted by respondent to
Rare Realty. Through the Deed of Assignment, respondent
stepped into the shoes of Rare Realty as petitioner’s creditor.
Respondent alleged that petitioner obtained a separate loan
of PhP 3,921,750. Thus, when petitioner and respondent
executed the Dacion on August 27, 1986, what was then
covered was petitioner’s loan from the bank. The Dacion
provides, thus:
NOW, THEREFORE, in consideration of the foregoing premises,
the DEBTOR hereby transfers and conveys in favor of the
BANK by way of Dacion en Pago, the above-described
property in full satisfaction of its outstanding indebtedness in
the amount of P3,921,750.00 to the BANK, subject to x x x
terms and conditions.27 (Emphasis supplied.)
The language of the Dacion is unequivocal––the property
serves in full satisfaction of petitioner’s own indebtedness to
respondent, referring to the loan of PhP 3,921,750. For this
reason, the bank issued a Confirmation Statement saying that
petitioner has no unpaid obligations with the bank as of VELASCO, JR., JJ.
December 31, 1988.

In 1989, however, Rare Realty defaulted in its payment to

respondent. Thus, respondent proceeded against the security REGIS BROKERAGE CORP.,
assigned to it, that is, the promissory notes issued by the
petitioner. Under these promissory notes, petitioner is liable Respondent.cralawcralawPromulgated:
for the amount of PhP 300,000 with an interest of 36% per
annum and a penalty of 12% for failure to pay on the maturity November 23, 2007
date, June 27, 1985; and for the amount of PhP 681,500 with
an interest of 18% per annum and a penalty of 12% for failure x
to pay on the maturity date, June 25, 1985. ------------------------------------------------------------------------------------x

WHEREFORE, the March 29, 2001 Decision and November 7,

2001 Resolution of the CA are AFFIRMED. Costs against
petitioner. DECISION

SO ORDERED. Tinga, J.:

Quisumbing,Chairperson Carpio, Carpio-Morales, Velasco, Jr.,

JJ., concur.
cralawWe consider whether an insurer, in an action for
Footnotes recoupment instituted in its capacity as the subrogee of the
1 Rollo, pp. 79-87. The Decision was penned by Associate insured, may be conferred favorable relief even if it failed to
Justice Remedios A. Salazar-Fernando and concurred in by introduce in evidence the insurance contract or policy, or
Associate Justices Romeo A. Brawner and Rebecca de Guia- even allege the existence nay recite the substance and attach
Salvador. a copy of such document in the complaint. The answer is as
2 Id. at 99-100. self-evident as meets the eye.
3 Id. at 73-78. The case was presided over by Judge Oscar B.
Pimentel. cralawThis Petition for Review under Rule 45 was filed by
4 Id. at 32-33. petitioner Malayan Insurance Co., Inc. (Malayan),[2] assailing
5 Id. at 34-40. the Decision[3] dated 23 December 2005 of the Court of
6 Id. at 41-47. Appeals in C.A. G.R. SP No. 90505, as well as its Resolution[4]
7 Id. at 48-51. dated 5 April 2006 denying petitioners motion for
8 Id. at 52. reconsideration.
9 Supra note 1, at 80-81.
10 Id. at 81.
11 Rollo, pp. 53-64.
12 Id. at 65-68. cralawThe facts require little elaboration. Around 1 February
13 Supra note 1, at 81-82. 1995, Fasco Motors Group loaded 120 pieces of motors on
14 Supra note 3, at 78. board China Airlines Flight 621 bound for Manila from the
15 Supra note 1, at 83. United States. The cargo was to be delivered to consignee
16 Id. at 84. ABB Koppel, Inc. (ABB Koppel).[5] When the cargo arrived at
17 Id. at 86. the Ninoy Aquino International Airport, it was discharged
18 Rollo, pp. 88-98. without exception and forwarded to Peoples Aircargo &
19 Supra note 2. Warehousing Corp.s (Paircargos) warehouse for temporary
20 Rollo, p. 187. storage pending release by the Bureau of Customs. Paircargo
21 G.R. No. 131209, August 13, 1999, 312 SCRA 365, 371. remained in possession of the cargo until 7 March 1995, at
22 Celino v. Heirs of Alejo and Teresa Santiago, G.R. No. which point respondent Regis Brokerage Corp. (Regis)
161817, July 30, 2004, 435 SCRA 690, 693-694. withdrew the cargo and delivered the same to ABB Koppel at
23 See Toribio v. Bidin, No. L-57821, January 17, 1985, 134 its warehouse.[6] When the shipment arrived at ABB Koppels
SCRA 162, 170. warehouse, it was discovered that only 65 of the 120 pieces of
24 G.R. No. 87434, August 5, 1992, 212 SCRA 194, 204. motors were actually delivered and that the remaining 55
25 Supra note 1, at 84. motors, valued at US$2,374.35, could not be accounted for.[7]
26 Id. at 85-86.
27 Rollo, p. 49.

The shipment was purportedly insured with Malayan by ABB

Koppel. Demand was first made upon Regis and Paircargo for
MALAYAN INSURANCE CO.,G.R. No. 172156 payment of the value of the missing motors, but both refused
to pay.[8] Thus, Malayan paid ABB Koppel the amount of
INC.,[1] P156,549.55 apparently pursuant to its insurance agreement,
and Malayan was on that basissubrogated to the rights of ABB
Petitioner, Koppel against Regis and Paircargo.[9] On 24 June 1996,
Malayan filed a complaint for damages against Regis and
Present: Paircargo with the Metropolitan Trial Court (MeTC) of Manila,
Branch 9. In the course of trial, Malayan presented Marine
QUISUMBING, J.,cralaw Risk Note No. RN-0001-19832 (Marine Risk Note) dated 21
March 1995 as proof that the cargo was insured by Malayan.
cralaw- versus -Chairperson, [10]

CARPIO,

CARPIO MORALES, The MeTC rendered a Decision[11] dated 25 May 2001

adjudging Regis alone liable to Malayan in the amount of
cralawcralawTINGA, and P156,549.00 as actual damages, P15,000.00 as attorneys
fees, and costs of suits. With the exception of the award of
attorneys fees, the MeTC decision was affirmed on appeal to
the Regional Trial Court (RTC) of Manila, through a Decision
dated 28 February 2005.[12]
cralawRegis filed a petition for review with the Court of
Appeals seeking the reversal of the MeTC and RTC decisions.
On 23 December 2005, the Court of Appeals promulgated its
decision vacating the RTC judgment and ordering the
dismissal of Malayans complaint. The central finding that
formed the Court of Appeals decision was that the Marine Risk
Note presented as proof that the cargo was insured was
invalid.[13] It was observed that the Marine Risk Note was
procured from Malayan only on 21 March 1995, when in fact
the insured, ABB Koppel, had learned of the partial loss of the
motors as early as 7 March 1995.[14] The appellate court
noted that under Section 3 of the Insurance Code, the past
event which may be insured against must be unknown to the
parties and so for that reason the insurance contract in this
case violated Section 3. The Court of Appeals further ruled
that the due execution and authenticity of the subrogation
receipt presented before the trial court by Malayan were not
duly proven since the signatories thereto were not presented
by Malayan before the trial court to identify their signatures
thereon, and neither was evidence presented to establish the
genuineness of such signatures.[15]
Malayan filed a motion for reconsideration with the Court of
Appeals where it contended that the Marine Risk Note is an
open policy per Marine Open Cargo Policy No. OPEN POLICY-
0001-00410 issued
before February 1, 1995.[16] The motion was denied by the
appellate court,[17] which pointed out that Malayan did not
present the aforecited marine open cargo policy as would
indicate the date of its issuance.[18]
cralawHence, the present petition instituted by Malayan.
According to Malayan, the lost cargo was insured not only by
the Marine Risk Note but by the anteceding Marine Insurance
Policy No. M/OP/95/0001-410 (Marine Insurance Policy) which
it issued in favor of ABB Koppel on 20 January 1995, or many
days before the motors were transported to Manila. A copy of
the Marine Insurance Policy was attached to the present
petition, but it is clear and no pretense was made that said
policy had not been presented at the trial.
The key arguments raised before us by Malayan flow from the
existence of the Marine Insurance Policy. Pains are taken to
establish that there existed as between Malayan and ABB
Koppel an open policy under Section 60 of the Insurance
Code, wherein the value of the thing insured is not agreed
upon but left to be ascertained in case of loss, and that the
Marine Risk Note was nothing but a determination of the value
of the thing insured pursuant to the open policy as
established by the Marine Insurance Policy. Unfortunately for
Malayan, the Court could not attribute any evidentiary weight
to the Marine Insurance Policy.
It is elementary that this Court is not a trier of facts. We
generally refer to the trial court and the Court of Appeals on
matters relating to the admission and evaluation of the
evidence. In this case, while the trial courts and the Court of
Appeals arrived at differing conclusions, we essentially agree
with the Court of Appeals analysis of Malayans cause of
action, and its ordained result. It appeared that at the very
instance the Marine Risk Note was offered in evidence, Regis
already posed its objection to the admission of said document
on the ground that such was immaterial, impertinent and
irrelevant to this case because the same was issued on March
21, 1995 which is after the occurrence of the loss on February
1, 1995.[19] Because the trial courts failed to duly consider
whether the Marine Risk Note sufficiently established a valid
insurance covering the subject motors, the Court of Appeals
acted correctly in the exercise of its appellate jurisdiction in
setting aside the appealed decisions.
Tellingly, Malayans argument before this Court is not that the
Court of Appeals erred in its evaluation of the Marine Risk
Note following that documents terms alone, but that the
appellate court could not consider the import of the purported
Marine Insurance Policy. Indeed, since no insurance policy was
presented at the trial by Malayan, or even before the Court of
Appeals,[20] there certainly is no basis for this Court to admit
or consider the same, notwithstanding Malayans attempt to
submit such document to us along with its present petition. As
we recently held:
Similarly, petitioner in this case cannot "enervate" the
COMELEC's findings by introducing new evidence before this
Court, which in any case is not a trier of facts, and then ask it
to substitute its own judgment and discretion for that of the
COMELEC.
The rule in appellate procedure is that a factual question may
not be raised for the first time on appeal, and documents
forming no part of the proofs before the appellate court will
not be considered in disposing of the issues of an action. This
is true whether the decision elevated for review originated
from a regular court or an administrative agency or quasi-
judicial body, and whether it was rendered in a civil case, a
special proceeding, or a criminal case. Piecemeal presentation
of evidence is simply not in accord with orderly justice.
[21]chanroblesvirtuallawlibrary
cralawSince the Marine Insurance Policy was never presented
in evidence before the trial court or the Court of Appeals
even, there is no legal basis to consider such document in the
resolution of this case, reflective as that document may have
been of the pre-existence of an insurance contract between
Malayan and ABB Koppel even prior to the loss of the motors.
In fact, it appears quite plain that Malayans theory of the case
it pursued before the trial court was that the perfected
insurance contract which it relied upon as basis for its right to
subrogation was not the Marine Insurance Policy but the
Marine Risk Note which, unlike the former, was actually
presented at the trial and offered in evidence. The Claims
Processor of Malayan who testified in court in behalf of his
employer actually acknowledged that the proof that ABB
Koppel insured the [shipment] to [Malayan] was the Marine
Risk Note, and not the Marine Insurance Policy.[22] Even the
very complaint filed by Malayan before the MeTC stated that
[t]he subject shipment was insured by [Malayan] under Risk
Note No. 0001-19832,[23] and not by the Marine Insurance
Policy, which was not adverted to at all in the complaint.[24]
cralawThus, we can only consider the Marine Risk Note in
determining whether there existed a contract of insurance
between ABB Koppel and Malayan at the time of the loss of
the motors. However, the very terms of the Marine Risk Note
itself are quite damning. It is dated 21 March 1995, or after
the occurrence of the loss, and specifically states that
Malayan ha[d] this day noted the above-mentioned risk in
your favor and hereby guarantee[s] that this document has all
the force and effect of the terms and conditions in the
Corporations printed form of the standard Marine Cargo Policy
and the Companys Marine Open Policy. It specifies that at risk
are the 120 pieces of motors which unfortunately had already
been compromised as of the date of the Marine Risk Note
itself.[25]
cralawCertainly it would be obtuse for us to even entertain the
idea that the insurance contract between Malayan and ABB
Koppel was actually constituted by the Marine Risk Note
alone. We find guidance on this point in Aboitiz Shipping
Corporation v. Philippine American General Insurance, Co.,
[26] where a trial court had relied on the contents of a marine
risk note, not the insurance policy itself, in dismissing a
complaint. For this act, the Court faulted the trial court in
[obviously mistaking] said Marine Risk Note as an insurance
policy when it is not.[27] The Court proceeded to characterize
the marine risk note therein as an acknowledgment or
declaration of the private respondent confirming the specific
shipment covered by its Marine Open Policy, the evaluation of
the cargo, and the chargeable premium,[28] a description
that is reflective as well of the present Marine Risk Note, if not
of marine risk notes in this country in general.
Malayan correctly points out that the Marine Risk Note itself
adverts to Marine Cargo Policy Number Open Policy-0001-
00410 as well as to the standard Marine Cargo Policy and the
Companys Marine Open Policy. What the Marine Risk Note
bears, as a matter of evidence, is that it is not apparently the
contract of insurance by itself, but merely a complementary
or supplementary document to the contract of insurance that
may have existed as between Malayan and ABB Koppel. And
while this observation may deviate from the tenor of the
assailed Court of Appeals Decision, it does not presage any
ruling in favor of petitioner. Fundamentally, since Malayan
failed to introduce in evidence the Marine Insurance Policy
itself as the main insurance contract, or even advert to said
document in the complaint, ultimately then it failed to
establish its cause of action for restitution as a subrogee of
ABB Koppel.
cralawMalayans right of recovery as a subrogee of ABB Koppel
cannot be predicated alone on the liability of the respondent
to ABB Koppel, even though such liability will necessarily have
to be established at the trial for Malayan to recover. Because
Malayans right to recovery derives from contractual
subrogation as an incident to an insurance relationship, and
not from any proximate injury to it inflicted by the
respondents, it is critical that Malayan establish the legal
basis of such right to subrogation by presenting the contract
constitutive of the insurance relationship between it and ABB
Koppel. Without such legal basis, its cause of action cannot
survive.
Our procedural rules make plain how easily Malayan could
have adduced the Marine Insurance Policy. Ideally, this should
have been accomplished from the moment it filed the
complaint. Since the Marine Insurance Policy was constitutive
of the insurer-insured relationshipfrom which Malayan draws
its right to subrogation, such document should have been
attached to the complaint itself, as provided for in Section 7,
Rule 9 of the 1997 Rules of Civil Procedure:
cralawSECTION 7.cralawAction or defense based on
document.Whenever an action or defense is based upon a
written instrument or document, the substance of such
instrument or document shall be set forth in the pleading, and
the original or a copy thereof shall be attached to the
pleading as an exhibit, which shall be deemed to be a part of
the pleading, or said copy may with like effect be set forth in
the pleading.
cralawThus, in an action to enforce or rescind a written
contract of lease, the lease contract is the basis of the action
and therefore a copy of the same must either be set forth in
the complaint or its substance recited therein, attaching
either the original or a copy to the complaint.[29]The rule has
been held to be imperative, mandatory and not merely
directory, though must be given a reasonable construction
and not be extended in its scope so as to work injustice.[30] It
was incumbent on Malayan, whose right of subrogation
derived from the Marine Insurance Policy, to set forth the
substance of such contract in its complaint and to attach an
original or a copy of such contract in the complaint as an
exhibit. Its failure to do so harbingers a more terminal defect
than merely excluding the Marine Insurance Policy as relevant
evidence, as the failure actually casts an irremissible cloud on
the substance of Malayans very cause of action. Since
Malayan alluded to an actionable document, the contract of
insurance between it and ABB Koppel, as integral to its cause
of action against Regis and Paircargo, the contract of
insurance should have been attached to the complaint.
cralawIt may be that there is no specific provision in the Rules
of Court which prohibits the admission in evidence of an
actionable document in the event a party fails to comply with
the requirement of the rule on actionable documents under
Section 7, Rule 9.[31] Yet such qualification does not provide
safe harbor for Malayan as it did not even present the Marine
Insurance Policy at the trial, relying instead on the Marine Risk
Note only and by its lonesome to constitute the insurer-
insured relationship between it and ABB Koppel, or more
precisely as stated in its Formal Offer of Evidence, to prove
that the shipment subject of this case was covered by an
insurance policy with the plaintiffs.[32]Before the MeTC, Regis
objected to the admission of the Marine Risk Note on the
ground of immateriality and irrelevance because it was issued
on March 21, 1995 which is after the occurrence of the loss on
February 1, 1995.[33] The Court of Appeals upheld this
objection of Regis as basis for the dismissal of the complaint.
In our view, Malayan may have not been of the precise belief
that the Marine Risk Note is the insurance contract itself as
even the purpose stated in its Formal Offer may admit to an
interpretation that alludes to an insurance policy with the
plaintiffs that may stand independent of the Marine Risk Note.
Yet if that were so, it remains incomprehensible and
inexcusable why Malayan neglected to attach it to its
complaint as required by Section 7, Rule 9, or even offer it in
the Marine Insurance Policy which constitutes the insurance
contract as evidence before the trial court.
It cannot be denied from the only established facts that
Malayan and ABB Koppel comported as if there was an
insurance relationship between them and documents exist
that evince the presence of such legal relationship. But under
these premises, the very insurance contract emerges as the
white elephant in the room an obdurate presence which
everybody reacts to, yet legally invisible as a matter of
evidence since no attempt had been made to prove its
corporeal existence in the court of law. It may seem
commonsensical to conclude anyway that there was a
contract of insurance between Malayan and ABB Koppel since
they obviously behaved in a manner that indicates such thus correct. As such, there is no need to consider the other
relationship, yet the same conclusion could be had even if, for issues raised in the petition.
example, those parties staged an elaborate charade to
impress on the world the existence of an insurance contract
when there actually was none. While there is absolutely no
indication of any bad faith of such import by Malayan or ABB cralawWHEREFORE, the petition is DENIED. Costs against
Koppel, the fact that the commonsensical conclusion can be petitioner.
drawn even if there was bad faith that convinces us to reject
such line of thinking.

cralawSO ORDERED.

The Court further recognizes the danger as precedent should

we sustain Malayans position, and not only because such a
ruling would formally violate the rule on actionable
documents. Malayan would have us effectuate an insurance
contract without having to consider its particular terms and
conditions, and on a blind leap of faith that such contract is
indeed valid and subsisting. The conclusion further works to
the utter prejudice of defendants such as Regis or Paircargo
since they would be deprived the opportunity to examine the DANTE O. TINGA
document that gives rise to the plaintiffs right to recover
against them, or to raise arguments or objections against the Associate Justice
validity or admissibility of such document. If a legal claim is
irrefragably sourced from an actionable document, the
defendants cannot be deprived of the right to examine or
utilize such document in order to intelligently raise a defense.
The inability or refusal of the plaintiff to submit such
document into evidence constitutes an effective denial of that WE CONCUR:
right of the defendant which is ultimately rooted in due
process of law, to say nothing on how such failure fatally
diminishes the plaintiffs substantiation of its own cause of
action.

Indeed, in the absence of any evidentiary consideration of the

actual Marine Insurance Policy, the substance of Malayans
right to recovery as the subrogee of ABB Koppel is not duly
confirmed. There can be no consideration of the particular
terms and conditions in the insurance contract that LEONARDO A. QUISUMBING
specifically give rise to Malayans right to be subrogated to
ABB Koppel, or to such terms that may have absolved Associate Justice
Malayan from the duty to pay the insurance proceeds to that
consignee. The particular date as to when such insurance Chairperson
contract was constituted cannot be established with certainty
without the contract itself, and that point is crucial since there
can be no insurance on a risk that had already occurred by
the time the contract was executed. Since the documents in
evidence and testimonies allude to marine insurance or
marine risk note, it also is a legitimate question whether the
particular marine insurance relationship between Malayan and
ABB Koppel also covers cargo delivered not by ships at sea ANTONIO T. CARPIOcralawCONCHITA CARPIO MORALES
but by airplane flights, as had occurred in this case. Only the
actual policy itself could definitively settle such a question. Associate JusticeAssociate Justice

We can even note legitimate questions concerning the

integrity or viability of the Marine Insurance Policy as
belatedly presented before this court. For one, Regis observes
that the Marine Cargo Policy Number as denominated in the
Risk Note reads: Open Policy-0001-00410, while the copy of
the Marine Insurance Policy submitted before us is numbered
M/OP/95001-410. The variance may ultimately be explainable,
yet the non-presentation of the Marine Insurance Policy before
the trial court precludes the due evaluation of the reason for
the difference in numbering.
PRESBITERO J. VELASCO, JR.

