[G.R. No. L-6622. July 31, 1957.

Intestate Estate of the deceased MARCELO DE BORJA. CRISANTO DE BORJA,

administrator-appellant, v. JUAN DE BORJA, ET AL., Oppositors-Appellees. 

E. V. Filamor for Appellant. 

Juan de Borja for himself and co-appellees.

SYLLABUS

1. PLEADING AND PRACTICE; NATURE OF COUNTERCLAIM. — A counterclaim is a

relief available to a party-defendant against the adverse party which may or may not
be independent from the main issue. 

2. ID.; PARTIES; COUNSEL FOR A PARTY SHOULD NOT BE INCLUDED AS

DEFENDANT IN COUNTERCLAIM. — The appearance of a lawyer as Counsel for a
party and his participation in a case as such counsel does not make him a party to
the action. The fact that he represents the interests of his client or that he acts in
their behalf will not hold him liable for or make him entitled to any award that the
Court may adjudicate to the parties, other than his professional fees. The principle
that a counterclaim cannot be filed against persons who are acting in representation
of another such as trustees in their individual capacities (Chambers v. Cameron 2
Fed. Rules Service 155; 29 of Supp. 742), could be applied with more force and
effect in the case of a counsel whose participation in the action is merely confined to
the preparation of the defense of the client. 

3. COURTS; JURISDICTION OF PROBATE COURT LIMITED AND SPECIAL. — In taking

cognizance of a special proceedings for the purpose of settling the estate of a
deceased person, the Court of First Instance in its capacity as a probate Court is
clothed with a limited jurisdiction which cannot expand to Collateral matters not
arising out of or in anyway related to the settlement and adjudication of the
properties of the deceased for it is a settled rule that the jurisdiction of a probate
Court is limited and special. Although there is a tendency now to relax this rule and
extend the jurisdiction of the probate Court in respect to matters incidental and
collateral to the exercise of its recognized powers, this should be understood to
comprehend only cases related to those powers specifically allowed by the statutes. 

4. DAMAGES; COUNTERCLAIM; TESTATE OF INTESTATE PROCEEDINGS: MORAL

DAMAGES IS EXTRANEOUS MATTER — From whatever angle it may be looked at, a
counterclaim for moral damages demanded by an administrator against the heirs for
alleged utterances, pleadings and actuations made in the course of a proceeding, is
an extraneous matter in a testate or intestate proceedings. The injection into the
action of incidental questions entirely foreign in probate proceedings should not be
encouraged for to do otherwise would run counter to the clear intention of the law. 

5. EXECUTOR AND ADMINISTRATORS; ACTS CF ADMINISTRATOR CONSIDERED

MALADMINISTRATION; ACCOUNTABILITY FOR LOSS OR DAMAGE. — Where the
records are replete with instances of highly irregular practices of the administrator
such as the pretended ignorance of the necessity of a book or ledger or at least a list
of chronological and dated entries of money or produce the intestate acquired and
the amount of disbursement made for the same properties; that admittedly the
administrator did not have even a list of the names of the lessees of the properties
under his administration, nor even a list of those who owed back rentals, and mixing
the funds of the estate under his administration with his personal funds instead of
keeping a current account for the Intestate in his capacity as administrator, in such
instances the probate Court is justified in finding him guilty of acts of
maladministration and in holding him accountable for loss or damage to Intestate.

DECISION

FELIX, J.:

The case. — Quintin, Francisco, Crisanta and Juliana, all surnamed de Borja, are the
legitimate children of Marcelo de Borja, who, upon his demise sometime in 1924 or
1925, left a considerable amount of property. Intestate proceedings must have
followed, and the pre-war records of the case either burned, lost or destroyed during
the last war, because the record shows that in 1930 Quintin de Borja was already the
administrator of the Intestate Estate of Marcelo de Borja. 

In the early part of 1938, Quintin de Borja died and Crisanto de Borja, son of
Francisco de Borja, was appointed and took over as administrator of the Estate.
Francisco de Borja, on the other hand, assumed his duties as executor of the will of
Quintin de Borja, but upon petition of the heirs of said deceased on the ground that
his interests were conflicting with that of his brother’s estate, he was later required
by the Court to resign as such executor and was succeeded by Rogelio Limaco, a
son-in-law of Quintin de Borja. 