Associate Justice
All told, we hold that Malayan was not able to establish its
cause of action as stated in its complaint, based as it was on
its right to be subrogated to ABB Koppel under the insurance
contract which it failed to present as an actionable document,
or as evidence before the trial court. The result reached by
the Court of Appeals the dismissal of the instant complaint is

ATTESTATION
I attest that the conclusions in the above Decision were
reached in consultation before the case was assigned to the
writer of the opinion of the Courts Division.
LEONARDO A. QUISUMBING
Associate Justice
Chairperson, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the
Division Chairpersons Attestation, it is hereby certified that
the conclusions in the above Decision were reached in
consultation before the case was assigned to the writer of the
opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
Endnotes:
[1]See note 2.
[2]The petition names Peoples Aircargo & Warehousing Corp.
(Paircargo) as a co-petitioner along with Malayan, but does
not contain any attached Secretarys Certificate or Board
Resolution from Paircargo authorizing the filing of the present
petition. This point was raised by respondent Regis Brokerage
Corp. (Regis) in its Comment (see rollo, pp. 54-55), and in the
Reply thereto, only Malayan is identified as a petitioner, id. at
89. It also appears that Paircargo was represented in the
Court of Appeals by Atty. Pedro Santos, Jr. (see CA rollo, p.
99), but he did not file any pleading in behalf of Paircargo
before this Court.
The case records reveal that Paircargo was a co-defendant of
Regis in the complaint filed by Malayan before the
Metropolitan Trial Court (MeTC) of Manila. The MeTC absolved
Paircargo from any liability, although the counterclaim posed
against Malayan by that company was also dismissed. (See id.
at 35-37.) Regis alone filed a Notice of Appeal from the MeTC
decision (see id. at 87). The RTC of Manila affirmed the MeTC
ruling, causing Regis to file a petition with the Court of
Appeals seeking the dismissal of the complaint against
Regis,or by finding Regis free from liability, and declaring
Paircargo solely liable to Malayan, in accordance with Regiss
cross-claim(id. at 14). The Court of Appeals opted to dismiss
Malayans complaint against Regis, instead of adjudging
Paircargo liable in lieu of Regis.
Given these premises, there would be no sensible reason for
Paircargo to join Malayan as a co-petitioner before us,
especially since the petition does not seek any favorable relief
in favor of Paircargo. Neither is there any indication, apart
from Paircargos denomination as a petitioner in the petition
prepared by Malayans counsel alone, that Paircargo intended
to join Malayan as petitioner. The fact that in its Reply, no
more advertence was made to Paircargo as a petitioner,
bolsters the conclusion that Paircargo was erroneously joined
as a petitioner and that such error is ultimately is of no legal
consequence to this petition. Since Section 11, Rule 3
authorizes courts to drop misjoined parties without
consequence to the pending action, the erroneous joinder of
Paircargo as plaintiff should have no legal effect to this
petition.
[3]Rollo, pp. 27-33. Penned by Associate Justice Edgardo Cruz
of the Court of Appeals Former Special Fourteenth Division,
concurred in by Associate Justices Juan Enriquez, Jr. and
Sesinando Villon.
[4]Id. at 35-36.
[5]Id. at 27.
[6]Id. at 28.
[7]Id.
[8]Id.
[9]Id.
[10]See CA rollo, pp. 25, 56, 61.See also rollo, pp. 67-68.
[11]CA rollo, pp. 24-37.Penned by Judge Amelia Fabros.
[12]Id. at 18-23.Penned by Judge Eduardo Peralta, Jr. of the
RTC Manila, Branch 17. The award of attorneys fees was
excluded for want of factual and legal foundations therefor. Id.
at 22.
[13]Rollo, p. 31.
[14]Id.
[15]Id. at 32.
[16]Id. at 35.
[17]See id. at 35-36.
[18]Supra note 15.
[19]Id. at 32.
[20]Malayan did not present [before the Court of Appeals] the
aforecited marine open cargo policy as would indicate the
date of its issuance. Resolution dated 5 April 2006 (denying
Malayans Motion for Reconsideration), supra note 17.
[21]Tan v. COMELEC, G.R. Nos. 66143-47 & 166891, 20
November 2006, 507 SCRA 352; Matugas v. COMELEC, 465
Phil. 299, 312-313 (2004), citing Telephone Engineering &
Service Co., Inc. v. WCC, G.R. No. L-28694, 13 May 1984, 104
SCRA 354; Cansino v. Court of Appeals, G.R. No. 125799, 21
August 2003, 409 SCRA 403; Gonzales-Precilla v. Rosario, 144
Phil. 398 (1970); De Castro v. Court of Appeals, 75 Phil. 824
(1946); Dayrit v. Gonzales, 7 Phil. 182 (1906).
[22]See rollo, p. 67.
[23]CA rollo, p. 44.
[24]Id. at 43-46.
[25]Rollo, p. 60.
[26]G.R. No. 77530, 5 October 1989, 178 SCRA 357.
[27]Id. at 360.
[28]Id. at 360-361.
[29]V. Francisco, I The Revised Rules of Court in the
Philippines(1973 ed.),p. 587.
[30]Id. at 537.
[31]Id.
[32]CA rollo, p. 56.
[33]Id. at 78.
[G.R. No. 170943, September 23, 2008]
PEDRO T. SANTOS, JR., PETITIONER, VS. PNOC EXPLORATION
CORPORATION, RESPONDENT.
DECISION
CORONA, J.:
This is a petition for review[1] of the September 22, 2005
decision[2] and December 29, 2005 resolution[3] of the Court
of Appeals in CA-G.R. SP No. 82482.
On December 23, 2002, respondent PNOC Exploration
Corporation filed a complaint for a sum of money against
petitioner Pedro T. Santos, Jr. in the Regional Trial Court of
Pasig City, Branch 167. The complaint, docketed as Civil Case
No. 69262, sought to collect the amount of P698,502.10
representing petitioner's unpaid balance of the car loan[4]
advanced to him by respondent when he was still a member
of its board of directors.
Personal service of summons to petitioner failed because he
could not be located in his last known address despite earnest
efforts to do so. Subsequently, on respondent's motion, the
trial court allowed service of summons by publication.
Respondent caused the publication of the summons in
Remate, a newspaper of general circulation in the Philippines,
on May 20, 2003. Thereafter, respondent submitted the
affidavit of publication of the advertising manager of
Remate[5] and an affidavit of service of respondent's
employee[6] to the effect that he sent a copy of the summons
by registered mail to petitioner's last known address.
When petitioner failed to file his answer within the prescribed
period, respondent moved that the case be set for the
reception of its evidence ex parte. The trial court granted the
motion in an order dated September 11, 2003.
Respondent proceeded with the ex parte presentation and
formal offer of its evidence. Thereafter, the case was deemed
submitted for decision on October 15, 2003.
On October 28, 2003, petitioner filed an "Omnibus Motion for
Reconsideration and to Admit Attached Answer." He sought
reconsideration of the September 11, 2003 order, alleging
that the affidavit of service submitted by respondent failed to
comply with Section 19, Rule 14 of the Rules of Court as it
was not executed by the clerk of court. He also claimed that
he was denied due process as he was not notified of the
September 11, 2003 order. He prayed that respondent's
evidence ex parte be stricken off the records and that his
answer be admitted.
Respondent naturally opposed the motion. It insisted that it
complied with the rules on service by publication. Moreover,
pursuant to the September 11, 2003 order, petitioner was
already deemed in default for failure to file an answer within
the prescribed period.
In an order dated February 6, 2004, the trial court denied
petitioner's motion for reconsideration of the September 11,
2003 order. It held that the rules did not require the affidavit
of complementary service by registered mail to be executed
by the clerk of court. It also ruled that due process was
observed as a copy of the September 11, 2003 order was
actually mailed to petitioner at his last known address. It also
denied the motion to admit petitioner's answer because the
same was filed way beyond the reglementary period.
Aggrieved, petitioner assailed the September 11, 2003 and
February 6, 2004 orders of the trial court in the Court of
Appeals via a petition for certiorari. He contended that the
orders were issued with grave abuse of discretion. He imputed
the following errors to the trial court: taking cognizance of the
case despite lack of jurisdiction due to improper service of
summons; failing to furnish him with copies of its orders and
processes, particularly the September 11, 2003 order, and
upholding technicality over equity and justice.
During the pendency of the petition in the Court of Appeals,
the trial court rendered its decision in Civil Case No. 69262. It
ordered petitioner to pay P698,502.10 plus legal interest and
costs of suit.[7]
Meanwhile, on September 22, 2005, the Court of Appeals
rendered its decision[8] sustaining the September 11, 2003
and February 6, 2004 orders of the trial court and dismissing
the petition. It denied reconsideration.[9] Thus, this petition.
Petitioner essentially reiterates the grounds he raised in the
Court of Appeals, namely, lack of jurisdiction over his person
due to improper service of summons, failure of the trial court
to furnish him with copies of its orders and processes
including the September 11, 2003 order and preference for
technicality rather than justice and equity. In particular, he
claims that the rule on service by publication under Section
14, Rule 14 of the Rules of Court applies only to actions in
rem, not actions in personam like a complaint for a sum of
money. He also contends that the affidavit of service of a
copy of the summons should have been prepared by the clerk
of court, not respondent's messenger.
The petition lacks merit.
ProprietyOf
Service By Publication
Section 14, Rule 14 (on Summons) of the Rules of Court
provides:
SEC. 14. Service upon defendant whose identity or
whereabouts are unknown. - In any action where the
defendant is designated as an unknown owner, or the like, or
whenever his whereabouts are unknown and cannot be
ascertained by diligent inquiry, service may, by leave of court,
be effected upon him by publication in a newspaper of general
circulation and in such places and for such times as the court
may order. (emphasis supplied)
Since petitioner could not be personally served with summons
despite diligent efforts to locate his whereabouts, respondent
sought and was granted leave of court to effect service of
summons upon him by publication in a newspaper of general
circulation. Thus, petitioner was properly served with
summons by publication.
Petitioner invokes the distinction between an action in rem
and an action in personam and claims that substituted service
may be availed of only in an action in rem. Petitioner is wrong.
The in rem/in personam distinction was significant under the
old rule because it was silent as to the kind of action to which
the rule was applicable.[10] Because of this silence, the Court
limited the application of the old rule to in rem actions only.
[11]
This has been changed. The present rule expressly states that
it applies "[i]n any action where the defendant is designated
as an unknown owner, or the like, or whenever his
whereabouts are unknown and cannot be ascertained by
diligent inquiry." Thus, it now applies to any action, whether in
personam, in rem or quasi in rem.[12]
Regarding the matter of the affidavit of service, the relevant
portion of Section 19,[13] Rule 14 of the Rules of Court simply
speaks of the following:
... an affidavit showing the deposit of a copy of the
summons and order for publication in the post office, postage
prepaid, directed to the defendant by registered mail to his
last known address.
Service of summons by publication is proved by the affidavit
of the printer, his foreman or principal clerk, or of the editor,
business or advertising manager of the newspaper which
published the summons. The service of summons by
publication is complemented by service of summons by
registered mail to the defendant's last known address. This
complementary service is evidenced by an affidavit "showing
the deposit of a copy of the summons and order for
publication in the post office, postage prepaid, directed to the
defendant by registered mail to his last known address."
The rules, however, do not require that the affidavit of
complementary service be executed by the clerk of court.
While the trial court ordinarily does the mailing of copies of its
orders and processes, the duty to make the complementary
service by registered mail is imposed on the party who resorts
to service by publication.
Moreover, even assuming that the service of summons was
defective, the trial court acquired jurisdiction over the person
of petitioner by his own voluntary appearance in the action
against him. In this connection, Section 20, Rule 14 of the
Rules of Court states:
SEC. 20. Voluntary appearance. - The defendant's voluntary
appearance in the action shall be equivalent to service of
summons. The inclusion in a motion to dismiss of other
grounds aside from lack of jurisdiction over the person of the
defendant shall not be deemed a voluntary appearance.
(emphasis supplied)
Petitioner voluntarily appeared in the action when he filed the
"Omnibus Motion for Reconsideration and to Admit Attached
Answer."[14] This was equivalent to service of summons and
vested the trial court with jurisdiction over the person of
petitioner.
EntitlementTo
Notice Of Proceedings
The trial court allowed respondent to present its evidence ex
parte on account of petitioner's failure to file his answer within
the prescribed period. Petitioner assails this action on the part
of the trial court as well as the said court's failure to furnish
him with copies of orders and processes issued in the course
of the proceedings.
The effects of a defendant's failure to file an answer within the
time allowed therefor are governed by Sections 3 and 4, Rule
9 (on Effect of Failure to Plead) of the Rules of Court:
SEC. 3. Default; declaration of. - If the defending party fails
to answer within the time allowed therefor, the court shall,
upon motion of the claiming party with notice to the
defending party, and proof of such failure, declare the
defending party in default. Thereupon, the court shall proceed
to render judgment granting the claimant such relief as his
pleading may warrant, unless the court in its discretion
requires the claimant to submit evidence. Such reception of
evidence may be delegated to the clerk of court.
SEC. 4. Effect of order of default. - A party in default shall
be entitled to notice of subsequent proceedings but not to
take part in the trial. (emphasis supplied)
If the defendant fails to file his answer on time, he may be
declared in default upon motion of the plaintiff with notice to
the said defendant. In case he is declared in default, the court
shall proceed to render judgment granting the plaintiff such
relief as his pleading may warrant, unless the court in its
discretion requires the plaintiff to submit evidence. The
defaulting defendant may not take part in the trial but shall
be entitled to notice of subsequent proceedings.
In this case, even petitioner himself does not dispute that he
failed to file his answer on time. That was in fact why he had
to file an "Omnibus Motion for Reconsideration and to Admit
Attached Answer." But respondent moved only for the ex
parte presentation of evidence, not for the declaration of
petitioner in default. In its February 6, 2004 order, the trial
court stated:
The disputed Order of September 11, 2003 allowing the
presentation of evidence ex-parte precisely ordered that
"despite and notwithstanding service of summons by
publication, no answer has been filed with the Court within the
required period and/or forthcoming.["] Effectively[,] that was a
finding that the defendant [that is, herein petitioner] was in
default for failure to file an answer or any responsive pleading
within the period fixed in the publication as precisely the
defendant [could not] be found and for which reason, service
of summons by publication was ordered. It is simply illogical
to notify the defendant of the Order of September 11, 2003
simply on account of the reality that he was no longer residing
and/or found on his last known address and his whereabouts
unknown - thus the publication of the summons. In other
words, it was reasonable to expect that the defendant will not
receive any notice or order in his last known address. Hence,
[it was] impractical to send any notice or order to him.
Nonetheless, the record[s] will bear out that a copy of the
order of September 11, 2003 was mailed to the defendant at
his last known address but it was not claimed. (emphasis
supplied)
As is readily apparent, the September 11, 2003 order did not
limit itself to permitting respondent to present its evidence ex
parte but in effect issued an order of default. But the trial
court could not validly do that as an order of default can be
made only upon motion of the claiming party.[15] Since no
motion to declare petitioner in default was filed, no default
order should have been issued.
To pursue the matter to its logical conclusion, if a party
declared in default is entitled to notice of subsequent
proceedings, all the more should a party who has not been
declared in default be entitled to such notice. But what
happens if the residence or whereabouts of the defending
party is not known or he cannot be located? In such a case,
there is obviously no way notice can be sent to him and the
notice requirement cannot apply to him. The law does not
require that the impossible be done.[16] Nemo tenetur ad
impossibile. The law obliges no one to perform an
impossibility.[17] Laws and rules must be interpreted in a way
that they are in accordance with logic, common sense, reason
and practicality.[18]
Hence, even if petitioner was not validly declared in default,
he could not reasonably demand that copies of orders and
processes be furnished him. Be that as it may, a copy of the
September 11, 2003 order was nonetheless still mailed to
petitioner at his last known address but it was unclaimed.
CorrectnessOf
Non-Admission Of Answer
Petitioner failed to file his answer within the required period.
Indeed, he would not have moved for the admission of his
answer had he filed it on time. Considering that the answer
was belatedly filed, the trial court did not abuse its discretion
in denying its admission.
Petitioner's plea for equity must fail in the face of the clear
and express language of the rules of procedure and of the
September 11, 2003 order regarding the period for filing the
answer. Equity is available only in the absence of law, not as
its replacement.[19] Equity may be applied only in the
absence of rules of procedure, never in contravention thereof.
WHEREFORE, the petition is hereby DENIED.
Costs against petitioner.
SO ORDERED
Puno, C.J., (Chairperson), Carpio, Azcuna and Leonardo-De
Castro, JJ., concur.
[1] Under Rule 45 of the Rules of Court.
[2] Penned by Associate Justice Santiago Javier Ranada
(retired) and concurred by Associate Justices Roberto A.
Barrios (deceased) and Mario L. Guariña III of the Eighth
Division of the Court of Appeals. Rollo, pp. 20-25.
[3] Id., p. 27.
[4] The car loan was originally for P966,000 which was used to
procure a Honda CRV for petitioner. The said loan was
evidenced by a promissory note and further secured by a
chattel mortgage on the vehicle. One of the conditions of the
promissory note was that, in case of separation from the
service, any unpaid balance shall immediately be paid in full.
(See May 19, 2004 Regional Trial Court decision, rollo, pp. 82-
83.)
[5] Allan Paul A. Plaza. Present:
[6] Vincent Panganiban.
[7] See May 19, 2004 Regional Trial Court decision, rollo, pp.
82-83. Petitioner's motion for reconsideration of the said
decision remains pending. YNARES-SANTIAGO, J.,
[8] Supra note 2.
[9] Supra note 3. Chairperson,
[10] The predecessor of this provision was Section 16, Rule 14
of the 1964 Rules of Procedure which provided: AUSTRIA-MARTINEZ,
SEC. 16. Service upon an unknown defendant. - Whenever
the defendant is designated as an unknown owner, or the like, CHICO-NAZARIO,
or whenever the address of a defendant is unknown and
cannot be ascertained by diligent inquiry, service may, by NACHURA, and
leave of court, be effected upon him by publication in a
newspaper of general circulation and in such places and for REYES, JJ.
such time as the court may order.
[11] Consolidated Plywood Industries, Inc. v. Breva, G.R. No. L-
82811, 18 October 1988, 166 SCRA 519; Asiavest Limited v.
Court of Appeals, 357 Phil. 536 (1998); Valmonte v. Court of
Appeals, 322 Phil. 96 (1996).
[12] See Herrera, Oscar M., Remedial Law, vol. I, pp. 699 and Promulgated:
702.
[13] The provision states:
SEC. 19. Proof of service by publication. - If the service has
been made by publication, service may be proved by the September 17, 2008
affidavit of the printer, his foreman or principal clerk, or of the
editor, business or advertising manager, to which affidavit a x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
copy of the publication shall be attached, and by an affidavit - - - - -x
showing the deposit of a copy of the summons and order for
publication in the post office, postage prepaid, directed to the
defendant by registered mail to his last known address.
[14] Herrera, supra note 12 citing Europa v. Intermediate
Appellate Court, G.R. No. 72827, 18 July 1989, 175 SCRA 394. DECISION
[15] Mediserv, Inc. v. China Banking Corporation, 408 Phil.
745 (2001).
[16] Akbayan-Youth v. Commission on Elections, 407 Phil. 618
(2001).
[17] Id.
[18] Id. CHICO-NAZARIO, J.:
[19] Heirs of Spouses de la Cruz v. Heirs of Quintos, Sr., 434
Phil. 708 (2002) citing Tupas v. Court of Appeals, G.R. No.
89571, 06 February 1991, 193 SCRA 597.

TERESITA MONZON, This is a Petition for Review on Certiorari assailing the

Decision[1] of the Court of Appeals dated 27 September 2005
cralaw Petitioner, and its Resolution dated 7 March 2006 in CA-G.R. CV No.
83507 affirming the Decision of the Regional Trial Court (RTC)
of Tagaytay City, Branch 18.