It also appears that on February 16, 1940, at the hearing set for the approval of the
statement of accounts of the late administrator of the Intestate Estate of Marcelo de
Borja, then being opposed by Francisco de Borja, the parties submitted an
agreement, which was approved by the Court (Exh. A). Said agreement, translated
into English, reads as follows:chanrob1es virtual 1aw library

1. All the accounts submitted and those that are to be submitted corresponding to
this year will be considered approved;

2. No heir shall claim anything of the harvests from the lands in Cainta that came
from Exequiel Ampil, deceased, nor from the land in Tabuatin, Nueva Ecija;

3. That the amounts of money taken by each heir shall be considered as deposited in
conjunction with the other properties of the Intestate and shall form part of the mass
without drawing any interest;

4. That it shall be understood as included in this mass the sum of twelve thousand
pesos (P12,000) that the sisters Crisanta and Juliana de Borja paid of their own
money as part of the price of the lands in Cainta and three thousand pesos (P3,000)
the price of the machinery for irrigation;

5. The right, interests or participation that the deceased Quintin de Borja has or may
have in Civil Case No. 6190 of the Court of First Instance of Nueva Ecija, shall be
likewise included in the total mass of the inheritance of the Intestate;

6. Not only the lands in Tabuatin but also those in Cainta coming from the now
deceased Exequiel Ampil shall also form part of the total mass of the inheritance of
the Intestate of the late Marcelo de Borja;

7. Once the total of the inheritance of the Intestate is made up as specified before in
this Agreement, partition thereof will be made as follows:chanrob1es virtual 1aw
library
From the total mass shall be deducted in case or in kind, Twelve Thousand Pesos
(P12,000) that shall be delivered to Da. Juliana de Borja and Da. Crisanta de Borja in
equal shares, and the rest shall be divided among the four heirs, i.e., Don Francisco
de Borja, the heirs of Quintin de Borja, Da. Juliana de Borja and Da. Crisanta de
Borja, in equal parts. (TRANSLATION)

The Intestate remained under the administration of Crisanto de Borja until the
outbreak of the war. From then on and until the termination of the war, there was a
lull and state of inaction in Special Proceeding No. 2414 of the Court of First Instance
of Rizal, Pasig branch (In the Matter of the Intestate Estate of Marcelo de Borja),
until upon petition filed by Miguel B. Dayco, as administrator of the estate of his
deceased mother, Crisanta de Borja, who is one of the heirs, for the reconstitution of
the records of this case, the Court on December 11, 1945, ordered the reconstitution
of the same, requiring the administrator to submit his report and a copy of the
project of partition. 

On January 3, 1946, the administrator, Dr. Crisanto de Borja, filed his accounts for
the period ranging from March 1 to December 22, 1945, which according to the heirs
of Quintin de Borja were so inadequate and general that on February 28, 1946, they
filed a motion for specification. On April 30, 1946, they also filed their opposition to
said statement of accounts alleging that the income reported in said statement was
very much less than the true and actual income of the estate and that the expenses
appearing therein were exaggerated and/or not actually incurred, and prayed that
the statement of accounts submitted by the administrator be disapproved. 

The administrator later filed another report of his administration, dated August 9,
1949, corresponding to the period lapsed from December 23, 1945, to July 31, 1949,
showing a cash balance of P71.96, but with pending obligation amounting to
P35,415. 

On August 22, 1949, Juan de Borja and sisters, heirs of the deceased Quintin de
Borja, filed their opposition to the statement of accounts filed by the administrator
on the ground that same was not detailed enough to enable the interested parties to
verify the same; that they cannot understand why the Intestate could suffer any loss
considering that during the administration of the same by the late Quintin de Borja,
the Estate accumulated gains of more than P100,000 in the form of advances to the
heirs as well as cash balance; that they desired to examine the accounts of Dr.
Crisanto de Borja to verify the loss and therefore prayed that the administrator be
ordered to deposit with the Clerk of Court all books, receipts, accounts and other
papers pertaining to the Estate of Marcelo de Borja. This motion was answered by
the administrator contending that the Report referred to was already clear and
enough, the income as well as the expenditures being specified therein; that he had
to spend for the repairs of the properties of the Estate damaged during the Japanese
occupation; that the allegation that during the administration of Quintin de Borja the
Estate realized a profit of P100,000 was not true, because instead of gain there was
even a shortage in the funds although said administrator had collected all his fees
(honorarios) and commissions corresponding to the entire period of his incumbency;
that the obligations mentioned in said Report will be liquidated before the
termination of the proceedings in the same manner as it is done in any other
intestate case; that he was willing to submit all the receipts of the accounts for the
examination of the interested parties before the Clerk or before the Court itself; that
this Intestate could be terminated, the project of partition having been allowed and
confirmed by the Supreme Court and that the Administrator was also desirous of
terminating it definitely for the benefit of all the parties. 

On September 14, 1949, the administrator filed another statement of accounts

covering the period of from March 1, 1945, to July 31, 1949, which showed a cash
balance of P71.95, with pending obligations in the sum of P35,810. 

The heirs of Quintin de Borja, Juan de Borja and his sisters, registered their
opposition to said statement of accounts and prayed the Court to disapprove the
same and to appoint an accountant to go over the books of the administrator and to
submit a report thereon as soon as possible. The heir Juliana de Borja also formally
offered her objection to the approval of the accounts submitted by the administrator
and prayed further that said administrator be required to submit a complete
accounting of his administration of the Estate from 1937 to 1949. On the other hand,
Francisco de Borja and Miguel B. Dayco, as the only heir of the deceased Crisanta de
Borja, submitted to the Court an agreement to relieve the administrator from
accounting for the period of the Japanese occupation; that as to the accounting from
1937 to 1941, they affirmed their conformity with the agreement entered into by all
the heirs appearing in the Bill of Exceptions of Juliana de Borja; and that they have
no objection to the approval of the statement of accounts submitted by the
administrator covering the years 1945 to 1949. 

On December 6, 1949, the administrator, answered the opposition of the heir Juliana
de Borja, alleging that the corresponding statement of accounts for the years 1937,
1938, 1939, 1940 and 1941 were presented and approved by the Court before and
during the Japanese occupation, but the records of the same were destroyed in the
Office of the Clerk of that Court during the liberation of the province of Rizal, and his
personal records were also lost during the Japanese occupation, when his house was
burned; that Judge Peña who was presiding over the Court in 1945 impliedly denied
the petition of the heirs to require him to render an accounting for the period from
1942 to the early part of 1945, for the reason that whatever money obtained from
the Estate during said period could not be made the subject of any adjudication it
having been declared fiat money and without value, and ordered that the statement
of accounts be presented only for the period starting from March 1, 1945. The
administrator further stated that he was anxious to terminate this administration but
some of the heirs had not yet complied with the conditions imposed in the project of
partition which was approved by the Supreme Court; that in accordance with said
partition agreement, Juliana de Borja must deliver to the administrator all the
jewelry, objects of value, utensils and other personal belongings of the deceased
spouses Marcelo de Borja and Tarcila Quiogue, which said heir had kept and
continued to retain in her possession; that the heirs of Quintin de Borja should
deliver to the administrator all the lands and a document transferring in favor of the
Intestate the two parcels of land with a total area of 71 hectares of cultivated land in
Cabanatuan, Nueva Ecija which were in the possession of said heirs, together with
the house of Feliciana Mariano Vda. de Sarangaya, which were the objects of Civil
Case No. 6190 mentioned in Paragraph 11 of the project of partition; that as a
consequence of the said dispossession, the heirs of Quintin de Borja must deliver to
the administrator the products of the 71 hectares of land in Cabanatuan, Nueva
Ecija, and the rentals of the house of Feliciana Mariano or else render to the Court an
accounting of the products of these properties from the time they took possession of
the same in 1937 to the present; that there was a pending obligation amounting to
P36,000 as of September 14, 1949, which the heirs should pay before the properties
adjudicated to them would be delivered. The Court, however, ordered the
administrator on December 10, 1949, to show and prove by evidence why he should
not be required to include in his accounts the proceeds of his administration from
1937. 