- versus -

The factual and procedural antecedents of this case are as

follows:
SPS. JAMES & MARIA ROSA NIEVES RELOVA and SPS.
BIENVENIDO & EUFRACIA PEREZ,

Respondents. On 18 October 2000, the spouses James and Maria Rosa

Nieves Relova and the spouses Bienvenido and Eufracia
Perez, respondents before this Court, filed against Atty. Ana
Liza Luna, Clerk of Court of Branch 18 of the RTC of Tagaytay
- versus - City, and herein petitioner Teresita Monzon an initiatory
pleading captioned as a Petition for Injunction. The case,
which was filed before the same Branch 18 of the RTC of
Tagaytay City, was docketed as Civil Case No. TG-2069.
ADDIO PROPERTIES, INC.,

Intervenor.
In their Petition for Injunction, respondents alleged that on 28
December 1998, Monzon executed a promissory note in favor
of the spouses Perez for the amount of P600,000.00, with
interest of five percent per month, payable on or before 28
December 1999. This was secured by a 300-square meter lot
G.R. No. 171827 in Barangay Kaybagal, Tagaytay City. Denominated as Lot No.
2A, this lot is a portion of Psu-232001, covered by Tax
Declaration No. 98-008-1793. On 31 December 1998, Monzon
executed a Deed of Absolute Sale over the said parcel of land
in favor of the spouses Perez.
Respondents also claim in their Petition for Injunction that on
29 March 1999, Monzon executed another promissory note,
this time in favor of the spouses Relova for the amount of
P200,000.00 with interest of five percent per month payable
on or before 31 December 1999. This loan was secured by a
200 square meter lot, denominated as Lot No. 2B, another
portion of the aforementioned Psu-232001 covered by Tax
Declaration No. 98-008-1793. On 27 December 1999, Monzon
executed a Deed of Conditional Sale over said parcel of land
in favor of the spouses Relova.
On 23 October 1999, the Coastal Lending Corporation
extrajudicially foreclosed the entire 9,967-square meter
property covered by Psu-232001, including the portions
mortgaged and subsequently sold to respondents. According
to the Petition for Injunction, Monzon was indebted to the
Coastal Lending Corporation in the total amount of
P3,398,832.35. The winning bidder in the extrajudicial
foreclosure, Addio Properties Inc., paid the amount of
P5,001,127.00, thus leaving a P1,602,393.65 residue.
According to respondents, this residue amount, which is in the
custody of Atty. Luna as Branch Clerk of Court, should be
turned over to them pursuant to Section 4, Rule 68 of the
Revised Rules of Civil Procedure. Thus, respondents pray in
their Petition for Injunction for a judgment (1) finding Monzon
liable to the spouses Perez in the amount of P1,215,000.00
and to the spouses Relova in the amount of P385,000.00; (2)
ordering Atty. Luna to deliver said amounts to respondents;
and (3) restraining Atty. Luna from delivering any amount to
Monzon pending such delivery in number (2).
Monzon, in her Answer, claimed that the Petition for Injunction
should be dismissed for failure to state a cause of action.
Monzon likewise claimed that respondents could no longer ask
for the enforcement of the two promissory notes because she
had already performed her obligation to them by dacion en
pago as evidenced by the Deed of Conditional Sale and the
Deed of Absolute Sale. She claimed that petitioners could still
claim the portions sold to them if they would only file the
proper civil cases. As regards the fund in the custody of Atty.
Luna, respondents cannot acquire the same without a writ of
preliminary attachment or a writ of garnishment in
accordance with the provisions of Rule 57 and Section 9(c),
Rule 39 of the Revised Rules of Civil Procedure.
On 5 December 2001, the RTC, citing the absence of
petitioner and her counsel on said hearing date despite due
notice, granted an oral Motion by the respondents by issuing
an Order allowing the ex parte presentation of evidence by
respondents.[2]
On 1 April 2002, the RTC rendered a Decision in favor of
respondents. The pertinent portions of the Decision are as
follows:
That [petitioner] Teresita Monzon owes [herein respondents]
certain sums of money is indisputable. Even [Monzon] have
admitted to this in her Answer. [Respondents] therefore are
given every right to get back and collect whatever amount
they gave [Monzon] together with the stipulated rate of
interest.
Likewise, it has been established that [petitioner] Teresita
Monzon has the amount of P1,602,393.65 in the possession of
the Clerk of Court, Atty. Ana Liza M. Luna. This amount, as is
heretofore stated, represented the balance of the foreclosure
sale of [Monzons] properties.
By way of this petition, [respondents] would want to get said
amount so that the same can be applied as full payment of
[petitioners] obligation. That the amount should be divided
between the [respondents] in the amount they have agreed
between themselves; [respondent] spouses Relova to receive
the amount of P400.00.00, while the spouses Perez shall get
the rest.
WHEREFORE, judgment is hereby rendered ordering the x x x
Clerk of Court, Atty. Ana Liza M. Luna, to deliver unto [herein
respondents] the amount of P1,602,393.65 plus whatever
interest she may received if and when the said amount has
been deposited in any banking institution.[3]
The Decision also mentioned that the Order allowing the ex
parte presentation of evidence by respondents was due to the
continuous and incessant absences of petitioner and counsel.
[4]
On 25 April 2002, Monzon filed a Notice of Appeal, which was
approved by the trial court. Monzon claims that the RTC
gravely erred in rendering its Decision immediately after
respondents presented their evidence ex parte without giving
her a chance to present her evidence, thereby violating her
right to due process of law.
cralawOn 14 June 2002, Addio Properties, Inc. filed before the
trial court a Motion for Intervention, which was granted by the
same court on 12 July 2002.
On 27 September 2005, the Court of Appeals rendered the
assailed Decision dismissing the appeal. According to the
Court of Appeals, Monzon showed tepid interest in having the
case resolved with dispatch. She, thus, cannot now complain
that she was denied due process when she was given ample
opportunity to defend and assert her interests in the case.
The Court of Appeals reminded Monzon that the essence of
due process is reasonable opportunity to be heard and submit
evidence in support of ones defense. What the law proscribes
is lack of opportunity to be heard. Monzons Motion for
Reconsideration was denied in a Resolution dated 7 March
2006.
On 27 March 2006, Monzon filed the instant Petition for
Review on Certiorari under Rule 45 of the Rules of Court.
Monzon claims anew that it was a violation of her right to due
process of law for the RTC to render its Decision immediately
after respondents presented their evidence ex parte without
giving her a chance to present her evidence. Monzon stresses
that she was never declared in default by the trial court. The
trial court should have, thus, set the case for hearing for the
reception of the evidence of the defense. She claims that she
never waived her right to present evidence.
Monzon argues that had she been given the opportunity to
present her evidence, she would have proven that (1)
respondents Exhibit A (mortgage of land to the spouses
Relova) had been novated by respondents Exhibit B (sale of
the mortgage land to the spouses Relova); (2) respondents
Exhibit C (mortgage of land to the spouses Perez) had been
novated by respondents Exhibit B (sale of the mortgage land
to the spouses Perez); and (3) having executed Exhibits B and
D, Monzon no longer had any obligation towards respondents.
The Order by the trial court which allowed respondents to
present their evidence ex parte states:
In view of the absence of [Monzon] as well as her counsel
despite due notice, as prayed for by counsel for by
[respondents herein], let the reception of [respondents]
evidence in this case be held ex-parte before a commissioner
who is the clerk of court of this Court, with orders upon her to
submit her report immediately upon completion thereof.[5]
It can be seen that despite the fact that Monzon was not
declared in default by the RTC, the RTC nevertheless applied
the effects of a default order upon petitioner under Section 3,
Rule 9 of the Rules of Court:
SEC. 3. Default; declaration of.If the defending party fails to
answer within the time allowed therefor, the court shall, upon
motion of the claiming party with notice to the defending
party, and proof of such failure, declare the defending party in
default. Thereupon, the court shall proceed to render
judgment granting the claimant such relief as his pleading
may warrant, unless the court in its discretion requires the
claimant to submit evidence. Such reception of evidence may
be delegated to the clerk of court.
(a) Effect of order of default.A party in default shall be entitled
to notice of subsequent proceedings but not to take part in
the trial.
In his book on remedial law, former Justice Florenz D.
Regalado writes that failure to appear in hearings is not a
ground for the declaration of a defendant in default:
Failure to file a responsive pleading within the reglementary
period, and not failure to appear at the hearing, is the sole
ground for an order of default (Rosario, et al. vs. Alonzo, et al.,
L-17320, June 29, 1963), except the failure to appear at a pre-
trial conference wherein the effects of a default on the part of
the defendant are followed, that is, the plaintiff shall be
allowed to present evidence ex parte and a judgment based
thereon may be rendered against the defendant (Section 5,
Rule 18).[6] Also, a default judgment may be rendered, even
if the defendant had filed his answer, under the circumstance
in Sec. 3(c), Rule 29.[7]
Hence, according to Justice Regalado, the effects of default
are followed only in three instances: (1) when there is an
actual default for failure to file a responsive pleading; (2)
failure to appear in the pre-trial conference; and (3) refusal to
comply with modes of discovery under the circumstance in
Sec. 3(c), Rule 29.
In Philippine National Bank v. De Leon,[8] we held:
We have in the past admonished trial judges against issuing
precipitate orders of default as these have the effect of
denying a litigant the chance to be heard, and increase the
burden of needless litigations in the appellate courts where
time is needed for more important or complicated cases.
While there are instances when a party may be properly
defaulted, these should be the exception rather than the rule,
and should be allowed only in clear cases of obstinate refusal
or inordinate neglect to comply with the orders of the court
(Leyte vs. Cusi, Jr., 152 SCRA 496; Tropical Homes, Inc. vs.
Hon. Villaluz, et al., G.R. No. L-40628, February 24, 1989).
It is even worse when the court issues an order not
denominated as an order of default, but provides for the
application of effects of default. Such amounts to the
circumvention of the rigid requirements of a default order, to
wit: (1) the court must have validly acquired jurisdiction over
the person of the defendant either by service of summons or
voluntary appearance; (2) the defendant failed to file his
answer within the time allowed therefor; and (3) there must
be a motion to declare the defendant in default with notice to
the latter.[9] In the case at bar, petitioner had not failed to file
her answer. Neither was notice sent to petitioner that she
would be defaulted, or that the effects of default shall be
imposed upon her. Mere non-appearance of defendants at an
ordinary hearing and to adduce evidence does not constitute
default, when they have already filed their answer to the
complaint within the reglementary period. It is error to default
a defendant after the answer had already been filed. It should
be borne in mind that the policy of the law is to have every
litigants case tried on the merits as much as possible; it is for
this reason that judgments by default are frowned upon.[10]
Does this mean that defendants can get away with failing to
attend hearings despite due notice? No, it will not. We agree
with petitioner that such failure to attend, when committed
during hearing dates for the presentation of the complainants
evidence, would amount to the waiver of such defendants
right to object to the evidence presented during such hearing,
and to cross-examine the witnesses presented therein.
However, it would not amount to a waiver of the defendants
right to present evidence during the trial dates scheduled for
the reception of evidence for the defense. It would be an
entirely different issue if the failure to attend of the defendant
was on a hearing date set for the presentation of the evidence
of the defense, but such did not occur in the case at bar.

In view of the foregoing, we are, therefore, inclined to remand
the case to the trial court for reception of evidence for the
defense. Before we do so, however, we need to point out that
the trial court had committed another error which we should
address to put the remand in its proper perspective. We refer
to Monzons argument as early as the Answer stage that
respondents Petition for Injunction had failed to state a cause
of action.
Section 4, Rule 68 of the Rules of Court, which is the basis of
respondents alleged cause of action entitling them to the
residue of the amount paid in the foreclosure sale, provides as
follows:
SEC. 4. Disposition of proceeds of sale.The amount realized
from the foreclosure sale of the mortgaged property shall,
after deducting the costs of the sale, be paid to the person
foreclosing the mortgage, and when there shall be any
balance or residue, after paying off the mortgage debt due,
the same shall be paid to junior encumbrancers in the order of
their priority, to be ascertained by the court, or if there be no
such encumbrancers or there be a balance or residue after
payment to them, then to the mortgagor or his duly
authorized agent, or to the person entitled to it.
However, Rule 68 governs the judicial foreclosure of
mortgages. Extra-judicial foreclosure of mortgages, which was
what transpired in the case at bar, is governed by Act No.
3135,[11] as amended by Act No. 4118,[12] Section 6 of
Republic Act No. 7353, Section 18 of Republic Act No. 7906,
and Section 47 of Republic Act No. 8791. A.M. No. 99-10-05-0,
issued on 14 December 1999, provides for the procedure to
be observed in the conduct of an extrajudicial foreclosure
sale. Thus, we clarified the different types of sales in Supena
v. Dela Rosa, [13] to wit:
Any judge, worthy of the robe he dons, or any lawyer, for that
matter, worth his salt, ought to know that different laws apply
to different kinds of sales under our jurisdiction. We have
three different types of sales, namely: an ordinary execution
sale, a judicial foreclosure sale, and an extrajudicial
foreclosure sale. An ordinary execution sale is governed by
the pertinent provisions of Rule 39 of the Rules of Court on
Execution, Satisfaction and Effect of Judgments. Rule 68 of the
Rules, captioned Foreclosure of Mortgage, governs judicial
foreclosure sales. On the other hand, Act No. 3135, as
amended by Act No. 4118, otherwise known as "An Act to
Regulate the Sale of Property under Special Powers Inserted in
or Annexed to Real Estate Mortgages," applies in cases of
extrajudicial foreclosure sales of real estate mortgages.
Unlike Rule 68, which governs judicial foreclosure sales,
neither Act No. 3135 as amended, nor A.M. No. 99-10-05-0
grants to junior encumbrancers the right to receive the
balance of the purchase price. The only right given to second
mortgagees in said issuances is the right to redeem the
foreclosed property pursuant to Section 6 of Act No. 3135, as
amended by Act No. 4118, which provides:
Sec. 6. Redemption. In all cases in which an extrajudicial sale
is made under the special power hereinbefore referred to, the
debtor, his successors in interest or any judicial creditor or
judgment creditor of said debtor, or any person having a lien
on the property subsequent to the mortgage or deed of trust
under which the property is sold, may redeem the same at
any time within the term of one year from and after the date
of the sale; and such redemption shall be governed by the
provisions of sections four hundred and sixty-four to four
hundred and sixty- six,[14] inclusive, of the Code of Civil
Procedure, in so far as these are not inconsistent with this Act.
Even if, for the sake of argument, Rule 68 is to be applied to
extrajudicial foreclosure of mortgages, such right can only be
given to second mortgagees who are made parties to the
(judicial) foreclosure. While a second mortgagee is a proper
and in a sense even a necessary party to a proceeding to
foreclose a first mortgage on real property, he is not an
indispensable party, because a valid decree may be made, as
between the mortgagor and the first mortgagee, without
regard to the second mortgage; but the consequence of a
failure to make the second mortgagee a party to the
proceeding is that the lien of the second mortgagee on the
equity of redemption is not affected by the decree of
foreclosure.[15]
A cause of action is the act or omission by which a party
violates the right of another.[16] A cause of action exists if the
following elements are present: (1) a right in favor of the
plaintiff by whatever means and under whatever law it arises
or is created; (2) an obligation on the part of the named
defendant to respect or not to violate such right; and (3) an
act or omission on the part of such defendant violative of the
right of plaintiff or constituting a breach of the obligation of
defendant to the plaintiff for which the latter may maintain an
action for recovery of damages.[17] In view of the foregoing
discussions, we find that respondents do not have a cause of
action against Atty. Ana Liza Luna for the delivery of the
subject amounts on the basis of Section 4, Rule 68 of the
Rules of Court, for the reason that the foregoing Rule does not
apply to extrajudicial foreclosure of mortgages.
In Katon v. Palanca, Jr.,[18] we held that where prescription,
lack of jurisdiction or failure to state a cause of action clearly
appears from the complaint filed with the trial court, the
action may be dismissed motu proprio, even if the case has
been elevated for review on different grounds. However, while
the case should indeed be dismissed insofar as Atty. Luna is
concerned, the same is not necessarily true with respect to
Monzon. Other than respondents prayer that the amount due
to respondents be delivered by Atty. Luna to them, they also
pray for a judgment declaring Monzon liable for such
amounts. Said prayer, as argued by Monzon herself, may
constitute a cause of action for collection of sum of money
against Monzon.
The rule is now settled that a mortgage creditor may elect to
waive his security and bring, instead, an ordinary action to
recover the indebtedness with the right to execute a
judgment thereon on all the properties of the debtor including
the subject matter of the mortgage, subject to the
qualification that if he fails in the remedy elected by him, he
cannot pursue further the remedy he has waived.[19]
However, due to the fact that construing respondents Petition
for Injunction to be one for a collection of sum of money would
entail a waiver by the respondents of the mortgage executed
over the subject properties, we should proceed with caution
before making such construction. We, therefore, resolve that
upon the remand of this case to the trial court, respondents
should be ordered to manifest whether the Petition for
Injunction should be treated as a complaint for the collection
of a sum of money.
If respondents answer in the affirmative, then the case shall
proceed with the presentation of the evidence for the
defense. If Monzon would be successful in proving her defense
of dacion en pago, there would, in effect, be a double sale of
the mortgaged properties: the same properties were sold to
both respondents and to herein intervenor Addio Properties,
Inc. If, pursuant to the rules on double sales, respondents are
entitled to the properties, their remedy is to file the proper
action to recover possession. If, pursuant to said rules, Addio
Properties, Inc. is entitled to the properties, respondents
remedy is to file an action for damages against Monzon.
If respondents answer in the negative, the case shall be
dismissed, without prejudice to the exercise of respondents
rights as mortgage creditors. If respondents mortgage
contract was executed before the execution of the mortgage
contract with Addio Properties, Inc., respondents would be the
first mortgagors. Pursuant to Article 2126[20] of the Civil
Code, they would be entitled to foreclose the property as
against any subsequent possessor thereof. If respondents
mortgage contract was executed after the execution of the
mortgage contract with Addio Properties, Inc., respondents
would be the second mortgagors. As such, they are entitled to
a right of redemption pursuant to Section 6 of Act No. 3135,
as amended by Act No. 4118.
WHEREFORE, the Decision of the Court of Appeals dated 27
September 2005 and its Resolution dated 7 March 2006 are
REVERSED and SET ASIDE. The Petition for Injunction in Civil
Case No. TG-2069 is hereby ordered DISMISSED insofar as
Atty. Ana Liza Luna is concerned. The Petition for Injunction in
Civil Case No. TG-2069, insofar as petitioner Teresita Monzon
is concerned, is ordered REMANDED to the Regional Trial
Court of Tagaytay City for further proceedings. Upon such
remand, the Regional Trial Court of Tagaytay City shall issue
an Order to respondents, the spouses James and Maria Rosa
Nieves Relova and the spouses Bienvenido and Eufracia
Perez, to manifest whether the Petition for Injunction should
be treated as a complaint for the collection of a sum of
money.
If respondents answer in the affirmative, the Regional Trial
Court shall set the case for hearing for the presentation of the
evidence for the defense. If respondents answer in the
negative, the case shall be dismissed, without prejudice to the
exercise of respondents rights as mortgage creditors. No
costs.
SO ORDERED.
cralawI attest that the conclusions in the above Decision were
reached in consultation before the case was assigned to the
writer of the opinion of the Courts Division.
CERTIFICATION
cralawPursuant to Section 13, Article VIII of the Constitution,
and the Division Chairpersons Attestation, it is hereby
certified that the conclusions in the above Decision were
reached in consultation before the case was assigned to the
writer of the opinion of the Courts Division.
Endnotes:
[1] cralawPenned by Associate Justice Roberto A. Barrios with
Associate Justices Mario L. Guaria III and Santiago Javier
Ranada concurring; rollo, pp. 17-23.
[2] cralawRollo, p. 67.
[3] cralawRecords p. 71.
[4] cralawId. at 69.
[5] cralawId. at 67.
[6] cralawPlease take note that this Court has issued a new
rule governing pre-trials.
[7] cralawRegalado, Remedial Law Compendium, Volume I
(1999 Edition), p. 169.
[8] cralawG.R. No. 62370, 30 January 1990, 181 SCRA 583,
587.
[9] cralawHerrera, Remedial Law, Rules 1-22 (2007 Ed.) pp.
807-808.
[10] cralawId., citing Cathay Pacific Airways Ltd. v. Romillo, Jr.,
225 Phil. 397, 401 (1986); Consiquien v. Court of Appeals,
G.R. Nos. 56073 & 58819, 20 August 1990, 188 SCRA 619,
627.
[11] cralawAN ACT TO REGULATE THE SALE OF PROPERTY
UNDER SPECIAL POWERS INSERTED IN OR ANNEXED TO REAL-
ESTATE MORTGAGES.
[12] cralawAN ACT TO AMEND ACT NUMBERED THIRTY-ONE
HUNDRED AND THIRTY-FIVE, ENTITLED AN ACT TO
REGULATE THE SALE OF PROPERTY UNDER SPECIAL POWERS
INSERTED IN OR ANNEXED TO REAL-ESTATE MORTGAGES.[13]
cralaw334 Phil. 671, 675 (1997).
[14] cralawNow Sections 27, 29 and 34 of Rule 39, Rules of
Court.
[15] cralawFeria and Noche, Civil Procedure Annotated, Rules
39-71 (2001 Ed.), p. 569.
[16] cralawRules of Court, Rule 2, Section 2.
[17] cralawDulay v. Court of Appeals, 313 Phil. 9, 20 (1995).
[18] cralawG.R. No. 151149, 7 September 2004, 437 SCRA
565.
[19] cralawKorea Exhange Bank v. Filkor Business Integrated,
Inc., 430 Phil. 170, 175 (2002).
[20] cralawArt. 2126. The mortgage directly and immediately
subjects the property upon which it is imposed, whoever the
possessor may be, to the fulfillment of the obligation for
whose security it was constituted.
[G.R. No. 174414, March 14, 2008]
ELMER F. GOMEZ, Petitioner, vs. MA. LITA A. MONTALBAN,
Respondent.
DECISION
CHICO-NAZARIO, J.:
This Petition for Review on Certiorari seeks to reverse (1) the
Order[1] dated 20 June 2006 of the Regional Trial Court (RTC)
of Davao City, Branch 13, which granted herein respondent
Ma. Lita A. Montalban's Petition for Relief from Judgment and
dismissed Civil Case No. 29,717-03 for lack of jurisdiction; and
(2) the Order[2] dated 2 August 2006 denying herein
petitioner Elmer F. Gomez's Motion for Reconsideration
thereof .
On 30 May 2003, petitioner filed a Complaint[3] with the RTC
for a sum of money, damages and payment of attorney's fees
against respondent, docketed as Civil Case No. 29,717-03.
The Complaint alleged, among other things, that: on or about
26 August 1998, respondent obtained a loan from petitioner in
the sum of P40,000.00 with a voluntary proposal on her part
to pay 15% interest per month; upon receipt of the proceeds
of the loan, respondent issued in favor of petitioner, as
security, Capitol Bank Check No. 0215632, postdated 26
October 1998, in the sum of P46,000.00, covering the
P40,000.00 principal loan amount and P6,000.00 interest
charges for one month; when the check became due,
respondent failed to pay the loan despite several demands;
thus, petitioner filed the Complaint praying for the payment of
P238,000.00, representing the principal loan and interest
charges, plus 25% of the amount to be awarded as attorney's
fees, as well as the cost of suit.
Summons was served, but despite her receipt thereof,
respondent failed to file her Answer. Consequently, she was
declared[4] in default and upon motion, petitioner was
allowed to present evidence ex parte.
After considering the evidence presented by petitioner, the
RTC rendered a Decision[5] on 4 May 2004 in his favor, the
fallo of which reads:
WHEREFORE, IN VIEW OF THE FOREGOING, the Court
hereby decides this case in favor of [herein petitioner] and
against [herein respondent], ordering [respondent] to pay
[petitioner] the following amounts:
1. P40,000.00 representing the principal amount of the
loan;
2. P57,600.00 representing interest at the rate of 24%
per annum reckoned from August 26, 1998 until the present;
and
3. P15,000.00 representing attorney's fees.
On 28 May 2004, respondent filed a Petition for Relief from
Judgment[6] alleging that there was no effective service of
summons upon her since there was no personal service of the
same. The summons was received by one Mrs. Alicia dela
Torre, who was not authorized to receive summons or other
legal pleadings or documents on respondent's behalf.
Respondent attributes her failure to file an Answer to fraud,
accident, mistake or excusable negligence. She claimed that
she had good and valid defenses against petitioner and that
the RTC had no jurisdiction as the principal amount being
claimed by petitioner was only P40,000.00, an amount falling
within the jurisdiction of the Municipal Trial Court (MTC).
After petitioner filed his Answer[7] to the Petition for Relief
from Judgment and respondent her Reply,[8] the said Petition
was set for hearing.
After several dates were set and called for hearing,
respondent, thru counsel, failed to appear despite being duly
notified; hence, her Petition for Relief was dismissed[9] for her
apparent lack of interest to pursue the petition.
Respondent filed a Motion for Reconsideration[10] of the
dismissal of her Petition for Relief, stating that her counsel's
failure to appear was not intentional, but due to human
shortcomings or frailties, constituting honest mistake or
excusable negligence.
On 18 November 2005, the RTC granted[11] respondent's
motion for reconsideration, to wit:
In regard to the motion for reconsideration file by [herein
respondent] of the order of the court dismissing her petition
for relief from judgment, the court, in the interest of justice,
shall give [respondent] one more chance to present the
merits of her position in a hearing. The dismissal of the
petition is therefore reconsidered and set aside.
On 20 June 2006, the RTC granted respondent's Petition for
Relief from Judgment and set aside its Decision dated 4 May
2004 on the ground of lack of jurisdiction. The fallo of the
assailed RTC Order reads:
WHEREFORE, the petition for relief is hereby GRANTED. The
decision of this court dated May 4, 2004 is RECONSIDERED
and set aside for lack of jurisdiction on the part of the court,
without prejudice to the case being refiled in the proper
Municipal Trial Courts.[12]
Petitioner filed a motion for reconsideration of the afore-
quoted Order, but the same was denied by the RTC in another
Order[13] dated 2 August 2006.
Hence, the present Petition filed directly before this Court.
In his Memorandum,[14] petitioner raises the following issues
for the Court's consideration:
1. Whether or not the Regional Trial Court has jurisdiction
over this case for sum of money, damages and attorney's fees
where the principal amount of the obligation is P40,000.00 but
the amount of the demand per allegation of the complaint is
P238,000.00;
2. Whether or not respondent's relief from judgment is
proper during the period for filing a motion for reconsideration
and appeal.
Before the Court dwells on the principal issues, a few
procedural matters must first be resolved.
Section 2(c), Rule 41 of the Rules of Court categorically
provides that in all cases where only questions of law are
raised, the appeal from a decision or order of the RTC shall be
to the Supreme Court by petition for review on certiorari in
accordance with Rule 45.[15]
The distinction between questions of law and questions of fact
has long been settled. A question of law exists when the
doubt or controversy concerns the correct application of law
or jurisprudence to a certain set of facts; or when the issue
does not call for an examination of probative value of the
evidence presented, the truth or falsehood of facts being
admitted. A question of fact exists when the doubt or
difference arises as to the truth or falsehood of facts or when
the query invites calibration of the whole evidence
considering mainly the credibility of witnesses, the existence
and relevancy of specific surrounding circumstances, as well
as their relation to each other and to the whole, and the
probability of the situation.[16]
Simple as it may seem, determining the true nature and
extent of the distinction is sometimes complicated. In a case
involving a "question of law," the resolution of the issue must
rest solely on what the law provides on the given set of
circumstances. Once it is clear that the issue invites a review
of the evidence presented, the question posed is one of fact. If
the query requires a re-evaluation of the credibility of
witnesses, or the existence or relevance of surrounding
circumstances and their relation to each other, the issue in
that query is factual.[17]
The first issue raised in the present petition is one of
jurisdiction of the court over the subject matter - meaning, the
nature of the cause of action and of the relief sought.
Jurisdiction is the right to act or the power and authority to
hear and determine a cause. It is a question of law.[18] The
second issue refers to the aptness of the grant of a Petition for
Relief from Judgment. These questions are undoubtedly one of
law, as they concern the correct interpretation or application
of relevant laws and rules, without the need for review of the
evidences presented before the court a quo.
Thus, with only questions of law raised in this Petition, direct
resort to this Court is proper.[19]
The Court shall now discuss whether the RTC has jurisdiction
over Civil Case No. 29,717-03.
Petitioner's Complaint before the RTC reads:
3. On or about August 26, 1998, [herein respondent]
obtained from the [herein petitioner] a loan for the principal
sum of FORTY THOUSAND PESOS (P40,000.00) with a
voluntary proposal on her part to pay as much as 15%
interest per month. Machine copy of Cash Voucher dated
August 26, 1998 is herewith attached as Annex "A".
4. Upon receipt of the proceeds of the said loan,
[respondent] issued in favor of the Plaintiff Capitol Bank
Check with check nos. 0215632 postdated on October 26,
1998 for the sum of Forty Six Thousand Pesos (P46,000.00) as
security on the loan with P6,000.00 as the first month of
interest charges. When the check became due, [respondent]
defaulted to pay her loan despite several allowances of time
and repeated verbal demands from the [petitioner]. The said
check was later on dishonored for the reason: "Account
Closed". Machine copy of Capitol Bank Check wit nos.
0215632 is herewith attached as Annex "B".
5. On July 4, 2002, [petitioner] engaged the services of
the undersigned counsel to collect the account of the
[respondent]; thus, on the same day, a demand letter was
sent to and received by her on July 9, 2002. And despite
receipt thereof, she failed and continues to evade the
payment of her obligations to the damage and prejudice of
the [petitioner]. Thus, as of July 4, 2002, [respondent]'s loan
obligation stood at TWO HUNDRED THIRTY EIGHT THOUSAND
PESOS (P 239,000.00), inclusive of interest charges for 32
months. Machine copy of Demand Letter and its registry
receipt and return card is herewith attached as Annexes "C";
"C-1" and C-2", respectively.
6. In view of [respondent]'s refusal to pay her loan,
[petitioner] is constrained to engage the services of counsel to
initiate the instant action for a fee of 25% for whatever
amounts is collected as flat attorney's fee. [Petitioner] will
likewise incur damages in the form of docket fees.
PRAYER
WHERFORE, it is respectfully prayed of the Honorable Court
that Decision be rendered ordering the [respondent] to pay
[petitioner] as follows:
1. The amount of P238,000.00 with interest charges at
the sound discretion of the Honorable Court starting on July 4,
2002 until paid in full;
2. The sum equivalent to 25 % of the amount awarded as
attorney's fee;
3. Cost of suit;
4. Other relief that the Honorable Court may find just and
equitable under the premises are likewise prayed for.[20]
[Emphasis ours.]
The Court gleans from the foregoing that petitioner's cause of
action is the respondent's violation of their loan agreement.
[21] In that loan agreement, respondent expressly agreed to
pay the principal amount of the loan, plus 15% monthly
interest. Consequently, petitioner is claiming and praying for
in his Complaint the total amount of P238,000.00, already
inclusive of the interest on the loan which had accrued from
1998. Since the interest on the loan is a primary and
inseparable component of the cause of action, not merely
incidental thereto, and already determinable at the time of
filing of the Complaint, it must be included in the
determination of which court has the jurisdiction over
petitioner's case. Using as basis the P238,000.00 amount
being claimed by petitioner from respondent for payment of
the principal loan and interest, this Court finds that it is well
within the jurisdictional amount fixed by law for RTCs. [22]
There can be no doubt that the RTC in this case has
jurisdiction to entertain, try, and decide the petitioner's
Complaint.
To this Court, it is irrelevant that during the course of the trial,
it was proven that respondent is only liable to petitioner for
the amount of P40,000.00 representing the principal amount
of the loan; P57,000.00 as interest thereon at the rate of 24%
per annum reckoned from 26 August 1998 until the present;
and P15,000.00 as attorney's fees. Contrary to respondent's
contention, jurisdiction can neither be made to depend on the
amount ultimately substantiated in the course of the trial or
proceedings nor be affected by proof showing that the
claimant is entitled to recover a sum in excess of the
jurisdictional amount fixed by law. Jurisdiction is determined
by the cause of action as alleged in the complaint and not by
the amount ultimately substantiated and awarded.[23]
Basic as a hornbook principle is that jurisdiction over the
subject matter of a case is conferred by law and determined
by the allegations in the complaint which comprise a concise
statement of the ultimate facts constituting the plaintiff's
cause of action.[24] The nature of an action, as well as which
court or body has jurisdiction over it, is determined based on
the allegations contained in the complaint of the plaintiff,
irrespective of whether or not the plaintiff is entitled to
recover upon all or some of the claims asserted therein.[25]
The averments in the complaint and the character of the relief
sought are the ones to be consulted.[26] Once vested by the
allegations in the complaint, jurisdiction also remains vested
irrespective of whether or not the plaintiff is entitled to
recover upon all or some of the claims asserted therein.[27]
On the propriety of the granting by the RTC of respondent's
Petition for Relief from Judgment, the Court finds and so
declares that the RTC did indeed commit an error in doing so.
First of all, a petition for relief under Rule 38 of the Rules of
Court is only available against a final and executory judgment.
[28] Since respondent allegedly[29] received a copy of the
Decision dated 4 May 2004 on 14 May 2004, and she filed the
Petition for Relief from Judgment on 28 May 2004, judgment
had not attained finality. The 15-day period to file a motion for
reconsideration or appeal had not yet lapsed. Hence, resort by
respondent to a petition for relief from judgment under Rule
38 of the Rules of Court was premature and inappropriate.
Second, based on respondent's allegations in her Petition for
Relief before the RTC, she had no cause of action for relief
from judgment.
Section 1 of Rule 38 provides:
SECTION 1. Petition for relief from judgment, order, or other
proceedings. - When a judgment or final order is entered, or
any other proceeding is thereafter taken against a party in
any court through fraud, accident, mistake, or excusable
negligence, he may file a petition in such court and in the
same case praying that the judgment, order or proceeding be
set aside.
Under Section 1, Rule 38 of the Rules of Court, the court may
grant relief from judgment only "[w]hen a judgment or final
order is entered, or any other proceeding is taken against a
party in any court through fraud, accident, mistake, or
excusable negligence x x x."
In her Petition for Relief from Judgment before the RTC,
respondent contended that judgment was entered against her
through "mistake or fraud," because she was not duly served
with summons as it was received by a Mrs. Alicia dela Torre
who was not authorized to receive summons or other legal
processes on her behalf.
As used in Section 1, Rule 38 of the Rules of Court, "mistake"
refers to mistake of fact, not of law, which relates to the case.
[30] The word "mistake," which grants relief from judgment,
does not apply and was never intended to apply to a judicial
error which the court might have committed in the trial. Such
errors may be corrected by means of an appeal.[31]This does
not exist in the case at bar, because respondent has in no
wise been prevented from interposing an appeal.
"Fraud," on the other hand, must be extrinsic or collateral,
that is, the kind which prevented the aggrieved party from
having a trial or presenting his case to the court,[32]or was
used to procure the judgment without fair submission of the
controversy.[33]This is not present in the case at hand as
respondent was not prevented from securing a fair trial and
was given the opportunity to present her case.
Negligence to be excusable must be one which ordinary
diligence and prudence could not have guarded against.[34]
Under Section 1, the "negligence" must be excusable and
generally imputable to the party because if it is imputable to
the counsel, it is binding on the client.[35] To follow a contrary
rule and allow a party to disown his counsel's conduct would
render proceedings indefinite, tentative, and subject to
reopening by the mere subterfuge of replacing counsel. What
the aggrieved litigant should do is seek administrative
sanctions against the erring counsel and not ask for the
reversal of the court's ruling.[36]
Third, the certificate of service of the process server of the
court a quo is prima facie evidence of the facts as set out
therein.[37] According to the Sheriff's Return of Service,[38]
summons was issued and served on respondent thru one Mrs.
Alicia dela Torre, thus:
"THIS IS TO CERTIFY that on June 25, 2003 at around 1:45
p.m. the undersigned sheriff caused the service of summons
issued in the above-entitled case together with attached
complaints and annexes for and in behalf of defendant
[respondent] thru a certain Mrs. Alicia Dela Torre inside their
compound at the given address who acknowledged receipt by
signature and notation of said dela Torre appearing thereof.
Wherefore, this summons is respectfully returned to the
Honorable Regional Trial Court, Branch 13, Davao City, duly
SERVED for its records and information."
Finally, even assuming arguendo that the RTC had no
jurisdiction over respondent on account of the non-service
upon her of the summons and complaint, the remedy of the
respondent was to file a motion for the reconsideration of the
4 May 2004 Decision by default or a motion for new trial
within 15 days from receipt of notice thereof. This is also
without prejudice to respondent's right to file a petition for
certiorari under Rule 65 of the Rules of Court for the
nullification of the order of default of the court a quo and the
proceedings thereafter held including the decision, the writ of
execution, and the writ of garnishment issued by the RTC, on
the ground that it acted without jurisdiction.[39]
Unfortunately, however, respondent opted to file a Petition for
Relief from the Judgment of the RTC, which, as the Court
earlier determined, was the wrong remedy.
In Tuason v. Court of Appeals,[40] the Court explained the
nature of a petition for relief from judgment:
A petition for relief from judgment is an equitable remedy
that is allowed only in exceptional cases where there is no
other available or adequate remedy. When a party has
another remedy available to him, which may be either a
motion for new trial or appeal from an adverse decision of the
trial court, and he was not prevented by fraud, accident,
mistake or excusable negligence from filing such motion or
taking such appeal, he cannot avail himself of this petition.
Indeed, relief will not be granted to a party who seeks
avoidance from the effects of the judgment when the loss of
the remedy at law was due to his own negligence; otherwise
the petition for relief can be used to revive the right to appeal
which had been lost thru inexcusable negligence.[ (Emphasis
and underscoring supplied; citations omitted)
In the case at bar, there being no fraud, accident, mistake, or
excusable negligence that would have prevented petitioner
from filing either a motion for reconsideration or a petition for
review on certiorari of the 4 May 2004 Decision of the RTC,
her resort to a Petition for Relief from Judgment was
unwarranted.
This Court also notes that when respondent was declared in
default for her failure to file an Answer to the Complaint, she
did not immediately avail herself of any of the remedies