Meantime, Juliana de Borja filed a Constancia denying possession of any jewelry

belonging to the deceased spouses Marcelo de Borja and Tarcila Quiogue or any
other persona] belonging of said spouses, and signified her willingness to turn over
to the administrator the silverwares mentioned in Paragraph III of the project of
partition, which were the only property in her care, on the date that she would
expect the delivery to her of her share in the inheritance from her deceased parents. 
On July 6, 1950, Juan de Borja and his sisters Marcela, Saturnina, Eufracia, Jacoba
and Olimpia, all surnamed de Borja, as heirs of Quintin de Borja, filed a motion for
the delivery to them of their inheritance in the estate, tendering to the administrator
a document ceding and transferring to the latter all the rights, interests and
participation of Quintin de Borja in Civil Case No. 7190 of the Court of First Instance
of Nueva Ecija, pursuant to the provisions of the Project of Partition, and expressing
their willingness to put up a bond if required to do so by the Court, and on July 18,
1950, the Court ordered the administrator to deliver to Marcela, Juan, Saturnina,
Eufracia, Jacoba and Olimpia, all surnamed de Borja, all the properties adjudicated to
them in the Project of Partition dated February 8, 1944, upon the latter’s filing a
bond in the sum of P10,000 conditioned upon the payment of such obligation as may
be ordered by the Court after a hearing on the controverted accounts of the
administrator. The Court considered the fact that the heirs had complied with the
requirement imposed by the Project of Partition when they tendered the document
ceding and transferring the rights and interests of Quintin de Borja in the
aforementioned lands and expressed the necessity of terminating the proceedings as
soon as practicable, observing that the Estate had been under administration for
over twenty-five years already. The Court, however, deferred action on the petition
filed by the special administratrix of the Intestate Estate of Juliana de Borja until
after compliance with the conditions imposed by the project of partition. But on July
20, 1950, apparently before the properties were delivered to the heirs, Francisco de
Borja and Miguel B. Dayco filed a motion informing the Court that the two parcels of
land located in Cabanatuan, Nueva Ecija, produced some 21,300 cavans of palay,
amounting to P213,000 at P10 per cavan, which were enjoyed by some heirs; that
the administrator Crisanto de Borja had not taken possession of the same for
circumstances beyond his control; and that there also existed the sum of P70,204
which the former administrator, Quintin de Borja, received from properties that were
redeemed, but which amount did not come into the hands of the present
administrator because according to reliable information, same was delivered to the
heir Juliana de Borja who deposited it in her name at the Philippine National Bank. It
was, therefore prayed that the administrator be required to exert the necessary
effort to ascertain the identity of the person or persons who were in possession of
the same amount and of the value of the products of the lands in Mayapyap,
Cabanatuan, Nueva Ecija, and to recover the same for the Intestate Estate. 

On July 28, 1950, the special administratrix of the estate of Juliana de Borja, then
deceased, filed an answer to the motion of these two heirs, denying the allegation
that said heir received any product of the lands mentioned from Quintin de Borja,
and informed the Court that the Mayapyap property had always been in the
possession of Francisco de Borja himself and prayed the Court that the administrator
be instructed to demand all the fruits and products of said property from Francisco
de Borja. 

On July 28, 1950, the heirs of Quintin de Borja also filed their opposition to the said
motion of Francisco de Borja and Miguel B. Dayco on the ground that the petition
was superfluous because the present proceeding was only for the approval of the
statement of accounts filed by the administrator; that said motion was improper
because it was asking the Court to order the administrator to perform what he was
duty bound to do; and that said heirs were already barred or estopped from raising
that question in view of their absolute ratification of and assent to the statement of
accounts submitted by the administrator. 

On August 16, 1950, by order of the Court, the properties adjudicated to Juliana de
Borja in the Project of Partition were finally delivered to the estate of said heir upon
the filing of a bond for P20,000. In that same order, the Court denied the
administrator’s motion to reconsider the order of July 18, 1950, requiring him to
deliver to the heirs of Quintin de Borja the properties corresponding to them, on the
ground that there existed no sufficient reason to disturb said order. It also ruled that
as the petition of Francisco de Borja and Miguel B. Dayco made mention of certain
properties allegedly belonging to the Intestate, said petition should properly be
considered together with the final accounts of the administrator. 

The administrator raised the matter by certiorari to this Tribunal, which was
docketed as G. R. No. L-4179, and on May 30, 1951, We rendered decision affirming
the order complained of, finding that the heirs Juan de Borja and sisters have
complied with the requirement imposed in the Project of Partition upon the tender of
the document of cession of rights and quit-claim executed by Marcela de Borja, the
administratrix of the Estate of Quintin de Borja, and holding that the reasons
advanced by the administrator in opposing the execution of the order of delivery
were trivial. 

On August 27, 1951, the administrator filed his amended statement of accounts
covering the period from March 1, 1945, to July 31, 1949, which showed a cash
balance of P36,660. An additional statement of accounts filed on August 31, 1951 for
the period of from August 1, 1949, to August 31, 1951, showed a cash balance of
P5,851.17 and pending obligations in the amount of P6,165.03. 

The heirs of Quintin de Borja again opposed the approval of these statements of
accounts charging the administrator with having failed to include the fruits which the
estate should have accrued from 1941 to 1951 amounting to P479,429.70, but as
the other heirs seemed satisfied with the accounts presented by said administrator
and as their group was only one of the 4 heirs of Intestate Estate, they prayed that
the administrator be held liable for only P119,932.42 which was 1/4 of the amount
alleged to have been omitted. On October 4, 1951, the administrator filed a reply to
said opposition containing a counterclaim for moral damages against all the heirs of
Quintin de de Borja in the sum of P30,000 which was admitted by the Court over the
objection of the heirs of Quintin de Borja that the said pleading was filed out of
time. 

The oppositors, the heirs of Quintin de Borja, then filed their answer to the
counterclaim denying the charges therein, but later served interrogatories on the
administrator relative to the averments of said counterclaim. Upon receipt of the
answer to said interrogatories specifying the acts upon which the claim for moral
damages was based, the oppositors filed an amended answer contending that
inasmuch as the acts, manifestations and pleadings referred to therein were
admittedly committed and prepared by their lawyer, Atty. Amador E. Gomez, same
cannot be made the basis of a counterclaim, said lawyer not being a party to the
action, and furthermore, as the acts upon which the claim for moral damages were
based had been committed prior to the effectivity of the new Civil Code, the
provisions of said Code on moral damages could not be invoked. On January 15,
1952, the administrator filed an amended counterclaim including the counsel for the
oppositors as defendant. 

There followed a momentary respite in the proceedings until another judge was
assigned to preside over said court to dispose of the old cases pending therein. On
August 15, 1952, Judge Encarnacion issued an order denying admission to
administrator’s amended counterclaim directed against the lawyer, Atty. Amador E.
Gomez, holding that a lawyer, not being a party to the action, cannot be made
answerable for counterclaims. Another order was also issued on the same date
dismissing the administrator’s counterclaim for moral damages against the heirs of
Quintin de Borja and their counsel for the alleged defamatory acts, manifestations
and utterances, and stating that granting the same to be meritorious, yet it was a
strictly private controversy between said heirs and the administrator which would not
in any way affect the interest of the Intestate, and, therefore, not proper in an
intestate proceedings. The Court stressed that to allow the ventilation of such
personal controversies would further delay the proceedings in the case which had
already lagged for almost 30 years, a situation which the Court would not
countenance. 

Having disposed of these pending incidents which arose out of the principal issue,
that is, the disputed statement of accounts submitted by the administrator, the Court
rendered judgment on September 5, 1952, ordering the administrator to distribute
the funds in his possession to the heirs as follows: P1,395.90 to the heirs of Quintin
de Borja; P314.99 to Francisco de Borja; P314.99 to the Estate of Juliana de Borja
and P314.99 to Miguel B. Dayco, but as the latter still owed the intestate the sum of
P900, said heirs was ordered to pay instead the 3 others the sum of P146.05 each.
After considering the testimonies of the witnesses presented by both parties and the
available records on hand, the Court found the administrator guilty of
maladministration and sentenced Crisanto de Borja to pay to the oppositors, the
heirs of Quintin de Borja, the sum of P83,337.31, which was 1/4 of the amount
which the estate lost, with legal interest from the date of the judgment. On the same
day, the Court also issued an order requiring the administrator to deliver to the Clerk
of that Court PNB Certificate of Deposit No. 211649 for P978.50 which was issued in
the name of Quintin de Borja. 

The administrator, Dr. Crisanto de Borja, gave notice to appeal from the lower
Court’s orders of August 15, 1952, the decision of September 5, 1952, and the order
of even date, but when the Record on Appeal was finally approved, the Court
ordered the exclusion of the appeal from the order of September 5, 1952, requiring
the administrator to deposit the PNB Certificate of Deposit No. 211649 with the Clerk
of Court, after the oppositors had shown that during the hearing of that incident, the
parties agreed to abide by whatever resolution the Court would make on the
ownership of the funds covered by that deposit. 