provided by law. Lina v. Court of Appeals [41] enumerates the
remedies available to a party declared in default:
a)
The defendant in default may, at any time after discovery
thereof and before judgment, file a motion, under oath, to set
aside the order of default on the ground that his failure to
answer was due to fraud, accident, mistake or excusable
negligence, and that he has a meritorious defense (Sec. 3,
Rule 18 [now Sec. 3(b), Rule 9]);
b)
If the judgment has already been rendered when the
defendant discovered the default, but before the same has
become final and executory, he may file a motion for new trial
under Section 1 (a) of Rule 37;
c)
If the defendant discovered the default after the judgment
has become final and executory, he may file a petition for
relief under Section 2 [now Section 1] of Rule 38; and
d)
He may also appeal from the judgment rendered against
him as contrary to the evidence or to the law, even if no
petition to set aside the order of default has been presented
by him (Sec. 2, Rule 41). (Emphasis added)
In addition, and as this Court earlier mentioned, a petition for
certiorari to declare the nullity of a judgment by default is also
available if the trial court improperly declared a party in
default, or even if the trial court properly declared a party in
default, if grave abuse of discretion attended such
declaration.[42]
If respondent is really vigilant in protecting her rights, she
should have exhausted all the legal remedies above-
mentioned to nullify and set aside the order of default against
her, and should no longer have waited for the judgment to be
rendered. Respondent does not deny that she did receive the
summons, although she alleges that it was not properly
served upon her, yet she chose to sit on her rights and did not
act immediately. For respondent's failure to act with prudence
and diligence in protecting her rights, she cannot now elicit
this Court's sympathy.
Respondent's petition for relief from judgment is clearly
without merit and should not have been granted by the RTC.
WHEREFORE, the instant petition is hereby GRANTED.
Consequently, the Decision dated 4 May 2006 of the Regional
Trial Court of Davao, Branch 13, in Civil Case No. 29,717-03 is
hereby REINSTATED and the Order dated 20 June 2006
granting the petition for relief from judgment is hereby SET
ASIDE.
SO ORDERED.
Ynares-Santiago, (Chairperson), Austria-Martinez, Nachura,
and Reyes, JJ., concur.
[1] Rollo, pp. 7-9.
[2] Id. at 10-11.
[3] Id. at 37-39.
[4] Id. at 47.
[5] Id. at 49-51.
[6] Id. at 52-54.
[7] Id. at 58-65.
[8] Id. at 72-74.
[9] Id. at 77.
[10] Id. at 78.
[11] Id. at 81.
[12] Id. at 9.
[13] Id. at 10-11.
[14] Id. at 129.
[15] Bukidnon Doctors' Hospital, Inc. v. Metropolitan Bank and
Trust Co., G.R. No. 161882, 8 July 2005, 463 SCRA 222, 232.
[16] Chiang Kai Shek College v. Court of Appeals, G.R. No.
152988, 24 August 2004, 437 SCRA 171, 183.
[17] Microsoft Corporation v. Maxicorp, Inc., G.R. No. 140946,
13 September 2004, 438 SCRA 224, 231.
[18] Municipality of Kananga v. Judge Madrona, 450 Phil. 392,
396 (2003).
[19] Bukidnon Doctors' Hospital, Inc. v. Metropolitan Bank and
Trust Co., supra note 15 at 234.
[20] Rollo, pp. 37-38.
[21] Cause of action is the act or omission by which a party
violates a right of another (Section 2, Rule 2 of the Rules of
Court).
[22] Section 1(8) of Republic Act No. 7691 otherwise known as
"An Act Expanding the Jurisdiction of the Metropolitan Trial
Courts, Municipal Trial Courts and Municipal Circuit Trial
Courts, Amending for the Purpose Batas Pambansa Blg. 129,
Otherwise Known as the "Judiciary Reorganization Act of
1980,"provides:
SECTION 1. Section 19 of Batas Pambansa Blg. 129,
otherwise known as the "Judiciary Reorganization Act of
1980," is hereby amended as follows:
xxxx
8) In all other cases in which the demand, exclusive of
interest, damages of whatever kind, attorney's fees, litigation
expenses, and costs or the value of the property in
controversy exceeds One hundred thousand pesos
(P100,000.00) or such other cases in Metro Manila, where the
demand, exclusive of the abovementioned items exceeds Two
Hundred Thousand Pesos ( P200,000.00).
[23] Dionisio v. Puerto, 158 Phil. 671, 677 (1974).
[24] Dimo Realty & Development, Inc. v. Dimaculangan, 469
Phil. 373, 381-382 (2004).
[25] Barangay Piapi v. Talip, G.R. No. 138248, 7 September
2005, 469 SCRA 409, 413; Deltaventures Resources, Inc. v.
Hon. Cabato, 384 Phil. 252, 260 (2000).
[26] Serdoncillo v. Benolirao, G.R. No. 118328, 8 October
1998, 297 SCRA 448, 459; Umpoc v. Mercado, G.R. No.
158166, 21 January 2005, 449 SCRA 220, 232; Lacierda v.
Platon, G.R. No. 157141, 31 August 2005, 468 SCRA 650, 660-
662.
[27] Barrazona v. Regional Trial Court, Branch 61, Baguio City
G.R. No. 154282, 7 April 2006, 486 SCRA 555, 560.
[28] Aboitiz International Forwardes, Inc. v. Court of Appeals,
G.R. No. 142272, 2 May 2006, 488 SCRA 492, 506.
[29] Rollo, pp. 52-57.
[30] Agan v. Heirs of Sps. Nueva, 463 Phil. 834, 840-841
(2003).
[31] Guevara v. Tuason and Co., 1 Phil. 27, 28 (1901).
[32] Garcia v. Court of Appeals, G.R. No. 96141, 2 October
1991, 202 SCRA 228, 233-234.
[33] Magno v. Court of Appeals, 194 Phil. 271, 278 (1981).
[34] Regalado v. Regalado, G.R. No. 134154, 28 February
2006, 483 SCRA 473, 484.
[35] Insular Life Savings and Trust Company v. Runes, Jr., G.R.
No. 152530, 12 August 2004, 436 SCRA 317, 324-325.
[36] Que v. Court of Appeals, G.R. No. 150739, 18 August
2005, 467 SCRA 358, 368.
[37] Aboitiz International Forwarders, Inc. v. Court of Appeals,
supra note 28 at 506-507.
[38] Rollo, p. 44.
[40] G.R. No. 116607, 10 April 1996, 256 SCRA 158, 167;
Mercury Drug Corporation v. Court of Appeals, 390 Phil. 902,
912-913 (2000).
[41] G.R. No. L-63397, 9 April 1985, 135 SCRA 637, 642.
[42] Cerezo v. Tuazon, 469 Phil. 1020, 1036-1037 (2004).
G.R. No. 151098 March 21, 2006
ERLINDA GAJUDO, FERNANDO GAJUDO, JR., ESTELITA GAJUDO,
BALTAZAR GAJUDO and DANILO ARAHAN CHUA, Petitioners,
vs.
TRADERS ROYAL BANK,1Respondent.
DECISION
PANGANIBAN, CJ:
The mere fact that a defendant is declared in default does not
automatically result in the grant of the prayers of the plaintiff.
To win, the latter must still present the same quantum of
evidence that would be required if the defendant were still
present. A party that defaults is not deprived of its rights,
except the right to be heard and to present evidence to the
trial court. If the evidence presented does not support a
judgment for the plaintiff, the complaint should be dismissed,
even if the defendant may not have been heard or allowed to
present any countervailing evidence.
The Case
Before us is a Petition for Review2 under Rule 45 of the Rules
of Court, assailing the June 29, 2001 Decision3 and December
6, 2001 Resolution4 of the Court of Appeals (CA) in CA-GR CV
No. 43889. The CA disposed as follows:
"UPON THE VIEW WE TAKE OF THIS CASE, THUS, the partial
judgment appealed from, must be, as it hereby is, VACATED
and SET ASIDE, and another one entered DISMISSING the
complaint at bench. Without costs."5
The assailed Resolution denied petitioners’ Motion for
Reconsideration6 for lack of merit.
The Facts
The CA narrated the facts as follows:
"[Petitioners] filed a complaint before the Regional Trial Court
of Quezon City, Branch 90, against [respondent] Traders Royal
Bank, the City Sheriff of Quezon City and the Register of
Deeds of Quezon City. Docketed thereat as Civil Case No. Q-
41203, the complaint sought the annulment of the extra-
judicial foreclosure and auction sale made by [the] city sheriff
of Quezon City of a parcel of land covered by TCT No. 16711
of the Register of Deeds of Quezon City, the conventional
redemption thereof, and prayed for damages and the
issuance of a writ of preliminary injunction.
"The complaint alleged that in mid 1977[, Petitioner] Danilo
Chua obtained a loan from [respondent] bank in the amount
of P75,000.00 secured by a real estate mortgage over a
parcel of land covered by TCT No. 16711, and owned in
common by the [petitioners]; that when the loan was not paid,
[respondent] bank commenced extra-judicial foreclosure
proceedings on the property; that the auction sale of the
property was set on 10 June 1981, but was reset to 31 August
1981, on [Petitioner Chua’s] request, which, however, was
made without the knowledge and conformity of the other
[petitioners]; that on the re-scheduled auction sale, [the]
Sheriff of Quezon City sold the property to the [respondent]
bank, the highest bidder therein, for the sum of P24,911.30;
that the auction sale was tainted with irregularity because,
amongst others, the bid price was shockingly or
unconscionably, low; that the other [petitioners] failed to
redeem the property due to their lack of knowledge of their
right of redemption, and want of sufficient education; that,
although the period of redemption had long expired,
[Petitioner] Chua offered to buy back, and [respondent] bank
also agreed to sell back, the foreclosed property, on the
understanding that Chua would pay [respondent] bank the
amount of P40,135.53, representing the sum that the bank
paid at the auction sale, plus interest; that [Petitioner] Chua
made an initial payment thereon in the amount of P4,000.00,
covered by Interbank Check No. 09173938, dated 16 February
1984, duly receipted by [respondent] bank; that, in a sudden
change of position, [respondent] bank wrote Chua, on 20
February 1984, asking that he could repurchase the property,
but based on the current market value thereof; and that
sometime later, or on 22 March 1984, [respondent] bank
wrote Chua anew, requiring him to tender a new offer to
counter the offer made thereon by another buyer.
"Traversing [petitioners’] complaint, [respondent] bank, upon
05 July 1984, filed its answer with counterclaim, thereunder
asserting that the foreclosure sale of the mortgaged property
was done in accordance with law; and that the bid price was
neither unconscionable, nor shockingly low; that [petitioners]
slept on their rights when they failed to redeem the property
within the one year statutory period; and that [respondent]
bank, in offering to sell the property to [Petitioner] Chua on
the basis of its current market price, was acting conformably
with law, and with legitimate banking practice and
regulations.
"Pre-trial having been concluded, the parties entered upon
trial, which dragged/lengthened to several months due to
postponements. Upon 11 June 1988, however, a big
conflagration hit the City Hall of Quezon City, which
destroyed, amongst other things, the records of the case.
After the records were reconstituted, [petitioners] discovered
that the foreclosed property was sold by [respondent] bank to
the Ceroferr Realty Corporation, and that the notice of lis
pendens annotated on the certificate of title of the foreclosed
property, had already been cancelled. Accordingly,
[petitioners], with leave of court, amended their complaint,
but the Trial Court dismissed the case ‘without prejudice’ due
to [petitioners’] failure to pay additional filing fees.
"So, upon 11 June 1990, [petitioners] re-filed the complaint
with the same Court, whereat it was docketed as Civil Case
No. 90-5749, and assigned to Branch 98: the amended
complaint substantially reproduced the allegations of the
original complaint. But [petitioners] this time impleaded as
additional defendants the Ceroferr Realty Corporation and/or
Cesar Roque, and Lorna Roque, and included an additional
cause of action, to wit: that said new defendants conspired
with [respondent] bank in [canceling] the notice of lis pendens
by falsifying a letter sent to and filed with the office of the
Register of Deeds of Quezon City, purportedly for the
cancellation of said notice.
"Summons was served on [respondent] bank on 26
September 1990, per Sheriff’s Return dated 08 October 1990.
Supposing that all the defendants had filed their answer,
[petitioners] filed, on 23 October 1991, a motion to set case
for pre-trial, which motion was, however, denied by the Trial
Court in its Order of 25 October 1991, on the ground that
[respondent] bank has not yet filed its answer. On 13
November 1991[, petitioners] filed a motion for
reconsideration, thereunder alleging that they received by
registered mail, on 19 October 1990, a copy of [respondent]
bank’s answer with counterclaim, dated 04 October 1990,
which copy was attached to the motion. In its Order of 14
November 1991, the trial Court denied for lack of merit, the
motion for reconsideration, therein holding that the answer
with counterclaim filed by [respondent] bank referred to
another civil case pending before Branch 90 of the same
Court.
"For this reason, [petitioners] filed on 02 December 1991 a
motion to declare [respondent] bank in default, thereunder
alleging that no answer has been filed despite the service of
summons on it on 26 September 1990.
"On 13 December 1991, the Trial Court declared the motion
submitted for resolution upon submission by [petitioners] of
proof of service of the motion on [respondent] bank.
"Thus, on 16 January 1992, upon proof that [petitioners] had
indeed served [respondent] bank with a copy of said motion,
the Trial Court issued an Order of default against [respondent]
bank.
"Upon 01 December 1992, on [petitioners’] motion, they were
by the Court allowed to present evidence ex parte on 07
January 1993, insofar as [respondent] bank was concerned.
"Thereafter, or on 08 February 1993, the Trial Court rendered
the new questioned partial decision.7
"Aggrieved, [respondent] bank filed a motion to set aside
[the] partial decision by default against Traders Royal Bank
and admit [respondent] Traders Royal Bank’s x x x Answer
with counterclaim: thereunder it averred, amongst others,
that the erroneous filing of said answer was due to an honest
mistake of the typist and inadvertence of its counsel.
"The [trial court] thumbed down the motion in its Order of 26
July 1993."8
Respondent bank appealed the Partial Decision9 to the CA.
During the pendency of that appeal, Ceroferr Realty
Corporation and/or Cesar and/or Lorna Roque filed a
Manifestation with Motion10 asking the CA to discharge them
as parties, because the case against them had already been
dismissed on the basis of their Compromise Agreement11
with petitioners. On May 14, 1996, the CA issued a
Resolution12 granting Ceroferr et al.’s Manifestation with
Motion to discharge movants as parties to the appeal. The
Court, though, deferred resolution of the matters raised in the
Comment13 of respondent bank. The latter contended that
the Partial Decision had been novated by the Compromise
Agreement, whose effect of res judicata had rendered that
Decision functus officio.
Ruling of the Court of Appeals
The CA ruled in favor of respondent bank. Deemed, however,
to have rested on shaky ground was the latter’s "Motion to
Set Aside Partial Decision by Default Against Traders Royal
Bank and Admit Defendant Traders Royal Bank’s Answer."14
The reasons offered by the bank for failing to file an answer
were considered by the appellate court to be "at once
specious, shallow and sophistical and can hardly be dignified
as a ‘mistake’ or ‘excusable negligence,’ which ordinary
prudence could not have guarded against."15
In particular, the CA ruled that the erroneous docket number
placed on the Answer filed before the trial court was not an
excusable negligence by the bank’s counsel. The latter had a
bounden duty to be scrupulously careful in reviewing
pleadings. Also, there were several opportunities to discover
and rectify the mistake, but these were not taken. Moreover,
the bank’s Motion to Set Aside the Partial Decision and to
Admit [the] Answer was not accompanied by an affidavit of
merit. These mistakes and the inexcusable negligence
committed by respondent’s lawyer were binding on the bank.
On the issue of whether petitioners had convincingly
established their right to relief, the appellate court held that
there was no ground to invalidate the foreclosure sale of the
mortgaged property. First, under Section 3 of Act No. 3135, an
extrajudicial foreclosure sale did not require personal notice
to the mortgagor. Second, there was no allegation or proof of
noncompliance with the publication requirement and the
public posting of the notice of sale, provided under Act No.
3135, as amended. Third, there was no showing of
inadequacy of price as no competent evidence was presented
to show the real market value of the land sold or the
readiness of another buyer to offer a price higher than that at
which the property had been sold.
Moreover, petitioners failed to prove that the bank had agreed
to sell the property back to them. After pointing out that the
redemption period had long expired, respondent’s written
communications to Petitioner Chua only showed, at most, that
the former had made a proposal for the latter to buy back the
property at the current market price; and that Petitioner Chua
was requested to make an offer to repurchase the property,
because another buyer had already made an offer to buy it.
On the other hand, respondent noted that the Interbank check
for P4,000 was for "deposit only." Thus, there was no showing
that the check had been issued to cover part of the
repurchase price.
The appellate court also held that the Compromise Agreement
had not resulted in the novation of the Partial Decision,
because the two were not incompatible. In fact, the bank was
not even a party to the Agreement. Petitioners’ recognition of
Ceroferr’s title to the mortgaged property was intended to
preclude future litigation against it.
Hence this Petition.16
Issues
In their Memorandum, petitioners raise the following issues:
"1. Whether or not the Respondent Court of Appeals erred in
failing to apply the provisions of Section 3, Rule 9 of the 1997
Rules of Civil Procedure [and in applying instead] the rule on
preponderance of evidence under Section 1, Rule 133 of the
Rules of Court.
"2. Whether or not the respondent appellate court failed to
apply the conventional redemption rule provided for under
Article 1601 of the New Civil Code.
"3. Whether or not this Honorable Court can exercise its
judicial prerogative to evaluate the findings of facts."17
The first issue is one of law and may be taken up by the Court
without hindrance, pursuant to Section 1 of Rule 45 of the
Rules of Court.18 The second and the third issues, however,
would entail an evaluation of the factual findings of the
appellate court, a function ordinarily not assumed by this
Court, unless in some excepted cases. The Court will thus rule
on the first issue before addressing the second and the third
issues jointly.
The Court’s Ruling
The Petition has no merit.
First Issue:
Quantum of Proof
Petitioners challenge the CA Decision for applying Section 3 of
Rule 9 of the Rules of Court, rather than Section 1 of Rule 133
of the same Rules. In essence, petitioners argue that the
quantum of evidence for judgments flowing from a default
order under Section 3 of Rule 9 is not the same as that
provided for in Section 1 of Rule 133.
For ease of discussion, these two rules will be reproduced
below, starting with Section 3 of Rule 9 of the Rules of Court:
"Sec. 3. Default; declaration of. – If the defending party fails to
answer within the time allowed therefor, the court shall, upon
motion of the claiming party with notice to the defending
party, and proof of such failure, declare the defending party in
default. Thereupon, the court shall proceed to render
judgment granting the claimant such relief as his pleading
may warrant, unless the court in its discretion requires the
claimant to submit evidence. Such reception of evidence may
be delegated to the clerk of court.
"(a) Effect of order of default. – A party in default shall be
entitled to notice of subsequent proceedings but not to take
part in the trial.
"(b) Relief from order of default. – A party declared in default
may at any time after notice thereof and before judgment file
a motion under oath to set aside the order of default upon
proper showing that his failure to answer was due to fraud,
accident, mistake or excusable negligence and that he has a
meritorious defense. In such case, the order of default may be
set aside on such terms and conditions as the judge may
impose in the interest of justice.
"(c) Effect of partial default. – When a pleading asserting a
claim states a common cause of action against several
defending parties, some of whom answer and the others fail
to do so, the court shall try the case against all upon the
answers thus filed and render judgment upon the evidence
presented.
"(d) Extent of relief to be awarded. – A judgment rendered
against a party in default shall not exceed the amount or be
different in kind from that prayed for nor award unliquidated
damages.
"(e) Where no defaults allowed. – If the defending party in an
action for annulment or declaration of nullity of marriage or
for legal separation fails to answer, the court shall order the
prosecuting attorney to investigate whether or nor a collusion
between the parties exists, and if there is no collusion, to
intervene for the State in order to see to it that the evidence
submitted is not fabricated."
We now quote Section 1 of Rule 133:
"SECTION 1. Preponderance of evidence, how determined. – In
civil cases, the party having the burden of proof must
establish his case by a preponderance of evidence. In
determining where the preponderance or superior weight of
evidence on the issues involved lies, the court may consider
all the facts and circumstances of the case, the witnesses’
manner of testifying, their intelligence, their means and
opportunity of knowing the facts to which they are testifying,
the nature of the facts to which they testify, the probability or
improbability of their testimony, their interest or want of
interest, and also their personal credibility so far as the same
may legitimately appear upon the trial. The court may also
consider the number of witnesses, though the preponderance
is not necessarily with the greater number."
Between the two rules, there is no incompatibility that would
preclude the application of either one of them. To begin with,
Section 3 of Rule 9 governs the procedure which the trial
court is directed to take when a defendant fails to file an
answer. According to this provision, the court "shall proceed
to render judgment granting the claimant such relief as his
pleading may warrant," subject to the court’s discretion on
whether to require the presentation of evidence ex parte. The
same provision also sets down guidelines on the nature and
extent of the relief that may be granted. In particular, the
court’s judgment "shall not exceed the amount or be different
in kind from that prayed for nor award unliquidated
damages."
As in other civil cases, basic is the rule that the party making
allegations has the burden of proving them by a
preponderance of evidence.19 Moreover, parties must rely on
the strength of their own evidence, not upon the weakness of
the defense offered by their opponent.20 This principle holds
true, especially when the latter has had no opportunity to
present evidence because of a default order. Needless to say,
the extent of the relief that may be granted can only be as
much as has been alleged and proved21 with preponderant
evidence required under Section 1 of Rule 133.
Regarding judgments by default, it was explained in Pascua v.
Florendo22 that complainants are not automatically entitled
to the relief prayed for, once the defendants are declared in
default. Favorable relief can be granted only after the court
has ascertained that the relief is warranted by the evidence
offered and the facts proven by the presenting party. In
Pascua, this Court ruled that "x x x it would be meaningless to
require presentation of evidence if every time the other party
is declared in default, a decision would automatically be
rendered in favor of the non-defaulting party and exactly
according to the tenor of his prayer. This is not contemplated
by the Rules nor is it sanctioned by the due process
clause."23
The import of a judgment by default was further clarified in
Lim Tanhu v. Ramolete.24 The following disquisition is most
instructive:
"Unequivocal, in the literal sense, as these provisions
[referring to the subject of default then under Rule 18 of the
old Rules of Civil Procedure] are, they do not readily convey
the full import of what they contemplate. To begin with,
contrary to the immediate notion that can be drawn from their
language, these provisions are not to be understood as
meaning that default or the failure of the defendant to answer
should ‘be interpreted as an admission by the said defendant
that the plaintiff’s cause of action find support in the law or
that plaintiff is entitled to the relief prayed for.’ x x x.
xxxxxxxxx
"Being declared in default does not constitute a waiver of
rights except that of being heard and of presenting evidence
in the trial court. x x x.
"In other words, a defaulted defendant is not actually thrown
out of court. While in a sense it may be said that by defaulting
he leaves himself at the mercy of the court, the rules see to it
that any judgment against him must be in accordance with
law. The evidence to support the plaintiff’s cause is, of course,
presented in his absence, but the court is not supposed to
admit that which is basically incompetent. Although the
defendant would not be in a position to object, elementary
justice requires that only legal evidence should be considered
against him. If the evidence presented should not be sufficient
to justify a judgment for the plaintiff, the complaint must be
dismissed. And if an unfavorable judgment should be
justifiable, it cannot exceed in amount or be different in kind
from what is prayed for in the complaint."25
In sum, while petitioners were allowed to present evidence ex
parte under Section 3 of Rule 9, they were not excused from
establishing their claims for damages by the required
quantum of proof under Section 1 of Rule 133. Stated
differently, any advantage they may have gained from the ex
parte presentation of evidence does not lower the degree of
proof required. Clearly then, there is no incompatibility
between the two rules.
Second and Third Issues:
Review of the Evidence
Petitioners urge this Court to depart from the general rule that
the lower courts’ findings of fact are not reviewable in a
petition for review.26 In support of their plea, they cite the
conflicting findings of the trial and the appellate courts, as
well as the alleged conjectures and surmises made by the CA
in arriving at its Decision.
Indeed, the differences between the findings of the two courts
a quo, leading to entirely disparate dispositions, is reason
enough for this Court to review the evidence in this case.27
Whether the CA indulged in surmises and conjectures when it
issued the assailed Decision will thus be determined.
At the outset, it behooves this Court to clarify the CA’s
impression that no evidence was presented in the case which
might have contributed to petitioners’ challenge to its
Decision. The appellate court’s observation was based on the
notation by the lower court’s clerk of court that there were no
separate folders for exhibits and transcripts, because "there
was no actual hearing conducted in this case."28
True, there was no hearing conducted between petitioners
and respondent, precisely because the latter had been
declared in default, and petitioners had therefore been
ordered to present their evidence ex parte. But the absence of
a hearing did not mean that no evidence was presented. The
Partial Decision dated February 8, 1993, in fact clearly
enumerated the pieces of evidence adduced by petitioners
during the ex parte presentation on January 7, 1993. The
documentary evidence they presented consisted of the
following:
1. A copy of respondent bank’s Petition for the extrajudicial
foreclosure and auction sale of the mortgaged parcel of
land29
2. The Certificate of Sale that was a consequence of the
foreclosure sale30
3. A Statement of Account dated February 15, 1984, showing
Petitioner Chua’s outstanding debt in the amount of
P40,135.5331
4. A copy of the Interbank check dated February 16, 1984, in
the amount of P4,00032
5. The Official Receipt issued by the bank acknowledging the
check33
6. The bank’s letter dated February 20, 1984, advising
Petitioner Chua of the sale of the property at an extrajudicial
public auction; the lapse of the period of redemption; and an
invitation to purchase the property at its current market
price34
7. Another letter from the bank dated March 22, 1984, inviting
Petitioner Chua to submit, within five days, an offer to buy the
same property, which another buyer had offered to buy35
8. A copy of the Notice of Lis Pendens, the filing of which was
done after that of the Amended Complaint36
9. A copy of the title showing the inscription of the Notice of
Lis Pendens37
10. A copy of the Absolute Deed of Sale to Cerrofer38
11. A copy of a letter dated August 29, 1986, made and
signed by petitioners’ counsel, requesting the cancellation of
the Notice of Lis Pendens39
12. A copy of a page of the Memorandum of Encumbrance
from TCT No. (314341) 7778/T-3940
Having clarified this matter, we proceed to review the facts.
Petitioners do not deny that the one-year period for legal
redemption had already lapsed when respondent bank
supposedly offered to sell the property in question. The
records clearly show that the Certificate of Sale following the
extrajudicial public auction of the property was registered on
June 21, 1982, the date from which the legal redemption
period was to be reckoned.41 Petitioners insist, though, that
they had the right to repurchase the property through
conventional redemption, as provided under Article 1601 of
the Civil Code, worded as follows:
"ART. 1601. Conventional redemption shall take place when
the vendor reserves the right to repurchase the thing sold,
with the obligation to comply with the provisions of Article
1616 and other stipulations which may have been agreed
upon."
It is true that the one-year period of redemption provided in
Act No. 3135, as amended -- the law under which the property
here was sold in a foreclosure sale -- is only directory and, as
such can be extended by agreement of the parties.42
However, it has also been held that for legal redemption to be
converted into conventional redemption, two requisites must
be established: 1) voluntary agreement of the parties to
extend the redemption period; and 2) the debtor’s
commitment to pay the redemption price on a fixed date.43
Thus, assuming that an offer was made to Petitioner Chua to
buy back the property after the lapse of the period of legal
redemption, petitioners needed to show that the parties had
agreed to extend the period, and that Petitioner Chua had
committed to pay the redemption price on a fixed date.