The issues. — Reducing the issues to bare essentials, the questions left for our
determination are: (1) whether the counsel for a party in a case may be included as
a defendant in a counterclaim; (2) whether a claim for moral damages may be
entertained in a proceeding for the settlement of an estate; (3) what may be
considered as acts of maladministration and whether an administrator, as the one in
the case at bar, may be held accountable for any loss or damage that the estate
under his administration may incur by reason of his negligence, bad faith or acts of
maladministration; and (4) in the case at bar has the Intestate or any of the heirs
suffered any loss or damage by reason of the administrator’s negligence, bad faith or
maladministration? If so, what is the amount of such loss or damage?

I. — Section 1, Rule 10, of the Rules of Court defines a counterclaim as:

SECTION 1. Counterclaim Defined. — A counterclaim is any claim, whether for

money or otherwise, which a party may have against the opposing party. A
counterclaim need not diminish or defeat the recovery sought by the opposing party,
but may claim relief exceeding in amount or different in kind from that sought by the
opposing party’s claim. 

It is an elementary rule of procedure that a counterclaim is a relief available to a

party-defendant against the adverse party which may or may not be independent
from the main issue. There is no controversy in the case at bar, that the acts,
manifestations and actuations alleged to be defamatory and upon which the
counterclaim was based were done or prepared by counsel for oppositors; and the
administrator contends that as the very oppositors manifested that whatever civil
liability arising from acts, actuations, pleadings and manifestations attributable to
their lawyer is enforceable against said lawyer, the amended counterclaim was filed
against the latter not in his individual or personal capacity but as counsel for the
oppositors. It is his stand, therefore, that the lower court erred in denying admission
to said pleading. We differ from the view taken by the administrator. The appearance
of a lawyer as counsel for a party and his participation in a case as such counsel
does not make him a party to the action. The fact that he represents the interests of
his client or that he acts in their behalf will not hold him liable for or make him
entitled to any award that the Court may adjudicate to the parties, other than his
professional fees. The principle that a counterclaim cannot be filed against persons
who are acting in representation of another — such as trustees — in their individual
capacities (Chambers v. Cameron, 2 Fed. Rules Service, p. 155; 29 F. Supp. 742)
could be applied with more force and effect in the case of a counsel whose
participation in the action is merely confined to the preparation of the defense of his
client. Appellant, however, asserted that he filed the counterclaim against said
lawyer not in his individual capacity but as counsel for the heirs of Quintin de Borja.
But as we have already stated that the existence of a lawyer-client relationship does
not make the former a party to the action, even this allegation of appellant will not
alter the result We have arrived at. 

Granting that the lawyer really employed intemperate language in the course of the
hearings or in the preparation of the pleadings filed in connection with this case, the
remedy against said counsel would be to have him cited for contempt of court or
take other administrative measures that may be proper in the case, but certainly not
a counterclaim for moral damages. 

II. — Special Proceedings No. 6414 of the Court of First Instance of Rizal (Pasig
branch) was instituted for the purpose of settling the Intestate Estate of Marcelo de
Borja. In taking cognizance of the case, the Court was clothed with a limited
jurisdiction which cannot expand to collateral matters not arising out of or in any
way related to the settlement and adjudication of the properties of the deceased, for
it is a settled rule that the jurisdiction of a probate court is limited and special
(Guzman v. Anog, 37 Phil. 361). Although there is a tendency now to relax this rule
and extend the jurisdiction of the probate court in respect to matters incidental and
collateral to the exercise of its recognized powers (14 Am. Jur. 251-252), this should
be understood to comprehend only cases related to those powers specifically allowed
by the statutes. For it was even said that:

"Probate proceedings are purely statutory and their functions limited to the control of
the property upon the death of its owner, and cannot extend to the adjudication of
collateral questions" (Woesmes, The American Law of Administration, Vol. I, p. 514,
662- 663). 

It was in the acknowledgment of its limited jurisdiction that the lower court
dismissed the administrator’s counterclaim for moral damages against the
oppositors, particularly against Marcela de Borja who allegedly uttered derogatory
remarks intended to cast dishonor to said administrator sometime in 1950 or 1951,
his Honor’s ground being that the court exercising limited jurisdiction cannot
entertain claims of this kind which should properly belong to a court of general
jurisdiction. From whatever angle it may be looked at, a counterclaim for moral
damages demanded by an administrator against the heirs for alleged utterances,
pleadings and actuations made in the course of the proceeding, is an extraneous
matter in a testate or intestate proceedings. The injection into the action of
incidental questions entirely foreign in probate proceedings should not be
encouraged for to do otherwise would run counter to the clear intention of the law,
for it was held that:

"The speedy settlement of the estate of deceased persons for the benefit of the
creditors and those entitled to the residue by way of inheritance or legacy after the
debts and expenses of administration have been paid, is the ruling spirit of our
probate law" (Magbanua v. Akel, 72 Phil., 567, 40 Off. Gaz., 1871). 
III. and IV. — This appeal arose from the opposition of the heirs of Quintin de Borja
to the approval of the statements of accounts rendered by the administrator of the
Intestate Estate of Marcelo de Borja, on the ground that certain fruits which should
have accrued to the estate were unaccounted for, which charge the administrator
denied. After a protracted and extensive hearing on the matter, the Court, finding
the administrator, Dr. Crisanto de Borja, guilty of certain acts of maladministration,
held him liable for the payment to the oppositors, the heirs of Quintin de Borja, of
1/4 of the unreported income which the estate should have received. The evidence
presented in the court below bear out the following facts:

(a) The estate owns a 6-door building, Nos. 1541, 1543, 1545, 1547, 1549 and 1551
in Azcarraga Street, Manila, situated in front of the Arranque market. Of this
property, the administrator reported to have received for the estate the following
rentals:

Period of Time Total rentals Unnual

monthly rental

March to December, 1945 P3,085.00 P51.42

January to December, 1946 4,980.00 69.17

January to December, 1947 8,330.00 115.70

January to December, 1948 9,000.00 125.00

January to December, 1949 8,840.00 122.77

January to December, 1950 6,060.00 184.16

TOTAL P40,295.00

The oppositors, in disputing this reported income, presented at the witness stand
Lauro Aguila, a lawyer who occupied the basement of Door No. 1541 and the whole
of Door No. 1543 from 1945 to November 15, 1949, and who testified that he paid
rentals on said apartments as follows:

1945

Door No. 1541 (basement)

February P20.00 Door No. 1543

March 20.00 For 7 months at P300

April 60.00 a month P2,100.00

May-December 800.00

Total P900.00

1946
January-December P1,200.00 January-December P4,080.00

1947

January P100.00 January P380.00

February 100.00 February 380 00

March 180.00 March 1-15 190.00

April-December 1,440.00 March 16-December 4,085.00

1,820.00 P5,035.00

1948

January-December P1,920.00 January-December P5,150.00

1949

January-November 15 P1,680.00 January-December P4,315.00

From the testimony of said witness, it appears that from 1945 to November 15,
1949, he paid a total of P28,200 for the lease of Door No. 1543 and the basement of
Door No. 1541. These figures were not controverted or disputed by the administrator
but claimed that said tenant subleased the apartments occupied by Pedro Enriquez
and Soledad Sodora and paid the said rentals, not to the administrator, but to said
Enriquez. The transcript of the testimony of this witness really bolster this contention
- that Lauro Aguila talked with said Pedro Enriquez when he leased the
aforementioned apartments and admitted paying the rentals to the latter and not to
the administrator. It is interesting to note that Pedro Enriquez is the same person
who appeared to be the administrator’s collector, duly authorized to receive the
rentals from this Azcarraga property and for which services, said Enriquez received 5
per cent of the amount he might be able to collect as commission. If we are to
believe appellant’s contention, aside from the commission that Pedro Enriquez
received he also sublet the apartments he was occupying at a very much higher rate
than that he actually paid the estate without the knowledge of the administrator or
with his approval. As the administrator also seemed to possess that peculiar habit of
giving little importance to bookkeeping methods, for he never kept a ledger or book
of entry for amounts received for the estate, We find no record of the rentals the
lessees of the other doors were paying. It was, however, brought about at the
hearing that the 6 doors of this building are of the same sizes and construction and
the lower Court based its computation of the amount this property should have
earned for the estate on the rental paid by Atty. Aguila for the 1 1/2 doors that he
occupied. We see no excuse why the administrator could not have taken cognizance
of these rates and received the same for the benefit of the estate he was
administering, considering the fact that he used to make trips to Manila usually once
a month and for which he charged to the estate P8 as transportation expenses for
every trip. 