The letters sent by the bank to Petitioner Chua on February 20
and March 22, 1984, do not convincingly show that the parties
arrived at a firm agreement for the repurchase of the
property. What can be gleaned from the February 20 letter is
that Petitioner Chua proposed to pay the redemption price for
the property, but that the bank refused to accede to his
request, because the one-year redemption period had already
lapsed.44 The bank, though, had offered to sell back the
property to him at the current market value. Indeed, an
examination of his earlier letter of February 17, 1984, readily
reveals that he expressed willingness to settle his account
with the bank, but that his "present financial situation
precludes [him] from effecting an immediate settlement x x
x."45
On the other hand, the letter dated March 22, 1984, clearly
states that "x x x the Bank rejected [his] request to redeem
said property due to [the] lapse of [the] one (1) year legal
redemption period."46 Nonetheless, he was "[invited] to
submit an offer to buy the same property in five (5) days from
receipt [of the letter]."47 Petitioner Chua was also informed
that the bank had received an offer to purchase the
foreclosed property. As to the P4,000 check enclosed in his
proposal dated February 17, 1984, as a token of his good
faith, he was advised that the amount was still outstanding in
the books of the bank and could be claimed by him if he
thought the invitation was not feasible.
More important, there was no showing that petitioners had
committed to pay the redemption price on a fixed date. True,
Petitioner Chua had attempted to establish a previous
agreement to repurchase the property for less than its fair
market value. He had submitted in evidence a Statement of
Account48 dated February 15, 1984, showing a balance of
P40,135.53; the Interbank check dated February 16, 1984 , for
P4,000, which was deposited to the account of respondent
bank;49 and the Official Receipt for the check.50
Granting that these documents evinced an agreement,
petitioners were still unable to establish a firm commitment
on their part to pay the redemption price on a fixed date. On
the contrary, the February 17 letter of Petitioner Chua to the
bank clearly manifested that he was not capable of paying the
account immediately. For this reason, he proposed to pay in
"three or four installments" without a specification of dates for
the payments, but with a plea for a reduction of the interest
charges. That proposal was rejected.
Indeed, other than the Interbank check marked "for deposit"
by respondent bank, no other evidence was presented to
establish that petitioners had offered to pay the alleged
redemption price of P40,135.53 on a fixed date. For that
matter, petitioners have not shown that they tendered
payment of the balance and/or consigned the payment to the
court, in order to fulfill their part of the purported agreement.
These remedies are available to an aggrieved debtor under
Article 1256 of the Civil Code,51 when the creditor unjustly
refuses to accept the payment of an obligation.
The next question that presents itself for resolution is the
propriety of the CA’s ruling vacating the Partial Decision of the
regional trial court (RTC) and dismissing the case. To recall,
the RTC had resolved to withhold a ruling on petitioners’ right
to redeem conventionally and/or order the reconveyance of
the property in question, pending a determination of the
validity of the sale to Cerrofer Realty Corporation and Spouses
Cesar and Lorna Roque. The trial court, however, granted the
prayer for damages against respondent bank. The RTC ruled
as follows:
"The evidence presented by [petitioners] in so far as the
cause of action against [respondent] Traders Royal Bank is
concerned are preponderant to support the claims of the
[petitioners]. However, in view of the fact that the property
subject matter of this case has already been conveyed to
defendant Cerrofer Realty Corporation thus the issue as to
whether or not the said conveyance or sale is valid is sill
pending between the [petitioners] and [respondents] Cerrofer
Realty Corporation and Cesar Roque and Lorna Roque. Hence,
this Court resolves to grant the prayer for damages against
Traders Royal Bank.
"The claims of the [petitioners] as against [respondent]
Traders Royal Bank having been established and proved by
evidence, judgment is hereby rendered ordering [respondent]
Traders Royal Bank to pay [petitioners] actual damage or the
market value of the land in question in the sum of
P500,000.00; the sum of P70,000.00 as compensatory
damages; the sum of P200,000.00 to the heirs of [petitioner]
Danilo Chua; and attorney’s fees in the sum of P30,000.00."52
In the light of the pending issue as to the validity of the sale of
the property to the third parties (Cerrofer Realty Corporation
and Spouses Roque), the trial court properly withheld
judgment on the matter and thus left the prayer for damages
as the sole issue for resolution.
To adjudge damages, paragraph (d) of Section 3 of Rule 9 of
the Rules of Court provides that a judgment against a party in
default "shall not exceed the amount or be different in kind
from that prayed for nor award unliquidated damages." The
proscription against the award of unliquidated damages is
significant, because it means that the damages to be awarded
must be proved convincingly, in accordance with the quantum
of evidence required in civil cases.
Unfortunately for petitioners, the grant of damages was not
sufficiently supported by the evidence for the following
reasons.
First, petitioners were not deprived of their property without
cause. As correctly pointed out by the CA, Act No. 3135, as
amended, does not require personal notice to the
mortgagor.53 In the present case, there has been no
allegation -- much less, proof -- of noncompliance with the
requirement of publication and public posting of the notice of
sale, as required by Áct No. 3135. Neither has there been
competent evidence to show that the price paid at the
foreclosure sale was inadequate.54 To be sure, there was no
ground to invalidate the sale.
Second, as previously stated, petitioners have not
convincingly established their right to damages on the basis
of the purported agreement to repurchase. Without reiterating
our prior discussion on this point, we stress that entitlement
to actual and compensatory damages must be proved even
under Section 3 of Rule 9 of the Rules of Court. The same is
true with regard to awards for moral damages and attorney’s
fees, which were also granted by the trial court.
In sum, petitioners have failed to convince this Court of the
cogency of their position, notwithstanding the advantage they
enjoyed in presenting their evidence ex parte. Not in every
case of default by the defendant is the complainant entitled to
win automatically.
WHEREFORE, this Petition is hereby DENIED and the assailed
Decision and Resolution AFFIRMED. Costs against petitioners.
SO ORDERED.
Footnotes
1 The Court of Appeals was included in the Petition as a
respondent. However, the CA was omitted by this Court from
the title of the case, because it need not be impleaded in
petitions for review, under Section 4 of Rule 45 of the Rules of
Court.
2 Rollo, pp. 9-27.
3 Penned by Justice Renato C. Dacudao and concurred in by
Justices Romeo J. Callejo Sr. (then chairperson of the Special
Thirteenth Division and now a member of this Court) and
Alicia L. Santos (acting member). Id., pp. 29-39.
4 Id., p. 41.
5 CA Decision, p. 11; id., p. 39.
6 CA rollo, pp. 145-152.
7 The dispositive portion of the Partial Decision reads as
follows:
"The claims of the [petitioners] as against [Respondent]
Traders Royal Bank having been established and proved by
evidence, judgment is hereby rendered ordering [Respondent]
Traders Royal Bank to pay [petitioners] actual damage or the
market value of the land in question in the sum of
P500,000.00; the sum of P70,000.00 as compensatory
damages; the sum of P200,000.00 to the heirs of [Petitioner]
Danilo Chua; and attorney’s fees in the sum of P30,000.00."
(Partial Decision dated February 8, 1993, p. 2; records, p.
173).
8 CA Decision, pp. 2-5; rollo, pp. 30-33.
9 Records, pp. 172-173.
10 CA rollo, pp. 37-41.
11 Contained in the RTC Decision dated October 28, 1993;
records, pp. 263-264.
12 CA Rollo, pp. 84-87.
13 Records, pp. 75-82.
14 Id., pp. 176-183.
15 CA Decision, p. 7; rollo, p. 35.
16 The Petition was deemed submitted for decision on March
29, 2005, upon the Court’s receipt of respondent’s 4-page
Memorandum, signed by Atty. Diosdado B. Jimenez of
Gonzales Sinense Jimenez & Associates. Petitioners’
Memorandum, signed by Atty. Sergio F.Angeles of Angeles &
Associates, was received by the Court on May 15, 2003.
17 Petitioners’ Memorandum, pp. 10-17; rollo, pp. 98-105.
18 Section 1 of Rule 45 of the Rules of Court provides that "x
x x. The petition shall raise only questions of law which must
be distinctly set forth."
19 Saguid v. Court of Appeals, 451 Phil. 825, June 10, 2003;
Ocampo v. Ocampo, 427 SCRA 545, April 14, 2004; Catapusan
v. Court of Appeals, 332 Phil. 586, November 21, 1996.
Section 1 of Rule 131 of the Rules of Court provides:
"SECTION 1. Burden of proof. – Burden of proof is the duty of a
party to present evidence on the facts in issue necessary to
establish his claim or defense by the amount of evidence
required by law."
20 Saguid v. CA, ibid. (citing Heirs of Anastacio Fabela v. CA,
362 SCRA 531, August 9, 2001).
21 Regalado, Remedial Law Compendium, Vol. 1, 7th rev. ed.
(1999), p. 169. See also P. T. Cerna Corporation v. CA, 221
SCRA 19, 25, April 6, 1993.
22 220 Phil. 588, April 30, 1985 cited in Luxuria Homes, Inc. v.
CA, 361 Phil. 989, January 28, 1999.
23 Pascua v. Florendo, supra, pp. 595-596, per Gutierrez, Jr., J.
24 66 SCRA 425, August 29, 1975. See also Heirs of Anastacio
Fabela v. CA, supra at note 20.
25 Id., pp. 452-453, per Barredo, J.
26 Vibram Manufacturing Corporation v. Manila Electric
Company, 466 SCRA 178, August 9, 2005; Rubiato v. Heirs of
Jovito Rubiato, 464 SCRA 296, July 28, 2005; Republic v. CA,
328 Phil. 238, July 12, 1996; Baricuatro Jr. v. Court of Appeals,
382 Phil. 15, 24, February 9, 2000.
27 Manila Banking Corp. v. Silverio, 466 SCRA 438, August 11,
2005; Yason v. Arciaga, 449 SCRA 458, January 28, 2005;
Menchavez v. Torres Jr. 449 SCRA 380, January 26, 2005.
28 CA Decision, p. 9; rollo, p. 37.
29 Records, pp. 9-12.
30 Id., pp. 13-14.
31 Id., p. 15.
32 Id., p. 16.
33 Id., p. 17.
34 Id., p. 18.
35 Id., p. 19.
36 Id., pp. 20-21.
37 Id., pp. 22-23.
38 Id., pp. 24-26.
39 Id., p. 27.
40 Id., p. 28.
41 Union Bank of the Philippines v. CA, 412 Phil. 64, June 25,
2001; Castro v. Bague, 359 SCRA 28, June 20, 2001; Ysmael v.
CA, 376 Phil. 323, November 16, 1999. Section 28 of Rule 39
of the Rules of Court provides that legal redemption should be
made "at any time within one (1) year from the date of the
registration of the certificate of sale x x x."
42 Ibaan Rural Bank, Inc. v. Court of Appeals, 378 Phil. 707,
713, December 17, 1999; Lazo v. Republic Surety & Insurance
Co., Inc., 31 SCRA 329, January 30, 1970.
43 Landrito v. Court of Appeals, 466 SCRA 107, August 9,
2005 (citing Lazo v. Republic Surety & Insurance Co., Inc.,
supra); Ibaan Rural Bank, Inc. v. Court of Appeals, supra.
44 Records, p. 18.
45 Id., p. 195.
46 Id., p. 19.
47 Ibid.
48 Id., p. 15.
49 Id., p. 16.
50 Id., p. 17.
51 "ART. 1256. If the creditor to whom tender of payment has
been made refuses without just cause to accept it, the debtor
shall be released from responsibility by the consignation of
the thing or sum due. x x x."
52 Partial Decision, p. 2; records, p. 173.
53 Section 3 of Act No. 3135, as amended, provides as
follows:
"Notice shall be given by posting notices of the sale for not
less than twenty days in at least three public places of the
municipality or city where the property is situated, and if such
property is worth more than four hundred pesos, such notice
shall also be published once a week for at least three
consecutive weeks in a newspaper of general circulation in
the municipality or city." (See also Ardiente v. Provincial
Sheriff, 436 SCRA 655, August 17, 2004)
54 This fact would have been shown by presenting evidence
that another bidder had offered to pay a higher price for the
property during the bidding.
G.R. No. 158401 January 28, 2008
PHILIPPINE PORTS AUTHORITY, petitioner,
vs.
WILLIAM GOTHONG & ABOITIZ (WG&A), INC., respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
This resolves the Petition for Review on Certiorari filed by the
Philippine Ports Authority (petitioner) seeking the reversal of
the Decision1 of the Court of Appeals (CA) promulgated on
October 24, 2002 and its Resolution dated May 15, 2003.
The antecedent facts are accurately narrated by the CA as
follows:
Petitioner William Gothong & Aboitiz, Inc. (WG&A for brevity),
is a duly organized domestic corporation engaged in the
shipping industry. Respondent Philippine Ports Authority (PPA
for brevity), upon the other hand, is a government-owned and
controlled company created and existing by virtue of the
provisions of P.D. No. 87 and mandated under its charter to
operate and administer the country's sea port and port
facilities.
After the expiration of the lease contract of Veterans Shipping
Corporation over the Marine Slip Way in the North Harbor on
December 31, 2000, petitioner WG&A requested respondent
PPA for it to be allowed to lease and operate the said facility.
Thereafter, then President Estrada issued a memorandum
dated December 18, 2000 addressed to the Secretary of the
Department of Transportation and Communication (DOTC)
and the General Manager of PPA, stating to the effect that in
its meeting held on December 13, 2000, the Economic
Coordinating Council (ECC) has approved the request of
petitioner WG&A to lease the Marine Slip Way from January 1
to June 30, 2001 or until such time that respondent PPA turns
over its operations to the winning bidder for the North Harbor
Modernization Project.
Pursuant to the said Memorandum, a Contract of Lease was
prepared by respondent PPA containing the following terms:
1. The lease of the area shall take effect on January 1 to June
30, 2001 or until such time that PPA turns over its operation
to the winning bidder for the North Harbor modernization;
2. You shall pay a monthly rental rate of P12.15 per square
meter or an aggregate monthly rental amount of
P886,950.00;
3. All structures/improvements introduced in the leased
premises shall be turned over to PPA;
4. Water, electricity, telephone and other utility expenses
shall be for the account of William, Gothong & Aboitiz, Inc.;
5. Real Estate tax/insurance and other government dues and
charges shall be borne by WG&A.
The said contract was eventually conformed to and signed by
the petitioner company, through its President/Chief Executive
Officer Endika Aboitiz, Jr. Thereafter, in accordance with the
stipulations made in the lease agreement, PPA surrendered
possession of the Marine Slip Way in favor of the petitioner.
However, believing that the said lease already expired on June
30, 2001, respondent PPA subsequently sent a letter to
petitioner WG&A dated November 12, 2001 directing the
latter to vacate the contested premises not later than
November 30, 2001 and to turnover the improvements made
therein pursuant to the terms and conditions agreed upon in
the contract.
In response, petitioner WG&A wrote PPA on November 27,
2001 urging the latter to reconsider its decision to eject the
former. Said request was denied by the PPA via a letter dated
November 29, 2001.
On November 28, 2001, petitioner WG&A commenced an
Injunction suit before the Regional Trial Court of Manila.
Petitioner claims that the PPA unjustly, illegally and
prematurely terminated the lease contract. It likewise prayed
for the issuance of a temporary restraining order to arrest the
evacuation. In its complaint, petitioner also sought recovery of
damages for breach of contract and attorney's fees.
On December 11, 2001, petitioner WG&A amended its
complaint for the first time. The complaint was still
denominated as one for Injunction with prayer for TRO. In the
said amended pleading, the petitioner incorporated
statements to the effect that PPA is already estopped from
denying that the correct period of lease is "until such time
that the North Harbor Modernization Project has been bidded
out to and operations turned over to the winning bidder. It
likewise included, as its third cause of action, the additional
relief in its prayer, that should the petitioner be forced to
vacate the said facility, it should be deemed as entitled to be
refunded of the value of the improvements it introduced in
the leased property.
Following the first amendment in the petitioner's complaint,
respondent PPA submitted its answer on January 23, 2002.
Meanwhile, the TRO sought by the former was denied by the
trial court by way of an order dated January 16, 2002.
Petitioner later moved for the reconsideration of the said
Order on February 11, 2002. Shortly thereafter, petitioner
filed a Motion to Admit Attached Second Amended Complaint.
This time, however, the complaint was already captioned as
one for Injunction with Prayer for Temporary Restraining Order
and/or Writ of Preliminary Injunction and damages and/or for
Reformation of Contract. Also, it included as its fourth cause
of action and additional relief in its prayer, the reformation of
the contract as it failed to express or embody the true intent
of the contracting parties.
The admission of the second amended complaint met strong
opposition from the respondent PPA. It postulated that the
reformation sought for by the petitioner constituted
substantial amendment, which if granted, will substantially
alter the latter's cause of action and theory of the case.
On March 22, 2002, the respondent judge issued an Order
denying the Admission of the Second Amended Complaint.
Petitioner filed a motion for reconsideration of the aforesaid
order but the same was again denied in an order dated April
26, 2002.2
Herein respondent WG&A then filed a petition for certiorari
with the CA seeking the nullification of the aforementioned
RTC orders.
In its Decision dated October 24, 2002, the CA granted
respondent's petition, thereby setting aside the RTC orders
and directing the RTC to admit respondent's second amended
complaint pursuant to Section 3, Rule 10 of the 1997 Rules of
Civil Procedure. Petitioner moved for reconsideration but the
same was denied per Resolution dated May 15, 2003.
Hence, the present petition where the only issue raised is
whether the CA erred in ruling that the RTC committed grave
abuse of discretion when it denied the admission of the
second amended complaint.
The Court finds the petition without merit.
The CA did not err in finding that the RTC committed grave
abuse of discretion in issuing the Order dated March 22, 2002
denying the admission of respondent's second amended
complaint.
The RTC applied the old Section 3, Rule 10 of the Rules of
Court:
Section 3. Amendments by leave of court. – after the case is
set for hearing, substantial amendments may be made only
upon leave of court. But such leave may be refused if it
appears to the court that the motion was made with intent to
delay the action or that the cause of action or defense is
substantially altered. Orders of the court upon the matters
provided in this section shall be made upon motion filed in
court, and after notice to the adverse party, and an
opportunity to be heard.
instead of the provisions of the 1997 Rules of Civil Procedure,
amending Section 3, Rule 10, to wit:
SECTION 3. Amendments by leave of court. Except as
provided in the next preceding section, substantial
amendments may be made only upon leave of court. But such
leave may be refused if it appears to the court that the motion
was made with intent to delay. Orders of the court upon the
matters provided in this section shall be made upon motion
filed in court, and after notice to the adverse party, and an
opportunity to be heard.
The Court has emphasized the import of Section 3, Rule 10 of
the 1997 Rules of Civil Procedure in Valenzuela v. Court of
Appeals,3 thus:
Interestingly, Section 3, Rule 10 of the 1997 Rules of Civil
Procedure amended the former rule in such manner that the
phrase "or that the cause of action or defense is substantially
altered" was stricken-off and not retained in the new rules.
The clear import of such amendment in Section 3, Rule 10 is
that under the new rules, "the amendment may (now)
substantially alter the cause of action or defense." This should
only be true, however, when despite a substantial change or
alteration in the cause of action or defense, the amendments
sought to be made shall serve the higher interests of
substantial justice, and prevent delay and equally promote
the laudable objective of the rules which is to secure a "just,
speedy and inexpensive disposition of every action and
proceeding."4
The application of the old Rules by the RTC almost five years
after its amendment by the 1997 Rules of Civil Procedure
patently constitutes grave abuse of discretion.
WHEREFORE, the petition is DENIED for lack of merit. The
Decision of the Court of Appeals promulgated on October 24,
2002 and its Resolution dated May 15, 2003 are hereby
AFFIRMED in toto.
SO ORDERED.
Footnotes
* In lieu of Justice Minita V. Chico-Nazario, per Special Order
No. 484 dated January 11, 2008.
1 Penned by CA Associate Justice Bienvenido L. Reyes, with
then Associate Justice, now COMELEC Commissioner Romeo A.
Brawner and CA Associate Justice Mario L. Guariña III,
concurring; p. 34, rollo.
2 Rollo, pp. 35-37.
3 416 Phil. 289 (2001).
4 Id. at 297.
G.R. No. 148120 October 24, 2003
RODRIGO QUIRAO, MONICA QUIRAO, ROBERTO QUIRAO,
EDILBERTO QUIRAO, JESUS GOLE, GERARDO QUIRAO,
LAMBERTO VALDEZ & FEDERICO QUIRAO, petitioners,
vs.
LYDIA QUIRAO & LEOPOLDO QUIRAO, JR., respondents.
DECISION
PUNO, J.:
The issue in this Petition for Review on Certiorari under Rule
45 of the Revised Rules of Court is whether Branch 21 of the
Regional Trial Court of Mambusao, Capiz should admit the
amended answer of petitioners.
Respondents Lydia Quirao and Leopoldo Quirao, Jr. filed
before the trial court a complaint for recovery of possession,
ownership and damages against petitioners Rodrigo Quirao,
Monica Quirao, Roberto Quirao, Edilberto Quirao, Gerardo
Quirao, Jesus Gole, Lamberto Valdez, Federico Quirao and
Avelino Ngitngit.1 Respondents claimed that the late Leopoldo
Quirao was the owner of the sugarland, subject matter of the
controversy. Respondent Lydia is his widow, while Leopoldo,
Jr. is his legitimate son and compulsory heir. They alleged that
in 1988, petitioners forcibly took possession of the sugarland
and appropriated for themselves its income. They prayed for
the issuance of a writ of Preliminary Mandatory Injunction for
petitioners to vacate the property.2
In their Answer, petitioners claimed that the subject property
was owned by their grandfather, Segundo Clarito; that
petitioner Rodrigo Quirao had been in possession of the land
even before the Second World War; and that Leopoldo Quirao
never possessed it. They further alleged that petitioners Jesus
Gole, Avelino Ngitngit and Lamberto Valdez were recipients of
Emancipation Patents issued by the government.3
A few months after their Answer, petitioners filed a Motion to
Dismiss the complaint citing a Deed of Extra-Judicial Partition
with Sale of the subject property purportedly executed by
respondents in favor of a certain Carlito de Juan ("de Juan").
Petitioners contended that since respondents no longer own
the property, they lack the standing to file the complaint.4
They further alleged that it was only after they filed their
Answer that they learned of the existence of the deed. The
trial court denied the motion to dismiss for lack of merit.5
The case underwent pre-trial. Petitioners' second counsel, who
took over the case, filed an amended pre-trial brief which
reiterated the allegation that respondents were not the real
parties in interest as they had sold the property to de Juan.
Trial ensued and after respondents rested their case,
petitioners filed a "Motion for Leave of Court to Admit
Attached Amended Answer."6 They sought the amendment of
their Answer by adding the alternative defense that even if
respondents were the owners of the property by inheritance
from Leopoldo Quirao, they (respondents) executed a Deed of
Extra-Judicial Partition of Property with Sale in favor of de
Juan. They further claimed that in turn, de Juan sold part of
the property to them.7 The second sale appears to be
evidenced by a Deed of Sale8 involving part of the subject
property executed by de Juan and petitioners. It also appears
that Rodrigo made a partial payment of P50,000.00,
evidenced by the receipt signed by de Juan.9
Respondents opposed the motion on the grounds that: (1) it is
dilatory and (2) the amendments are substantial and cannot
be allowed as the parties have already undergone a pre-trial
conference.10
The motion was again denied by the trial court. It ratiocinated
that the amendments will prejudice the respondents since
they had already rested their case and the alleged facts were
already existing and known to the petitioners when they filed
their answer.11 Petitioners' motion for reconsideration12 was
likewise denied.131awphi1.nét
Petitioners repaired to the Court of Appeals which also
dismissed their petition for lack of merit. The appellate court
ruled that the amendments are basically the same issues
raised in their motion to dismiss and are substantial ones
which may properly be refused. It cited Batara vs. Court of
Appeals,14 where we held that the negligence and ignorance
of petitioners' previous counsels cannot qualify as
"transcendental matters" which can outweigh
technicalities.15 Petitioners filed a motion for
reconsideration16 but their efforts were in vain.17 Thus, this
petition based on the following grounds:
A. THE OMISSION AND INACTION SEPARATELY AND
INDIVIDUALLY COMMITTED BY EACH OF PETITIONERS' THREE
PREVIOUS LAWYERS CONSTITUTE MERELY SIMPLE
NEGLIGENCE WHICH, AS A GENERAL RULE, SHOULD BIND
THEM. HOWEVER, WHEN PUT AND CONSIDERED TOGETHER,
SUCH OMISSION AND INACTION ARE TRANSFORMED INTO
AND COULD BE RIGHTFULLY CONSIDERED AS GROSS AND
RECKLESS AND, HENCE, SHOULD NOT AND COULD NEVER
BIND THEM. IT IS HUMBLY SUBMITTED THAT EVEN AT THIS
LATE STAGE OF THE PROCEEDING, THE AMENDMENTS
SOUGHT TO BE INTRODUCED IN THE ORIGINAL ANSWER MAY
STILL BE LAWFULLY ALLOWED; OTHERWISE, PETITIONERS
WOULD BE DEPRIVED OF THEIR PROPERTY WITHOUT DUE
PROCESS OF LAW;
B. IN THE HIGHER INTEREST OF SUBSTANTIAL JUSTICE, THE
AMENDMENTS SOUGHT TO BE INTRODUCED IN THE ORIGINAL
ANSWER SHOULD HAVE BEEN LIBERALLY ALLOWED SINCE
THIS COURSE OF ACTION WOULD RESULT IN THE RESOLUTION
OF THE CASE BELOW BASED ON PURE MERITS, RATHER THAN
ON PURE TECHNICALITY. MOREOVER, THE RIGHTS OF
RESPONDENTS COULD BE AMPLY PROTECTED, AND
WHATEVER DELAY HAS ALREADY BEEN INCURRED IS NEVER
SOLELY ATTRIBUTABLE TO PETITIONERS;
C. THE COURT A QUO HAS LIBERALLY CONSTRUED THE RULES
IN FAVOR OF RESPONDENTS AND STRICTLY CONSTRUED
THEM AGAINST PETITIONERS; and
D. IN ITS DECISION, THE COURT OF APPEALS COMMITTED THE
FOLLOWING ERRORS: 1) IT RULED THAT THE MATTER SOUGHT
TO BE INTRODUCED IN THE ORIGINAL ANSWER IS THE SAME
ISSUE ALLEGED IN PETITIONERS' MOTION TO DISMISS WHICH
WAS DENIED BY THE COURT A QUO; 2) IT FAILED TO DISCUSS
THE THIRD GROUND EVEN AS THIS WAS EXPLICITLY RAISED
BEFORE IT; AND 3) IT APPLIED THE JURISPRUDENCE LAID IN
(sic) DOWN IN THE BATARA CASE.18
The Rules of Court allow amendments of pleadings as a
matter of right before a responsive pleading is served;19
otherwise, leave of court must first be obtained.20
Our case law teaches us that amendments to pleadings are
favored and should be liberally allowed in furtherance of
justice. This liberality is greatest in the early stages of a
lawsuit, decreases as it progresses, and changes at times to a
strictness amounting to a prohibition. Amendments are
likewise subject to the limitation that they are not dilatory.21
Thus, trial courts are given the discretion to grant leave of
court to file amended pleadings, and their exercise of this
discretion will normally not be disturbed on appeal, unless
there is evident abuse thereof.22
In the case at bar, petitioners filed their motion for leave of
court to admit amended answer only after respondents have
rested their case. Petitioners argue that the error was due to
the oversight of the three previous counsels. Petitioners'
fourth counsel also claims that he learned of the alternative
defense late as his clients (petitioners herein) did not inform
him of the Deed of Sale.23 Allegedly, they relied on the advice
of their previous counsels that the said deed of sale "was a
mere scrap of paper because it was not signed by Carlito de
Juan."24 Respondents contend that petitioners' motion is too
late in the day.
Petitioners' motion for admission of amended answer may be
a little tardy but this by itself is not a cause for its denial.
Their amended answer alleges that respondents no longer
own the subject property having sold the same to de Juan
who, in turn, sold the property to petitioners. These
allegations, if correct, are vital to the disposition of the case
at bar. The interest of justice and equity demand that they be
considered to avoid a result that is iniquitous.1ªvvphi1.nét
Truth cannot be barred by technical rules. For this reason, our
ruling case law holds that amendments to pleadings are
generally favored and should be liberally allowed in
furtherance of justice so that every case may so far as
possible be determined on its real facts and in order to
prevent the circuity of action.25
12 Id. at 114-123.
13 Id. at 127-128.
14 300 SCRA 237 (1999).
15 Rollo, pp. 163-168.
16 Id. at 161-191.
17 Id. at 195.
18 Id. at 27-28.
19 Rule 10, Sec. 2. Amendments as a matter of right. - A party
may amend his pleading once as a matter of right at any time
before a responsive pleading is served or, in the case of a
reply, at any time within ten (10) days right after it is served.
20 Rule 10, Sec. 3. Amendments by leave of court. - Except as
provided in the next preceding section, substantial
amendments may be made only upon leave of court. But such
leave may be refused if it appears to the court that the motion
was made with intent to delay. Orders of the court upon the
matters provided in this section shall be made upon motion
filed in court, and after notice to the adverse party, and an
opportunity to be heard.
21 Heirs of Marcelino Pagobo v. Court of Appeals, 280 SCRA
870 (1997).
22 Torres v. Tomacruz, 49 Phil. 913 (1927).
23 Rollo, pp. 66-68.
24 Id. at 31.
25 Siasoco v. CA, G.R. No. 132753, February 15, 1999.
26 Ildefonso Samala & Benjamin Babista, v. CA, G.R. No.
128628, August 23, 2001.
RAFAEL BAUTISTA and LIGAYA ROSEL,
Petitioners,
- versus -

We should always bear in mind that rules of procedure are

mere tools designed to facilitate the attainment of justice.
Their strict and rigid application especially on technical MAYA-MAYA COTTAGES, INC.,
matters, which tends to frustrate rather than promote
substantial justice, must be avoided. Technicality, when it Respondent.
deserts its proper office as an aid to justice and becomes its
great hindrance and chief enemy, deserves scant
consideration from the courts.26
G.R. No. 148361
IN VIEW WHEREOF, the petition is GRANTED. Branch 21 of the
Regional Trial Court of Mambusao, Capiz is directed to admit
the amended answer.
Present:
SO ORDERED.

Panganiban, Sandoval-Gutierrez, Corona, and Carpio-Morales,

JJ., concur.

Footnotes panganiban,J., Chairman,

1 Except for Avelino Ngitngit, defendants are petitioners
herein. Sandoval-Gutierrez,
2 Rollo, pp. 49-54.
3 Id. at 55-58. Corona,
4 Id. at 60-61.
5 Id. at 65. CARPIO MORALES, and
6 Id. at 86-90.
7 Id. at 96-102. GARCIA, JJ.
8 Id. at 36.
9 Id. at 69.
10 Id. at 106-107.
11 Id. at 113.

Promulgated:
November 29, 2005
x-------------------------------------------------------------------------------------
-----------x
RESOLUTION
SANDOVAL GUTIERREZ, J.:
For our resolution is the instant petition for review on
certiorari assailing the Decision[1] and Resolution of the Court
of Appeals, dated November 24, 2000 and May 30, 2001,
respectively, in CA-G.R. SP No. 43574.
The facts are:
Spouses Rafael and Ligaya Bautista, petitioners herein, are
the registered owners of a 3,856-square meter lot located at
Natipuan, Nasugbu, Batangas, as evidenced by Original
Certificate of Title (OCT) No. P-1436 issued in their names on
January 15, 1989 by the Register of Deeds, same province.
On May 13, 1996, Maya-Maya Cottages, Inc. (MMCI),
respondent, filed with the Regional Trial Court (RTC) of
Nasugbu, Batangas a complaint for cancellation of petitioners'
title and damages, with application for a preliminary
injunction, docketed as Civil Case No. 371. Respondent
alleged inter alia that without any color of right and through
dubious means, petitioners were able to obtain OCT No. P-
1436 in their names.
On May 29, 1996, petitioners filed a motion to dismiss the
complaint on the ground that it does not state a cause of
action. They averred that respondent is a private corporation,
hence, disqualified under the Constitution[2] from acquiring
public alienable lands except by lease. Respondent cannot
thus be considered a real party in interest.
In its Order dated August 30, 1996, the trial court granted the
motion to dismiss, holding that since the property is an
alienable public land, respondent is not qualified to acquire it
except by lease. Thus, it has no cause of action.
Respondent then filed a motion for reconsideration with
motion for leave to file an amended complaint for quieting of
title. Respondent alleged that the technical description in
petitioners' title does not cover the disputed lot.
Thereupon, petitioners filed their opposition, contending that
the amended complaint does not also state a cause of action
and if admitted, respondent's theory of the case is
substantially modified.
On November 18, 1996, the trial court issued an Order
denying petitioners' motion to dismiss, thus, reversing its
Order of August 30, 1996 dismissing the complaint in Civil
Case No. 371.
Petitioners then filed with the Court of Appeals a special civil
action for certiorari and prohibition, docketed as CA-G.R. SP
No. 43574. They alleged that the amended complaint does
not cure the defect in the original complaint which does not
state a cause of action. Clearly, in admitting respondent's
amended complaint, the trial court committed grave abuse of
discretion amounting to lack or excess of jurisdiction.
On November 24, 2000, the Court of Appeals rendered a
Decision dismissing the petition for certiorari and prohibition.
Petitioners filed a motion for reconsideration but was denied
by the Appellate Court in its Resolution of May 30, 2001.
Hence, the instant petitioner for review on certiorari.
The sole issue for our resolution is whether the Court of
Appeals erred in holding that the trial court did not commit
grave abuse of discretion amounting to lack or excess of
jurisdiction in admitting respondent's amended complaint.
Section 2, Rule 10 of the 1997 Rules of Civil Procedure, as
amended, provides:
'SEC. 2. Amendments as a matter of right. ' A party may
amend his pleading once as a matter of right at any time
before a responsive pleading is served or, in the case of a
reply, at any time within ten (10) days after it is served.
The above provision clearly shows that before the filing of any
responsive pleading, a party has the absolute right to amend
his pleading, regardless of whether a new cause of action or
change in theory is introduced. It is settled that a motion to
dismiss is not the responsive pleading contemplated by the
Rule.[3] Records show that petitioners had not yet filed a
responsive pleading to the original complaint in Civil Case No.
371. What they filed was a motion to dismiss. It follows that
respondent, as a plaintiff, may file an amended complaint
even after the original complaint was ordered dismissed,
provided that the order of dismissal is not yet final,[4] as in
this case.
Verily, the Court of Appeals correctly held that in issuing the
assailed Order admitting the amended complaint, the trial
court did not gravely abuse its discretion. Hence, neither
certiorari nor prohibition would lie.
As to petitioners' contention that respondent corporation is
barred from acquiring the subject lot, suffice it to say that this
is a matter of defense which can only be properly determined
during the full-blown trial of the instant case.
WHEREFORE, the petition is DENIED. The challenged Decision
and Resolution of the Court of Appeals in CA-G.R. SP No.
43574 are AFFIRMED IN TOTO. Costs against petitioners.
SO ORDERED.
Endnotes:
[1] Rollo, pp. 30-42. Per Associate Justice Bienvenido L. Reyes
with Associate Justice Ramon A. Barcelona (retired) and
Associate Justice Rodrigo V. Cosico, concurring.
[2] Art. XII, Sec. 3.
[3] Radio Communications of the Phils., Inc., v. Court of
Appeals, G.R. No. 121397, April 17, 1997, 271 SCRA 286,
citing Prudence Realty and Devt. Corp. v. Court of Appeals,
231 SCRA 379 (1994); Soledad v. Mamangun, 8 SCRA 110
(1963).
[4] Salazar v. Bartolome, G.R. No. 43364, September 30,
1976, 73 SCRA 247, 250, citing Paeste and Carpio v, Jaurigue,
94 Phil. 179 (1953),
Irene Marcos-Araneta v. CA GR 154096 Aug 22, 2008, supra
LAPRECIOSISIMA CAGUNGUN, REMEDIOS L. CAGUNGUN, JESUS
L. CAGUNGUN, VICENTE L. CAGUNGUN, JR., RICARDO L.
CAGUNGUN, EDUARDO L. CAGUNGUN, ROWENA L.
CAGUNGUN, ALVIN L. CAGUNGUN and ALMA L. CAGUNGUN,
P e t i t i o n e r s,
- versus -
PLANTERS DEVELOPMENT BANK,
R e s p o n d e n t.
Promulgated:

October 17, 2005
X---------------------------------------------
-----X
DECISION
CHICO-NAZARIO, J.:
Assailed in a Petition for Review on Certiorari under Rule 45 of
the 1997 Rules of Civil Procedure are the decision[1] of the
Court of Appeals dated 25 March 2002 that modified the
decision of the Regional Trial Court (RTC) of Olongapo City,
Branch 74, in Civil Case No. 245-0-83, dated 26 June 1997,
deleting the awards of moral and exemplary damages and
finding that the mortgaged loan was deemed paid and
enjoining foreclosure, as well as reducing the awards for
litigation fees and expenses, and its Resolution[2] dated 06
June 2003 denying petitioners Lapreciosisima Cagungun, et
al.s' motion for reconsideration.
The antecedents are summarized by the Court of Appeals in
its decision as follows:
On September 1, 1987, the spouses Vicente Cagungun and
Lapreciosisima Cagungun (or the Cagungun spouses) filed suit
with the Regional Trial Court of Olongapo City against the
Country Development Bank (or COUNTRY), and which was
docketed as Civil Case No. 245-083 and assigned to Branch
74. Vicente Cagungun has since died and was substituted as
plaintiff on August 8, 1984 by their children. On the other
hand COUNTRY has entered into a merger and reflective of
this the party defendant has been changed to Planters
Development Bank (or PLANTERS) on September 1, 1987.
COUNTRY had opened an extension office in Olongapo City,
and among their first customers were the Cagungun spouses
who had diverse business interests in the locality. They
opened some accounts, and for two (2) of which they were
issued Savings Passbook No. 12241-16 in the name of Puring's
Dry Goods and Savings Passbook No. 38470-29 in the names
of V/L Cagungun.
It was claimed by the Cagungun spouses and testified to by
them and their daughter-in-law Sarah Cagungun, that
because of the exigencies of their businesses that required
daily deposits of the proceeds and of the trust that they have
reposed with COUNTRY and its personnel, they entrusted and
left with them their said savings pass books. At least once a
day the Branch manager Ruperto Reyes or a certain Bong and
Ding would come to get their funds and with the agreement
that these would be rounded off and deposited to their
account while the odd remainder would be applied to their
loan. The arrangement apparently went well, until March 1981
when the Cagungun spouses received a letter from COUNTRY
telling them that their loan is past due and payment was
demanded . . . or else. This prompted them to investigate, but
this was tedious and difficult because of lack of cooperation
and even resistance from COUNTRY. But with the help of
friends in high places the Cagungun spouses were able to
access and pry information that in the year 1979 on the dates
of October 8, 18, 20 and 31 and November 15, and December
4 and 8, with the use of withdrawal slips a total of
P220,000.00 was withdrawn from their Savings Passbook No.
12241-16. These withdrawals were invalid for no such
withdrawal was authorized, made or received by the
depositors, and the signatures of Vicente Cagungun on the
slips were forgeries. This was confirmed by Arcadio Ramos,
Chief of the Questioned Documents Division of the NBI when
these were subjected to examination.
The side of PLANTERS was explicated by its employees,
Internal Auditor Lilia Tactay, Branch Manager Lolita Mendoza
and Cashier Bella Lumanog. It was explained that the
withdrawal of P20,000.00 made on October 8, 1979 from
Savings Account No. 12241-16 and the withdrawals of a total
of P30,000.00 from several of the other accounts of the
spouses, were placed on time deposits on the same date by
Vicente Cagungun in five (5) accounts held with their children.
The other said withdrawals from Savings Account No. 12241-
16 were made by Vicente Cagungun in exchange for
Manager's Checks made in the names of payees Santiago Lee,
Rosita Saldana, Benito Yap and Joaquin Aganda.[3]
The lower court ruled, among other things, that the
withdrawals from Savings Account No. 12241-16 through
seven (7) withdrawal slips[4] amounting to P220,000.00 were
not made by petitioners as the alleged signatures of Vicente
Cagungun, Jr. appearing therein were falsified as confirmed by
the National Bureau of Investigation Handwriting Expert
Arcadio Ramos. It likewise considered petitioners to have paid
their mortgage loan in the amount of P58,297.16 in view of
their instruction to respondent to apply their funds in Savings
Account No. 38470-29 thereto which were adequate for this
purpose.
For not applying the savings of petitioners in Savings Account
No. 38470-29 as payment to their loan, thereby causing the
threatened foreclosure of the real estate mortgage over their
house and lot, and for allowing the unauthorized withdrawals
from Savings Account No. 12241-16 through falsified
withdrawal slips, the lower court held respondent liable to pay
moral damages. For ignoring the two (2) demand letters of
petitioners, the demand letter of petitioners' counsel and the
representations made by Pampanga Gov. Estelito Mendoza
and Central Bank Governor Jaime Laya, and for the attempt to
cover up the misdeeds of its employees constituting malice
and bad faith, respondent was also ordered to pay exemplary
damages as an example to others. On account of these acts,
respondent was also ordered to pay attorney's fees and the
cost of suit.
In its decision[5] dated 26 June 1997, the lower court disposed
of the case in this wise:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiffs and against the defendant as follows:
1.) Enjoining the defendant from foreclosing the mortgage of
plaintiffs property located at No. 88 Gordon Avenue, Pag-asa,
Olongapo City;
2.) Ordering the defendant to pay plaintiffs the amount of
P220,000.00 actual damages representing the total amount
withdrawn from their accounts plus twelve (12%) per cent
interest per annum from the date of the filing of the complaint
until it shall have been fully paid;
3.) Considering plaintiffs mortgaged account in the amount of
P58,297.16 to have been paid;
4.) Ordering the defendant to pay plaintiffs the amount of
P300,000.00 moral damages;
5.) Ordering the defendant to pay plaintiffs the amount of
P300,000.00 exemplary damages; and
6.) Ordering defendant to pay plaintiffs the amount of
P50,000.00 litigation expense, P50,000.00 attorney's fee plus
the cost of suit.[6]
Aggrieved, respondent appealed to the Court of Appeals.
The Court of Appeals agreed that money was withdrawn from
the deposits of petitioners without their authority or
knowledge, and that this was done by one or some of the
personnel of respondent. However, it held that petitioners are
not free from the obligation to pay the admitted loan
(P58,297.16) for though the same was not paid for failure of
respondent to comply with the instruction to apply the
remainder of the sums deposited to their loan, it remained
admittedly an unpaid obligation. It removed the awards for
moral and exemplary damages and reduced the awards for
attorney's fees and litigation expenses.
The Court of Appeals promulgated its decision on 25 March
2002, the dispositive portion of which reads:
WHEREFORE, the appealed decision is AFFIRMED, but with
these MODIFICATONS (a) the dispositions in Par. 1 and Par. 3
of the fallo deeming the mortgaged loan paid and enjoining
foreclosure, are DELETED; (b) the disposition in Par. 4 and Par.
5 of the fallo awarding moral and exemplary damages, are
DELETED; and (c) the awards of litigation fees and expenses
are REDUCED to a combined P30,000.00.[7]
The motion for reconsideration filed by petitioners was denied
in a resolution dated 06 June 2003.[8]
Petitioners are now before us assailing the Decision and
Resolution of the Court of Appeals when the latter:
(A) DELETED THE PORTION OF THE RTC DECISION
DECLARING THE MORTGAGED LOAN PAID AND ENJOINING
FORECLOSURE;
(B) DELETED THE AWARD OF MORAL AND EXEMPLARY
DAMAGES; AND
(C) REDUCED THE LITIGATION FEES AND EXPENSES.[9]
Respondent filed a Comment[10] on 04 September 2003 to
which petitioners filed their Reply[11] dated 06 February
2004.
On 06 December 2004, the Court gave due course to the
petition and required the parties to submit their respective
memoranda within thirty (30) days from notice.[12] Both
parties complied.[13]
We first discuss the deletion made by the Court of Appeals of
the awards of moral damages and exemplary damages.
Petitioners maintain that the Court of Appeals erred in
removing the award of moral damages considering that it is
settled jurisprudence that the same should be awarded when
the injured party suffers mental anguish and serious anxiety.
They contend that the Court of Appeals failed to appreciate
the torment they suffered from the time they noticed their
deposits were not properly recorded until the receipt of
respondent's letter threatening the foreclosure of their
residential house and lot for a loan of P58,000.00. They
narrated that respondent bank refused to give them copies of
the ledgers of their deposits as well as copies of the
withdrawal slips. Despite the intercession of Pampanga
Governor Estelito Mendoza and Central Bank Governor Jaime
Laya, respondent did not give them copies of the ledgers and
withdrawal slips. It was only after the Chief of the Criminal
Investigation Service (CIS) of the Philippine Constabulary sent
two of his investigators, whom they authorized to look into the
records of their deposits, that they received copies thereof.
They discovered therein that the sum of P220,000.00 was
withdrawn from their accounts by respondent bank through its
employees by falsifying the signatures of Vicente Cagungun,
Jr. in seven withdrawal slips. Despite the forgeries, they
refused to acknowledge its liability. Thus, on 07 September
1983, in order to protect their rights, petitioners were forced
to file the instant case with prayer for issuance of a temporary
restraining order and/or writ of preliminary injunction to enjoin
the foreclosure of their property. Petitioners insist that
respondent, in allowing withdrawals in their savings account
without their authority or knowledge, is guilty of gross
negligence to which it is liable for moral damages.
On the other hand, respondent maintains that the Court of
Appeals was correct in deleting the award of moral damages.
Respondent argues that it should not be faulted if petitioners
had to experience inconveniences in acquiring copies of
ledgers of their deposits as well as copies of the withdrawal
slips since certain banking procedures must be observed. It
likewise faults petitioners for not strictly observing security
rules of financial institutions in the care and custody of their
passbooks, as well as in the standard operating procedure for
deposits and withdrawals which led to the alleged improper
recording of deposits and the alleged losses they incurred. It
stresses that passbooks should be securely kept by the owner
but, in the case of petitioners, they openly entrusted their
passbooks to other people leaving them totally unable to
monitor their transactions. It added that there was absence of
any actual injury on the part of the petitioners. It asserts that
it neither acted in bad faith nor took advantage of petitioners'
deposit for its use and benefit. It claims that petitioners failed
to establish fraud on the part of respondent bank as to make
it liable for the alleged improper recording of deposits. It
claims that petitioners failed to present in court the persons
(Bong or Ding) to whom they entrusted their money for
deposit and to prove that Ruperto Reyes, then Officer-In-
Charge (O-I-C) of the Extension Office of Country
Development Bank, defrauded them by facilitating
withdrawals for the benefit of the bank. No proof was adduced
to show that they verified if the persons to whom they
delegated to make the deposits faithfully performed the tasks
in accordance with their intentions. Respondent insists that it
is the negligence of petitioners, not fraud on its part, which
was the reason that petitioners' deposits were not applied in
accordance with their intentions resulting to the (threatened)
foreclosure of their mortgaged property.
From the foregoing reasons advanced by respondent bank, it
is apparent that it is trying to pass all the blame on petitioners
for the unauthorized withdrawals amounting to P220,000.00
and the non-applications of deposits to their loan.
This cannot be. The fact that petitioners left the custody of
their passbooks to respondent, through its employee O-I-C
Ruperto Reyes, and that they entrusted to Bong or Ding their
deposits will not excuse respondent from being liable.
Petitioners did these things because they trusted and
depended on respondent to take care of their accounts with it.
If respondent bank was really strict in enforcing the banking
rule that the passbook must be kept by the depositor, why did
it not do so? For its failure, any anomaly or damage that
might result therefrom should be borne by it.
We, likewise, find untenable respondent's contention that
petitioners should have presented O-I-C Ruperto Reyes, Bong
or Ding as witnesses to clear the air. On the contrary, it
should have been respondent's duty to present these persons
they being their employees. It should have presented these
people, especially O-I-C Ruperto Reyes, who had custody of
the passbooks, to explain why unauthorized withdrawals were
made and why the instruction to apply petitioners' deposit to
their loan was not complied with.
The bank was indeed grossly negligent when it allowed the
sum of P220,000.00 to be withdrawn through falsified
withdrawal slips without petitioners' authority and knowledge
and its failure to comply with petitioners' instruction to apply
their deposits on their loan. In so doing, respondent bank
breached the trust that petitioners reposed on it.
We agree in the findings of the two courts below that the
unauthorized transactions were committed by one or some of
the employees of respondent bank for which it should be
liable. The evidence showed that respondent did not exercise
the degree of diligence it ought to have exercised in dealing
with its clients -- diligence higher than that of a good father of
a family. If only respondent exercised such diligence, no
anomaly or irregularity would have happened.
In the case of Philippine National Bank v. Pike,[14] we
discussed the degree of diligence imposed on banks as
follows:
With banks, the degree of diligence required, contrary to the
position of petitioner PNB, is more than that of a good father
of a family considering that the business of banking is imbued
with public interest due to the nature of their functions. The
stability of banks largely depends on the confidence of the
people in the honesty and efficiency of banks. Thus, the law
imposes on banks a high degree of obligation to treat the
accounts of its depositors with meticulous care, always having
in mind the fiduciary nature of banking. Section 2 of Republic
Act No. 8791, which took effect on 13 June 2000, makes a
categorical declaration that the State recognizes the 'fiduciary
nature of banking that requires high standards of integrity and
performance.

Though passed long after the unauthorized withdrawals in this
case, the aforequoted provision is a statutory affirmation of
Supreme Court decisions already in esse at the time of such
withdrawals. We elucidated in the 1990 case of Simex
International, Inc. v. Court of Appeals that 'the bank is under
obligation to treat the accounts of its depositors with
meticulous care, always having in mind the fiduciary nature of
their relationship.
Likewise, in the case of The Consolidated Bank and Trust
Corporation v. Court of Appeals, we clarified that said
fiduciary relationship means that the bank's obligation to
observe 'highest standards of integrity and performance is
deemed written into every deposit agreement between a bank
and its depositor. The fiduciary nature of banking requires
banks to assume a degree of diligence higher than that of a
good father of a family. Article 1172 of the New Civil Code
states that the degree of diligence required of an obligor is
that prescribed by law or contract, and absent such
stipulation then the diligence of a family. In every case, the
depositor expects the bank to treat his account with utmost
fidelity, whether such accounts consists only of a few hundred
pesos or of millions of pesos.
Settled is the rule that gross negligence of a bank in the
handling of its client's deposit amounts to bad faith that calls
for an award of moral damages. Moral damages are meant to
compensate the claimant for any physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation and similar
injuries unjustly caused.[15]
In the case at bar, the failure of the bank to prevent seven
unauthorized withdrawals from the deposits of petitioners and
its non-compliance with petitioners' instructions regarding the
loan payments constitute gross negligence which justifies the
award of moral damages. As employer, respondent is liable
for the negligence or misdeed of its employees which caused
petitioners to have sleepless nights thinking about the
threatened foreclosure of their house and lot. In addition, the
way respondent gave petitioners a hard time in securing
copies of their withdrawal slips and ledgers of their deposits is
an indication of bad faith. Respondent could have easily
cooperated with petitioners by immediately furnishing the
latter with documents they wanted. This was not to be.
Written communications from petitioners' lawyers and from
the Central Bank Governor were not sufficient in order that
respondent will provide petitioners with the documents they
needed. It was only after two agents of the CIS of the
Philippine Constabulary went to the bank that respondent was
obliged to give petitioners what they were asking for.
In culpa contractual or breach of contract, as in the case[16]
before us, moral damages are recoverable only if the
defendant has acted fraudulently or in bad faith,[17] or is
found guilty of gross negligence amounting to bad faith, or in
wanton disregard of his contractual obligations.[18]
In fine, the requisites on award of moral damages would
require, firstly, evidence of besmirched reputation or physical,
mental or psychological suffering sustained by the claimant;
secondly, a culpable act or omission factually established;
thirdly, proof that the wrongful act or omission of the
defendant is the proximate cause of the damages sustained
by the claimant; and fourthly, that the case is predicated on
any of 'the instances expressed or envisioned by Article
2219[19] and Article 2220 of the Civil Code.[20]
All these elements are present in the instant case.
There is no hard-and-fast rule in the determination of what
would be a fair amount of moral damages since each case
must be governed by its own peculiar facts. The yardstick
should be that it is not palpably and scandalously excessive.
[21] We find the sum of P300,000.00 awarded by the lower
courts excessive. In our view, the award of P100,000.00 as
moral damages is reasonable and is in accord with our rulings
in similar cases involving banks' negligence with regard to the
accounts of their depositors.[22]
Anent the removal by the Court of Appeals of the award of
exemplary damages, we find the same to be not in order.
The law allows the grant of exemplary damages to set an
example for the public good.[23] The banking system has
become an indispensable institution in the modern world and
plays a vital role in the economic life of every civilized society.
Whether as mere passive entities for the safe-keeping and
saving of money or as active instruments of business and
commerce, banks have attained a ubiquitous presence among
the people, who have come to regard them with respect and
even gratitude and most of all, confidence.[24] For this
reason, banks should guard against injury attributable to
negligence or bad faith on its part.[25] The award of
exemplary damages is warranted by the failure of respondent
bank to prevent the unauthorized withdrawals from
petitioners' deposits and its failure to properly apply the
latter's deposits to their loan. We, however, find the
P300,000.00 awarded by the lower court to be excessive and
should accordingly be reduced to P50,000.00.
On the matter of attorney's fees and expenses of litigation, it
is settled that the reasons or grounds for the award thereof
must be set forth in the decision of the court.[26] An award of
attorney's fees, being an exception from the policy of not
putting a premium or a penalty on the right to litigate, has
since been limited to the grounds specified by law.[27] Article
2208[28] of the Civil Code enumerates the instances where
attorney's fees and expenses of litigation can be recovered.
In the case at bar, the RTC clearly stated in its decision that
petitioners are entitled to attorney's fees and litigation
expenses because they were compelled to litigate in order to
protect their interest. We agree. Moreover, there being an
award for exemplary damages, it follows that there should be
an award of attorney's fees and litigation expenses. However,
the awards of P50,000.00 for attorney's fees and P50,000.00
for litigation expenses by the RTC are too much, while the
award of P30,000.00 of the Court of Appeals for both is too
small. In as much as this case has been pending for more than
twenty (20) years, the award of P25,000.00 for each will be
sufficient.
Petitioners claim that the Court of Appeals erred in deleting
the portions of the RTC decision declaring their mortgage loan
paid and enjoining foreclosure. They insist that they were able
to prove that the amounts of P30,000.00 and P118,000.00
were respectively withdrawn from their accounts' (SA No.
38470-29 and No. 12241-16) and that same were not applied
as payment for their loan. They maintain that by adding
together said amounts, the sum thereof is sufficient to pay
their loan and to consider the real estate mortgage as
discharged.
Looking at the complaint filed by petitioners, there is no
allegation that said amounts were withdrawn from their
accounts and that same were not applied as payments for
their loan. Petitioners likewise did not ask in their prayer that
said amounts be returned to them or that they be used to off-
set their indebtedness to respondent. Moreover, when
petitioners tried to prove this allegation, counsel for
respondent objected[29] and attempted to have the
testimony thereon stricken off the record on the ground of
allegata et probata.[30]
Under Section 5, Rule 10 of the Revised Rules of Court,[31] if
evidence is objected to at the trial on the ground that it is not
within the issues made by the pleadings, the Court may allow
the pleadings to be amended freely when the presentation of
the merits of the action will be subserved thereby and the
admission of such evidence would not prejudice the objecting
party in maintaining his action or defense upon the merit.
Said section reads:

Sec. 5. Amendment to conform to or authorize presentation of

evidence. ' When issues not raised by the pleadings are tried
by express or implied consent of the parties, they shall be
treated in all respects, as if they had been raised in the
pleadings. Such amendment of the pleadings as may be
necessary to cause them to conform to the evidence and to
raise these issues may be made upon motion of any party at
any time, even after judgment but failure to amend does not
affect the result of the trial of these issues. If evidence is
objected to at the trial on the ground that it is not within the
issues made by the pleadings, the court may allow the
pleadings to be amended and shall do so freely when
presentation of the merits of the action will be subserved
thereby and the objecting party fails to satisfy the court that
the admission of such evidence would prejudice him in
maintaining his action or defense upon the merits. The court
may grant a continuance to enable the objecting party to
meet such evidence.

It is thus clear that when there is an objection on the evidence

presented because it is not within the issues made by the
pleadings, an amendment must be made before accepting
such evidence. If no amendment is made, the evidence
objected to cannot be considered. In the case before us, the
trial court, there being an objection on the evidence being
presented by respondent, failed to order the amendment of
the complaint. Thus, we are constrained not to consider
evidence regarding the P30,000.00 and P118,000.00 allegedly
withdrawn from their accounts. With this ruling, it follows that
the outstanding loan of petitioners in the amount of
P58,297.16 remains unpaid.

As regards respondent's right to exercise its right to

foreclosure of the real estate mortgage on petitioners'
property, we rule that respondent cannot exercise such right
under the circumstances obtaining. It will be the height of
inequity if we allow such a thing. The evidence is clear that
the sum of P220,000.00 was withdrawn from petitioners'
deposits without their knowledge and authority. This amount
is more than sufficient to pay for the loan had it not been
illegally withdrawn. Neither should petitioners be held liable
for any interest on the remaining balance of the loan
considering that they could have easily settled their obligation
with respondent if they were not embroiled in the anomaly
caused by respondent's employees. Finally, payment for the
remaining balance of the loan amounting to P58,297.16
should be deducted from the actual damages awarded by the
court.

WHEREFORE, premises considered, the petition is PARTIALLY

GRANTED. The 25 March 2002 decision of the Court of
Appeals modifying the decision of the Regional Trial Court of
Olongapo City is AFFIRMED with MODIFICATIONS. As modified,
respondent Planters Development Bank is ordered to pay
petitioners the following: (1) P220,000.00 as actual damages
representing the total amount withdrawn from petitioners'
accounts plus interest of 6% per annum to be computed from
the date of the filing of the complaint which interest rate shall
become 12% per annum from the time of finality of this
judgment until actual payment; (2) P100,000.00 as moral
damages; (3) P50,000.00 as exemplary damages; and (4)
P25,000.00 as attorney's fees and P25,000.00 for litigation
expenses. Respondent is enjoined from foreclosing the real
estate mortgage on petitioners' property located at No. 88
Gordon Avenue, Pag-asa, Olongapo City. Payment for the
outstanding loan of petitioners in the amount of P58,297.16
shall be deducted from the damages awarded by the Court.

SO ORDERED.