Basing on the rentals paid by Atty. Aguila for 1 1/2 doors, the estate would have
received P112,800 from February 1, 1945, to November 15, 1949, for the 6 doors,
but the lower Court held him accountable not only for the sum of P34,235 reported
for the period ranging from March 1, 1945, to December 31, 1949, but also for a
deficit of P90,525 or a total of P124,760. The record shows, however that the upper
floor of Door No. 1549 was vacant in September, 1949, and as Atty. Aguila used to
pay P390 a month for the use of an entire apartment from September to November,
1949, and he also paid P160 for the use of the basement of an apartment (Door No.
1541), the use, therefore, of said upper floor would cost P230 which should be
deducted, even if the computation of the lower Court would have to be followed. 

There being no proper evidence to show that the administrator collected more
rentals than those reported by him, except in the instance already mentioned, We
are reluctant to hold him accountable in the amount for which he was held liable by
the lower Court, and We think that under the circumstances it would be more just to
add to the sum reported by the administrator as received by him as rents for 1945-
1949 only, the difference between the sum reported as paid by Atty. Aguila and the
sum actually paid by the latter as rents of 1 1/2 of the apartments during the said
period, or P25,457.09 1/4 of which is P6,364.27 which shall be paid to the
oppositors. 

The record also shows that in July, 1950, the administrator delivered to the other
heirs Doors Nos. 1545, 1547, 1549 and 1551 although Doors Nos. 1541 and 1543
adjudicated to the oppositors remained under his administration. For the period from
January to June, 1950, that the entire property was still administered by him, the
administrator reported to have received for the 2 oppositors’ apartments for said
period of six months at P168.33 a month, the sum of P1,010 which belongs to the
oppositors and should be taken from the amount reported by the administrator. 

The lower Court computed at P40 a month the pre-war rental admittedly received for
every apartment, the income that said property would have earned from 1941 to
1944, or a total of P11,520, but as We have to exclude the period covered by the
Japanese occupation, the estate should receive only P2,880 1/4 of which P720 the
administrator should pay to the oppositors for the year 1941. 

(b) The Intestate estate also owned a parcel of land in Mayapyap, Nueva Ecija, with
an area of 71 hectares, 95 ares and 4 centares, acquired by Quintin de Borja from
the spouses Cornelio Sarangaya and Feliciana Mariano in Civil Case No. 6190 of the
Court of First Instance of said province. In virtue of the agreement entered into by
the heirs, this property was turned over by the estate of Quintin de Borja to the
intestate and formed part of the general mass of said estate. The report of the
administrator failed to disclose any return from this property alleging that he had not
taken possession of the same. He does not deny however that he knew of the
existence of this land but claimed that when he demanded the delivery of the
Certificate of Title covering this property, Rogelio Limaco, then administrator of the
estate of Quintin de Borja, refused to surrender the same and he did not take any
further action to recover the same. 

To counteract the insinuation that the Estate of Quintin de Borja was in possession of
this property from 1940 to 1950, the oppositors presented several witnesses, among
them was an old man, Narciso Punzal, who testified that he knew both Quintin and
Francisco de Borja; that before the war or sometime in 1937, the former
administrator of the Intestate, Quintin de Borja, offered him the position of overseer
(encargado) of this land but he was not able to assume the same due to the death of
said administrator; that on July 7, 1951, herein appellant invited him to go to his
house in Pateros, Rizal, and while in said house, he was instructed by appellant to
testify in court next day that he was the overseer of the Mayapyap property for
Quintin de Borja from 1937-1944, delivering the yearly proceeds of 1,000 cavanes of
palay to Rogelio Limaco; that he did not need to be afraid because both Quintin de
Borja and Rogelio Limaco were already dead. But as he knew that the facts on which
he was to testify were false, he went instead to the house of one of the daughters of
Quintin de Borja, who, together with her brother, Atty. Juan de Borja, accompanied
him to the house of the counsel for said oppositors before whom his sworn
declaration was taken (Exh. 3). 
Other witnesses, i.e., Isidro Benuya, Federico Cojo, Emilio de la Cruz and Ernesto
Mangulabnan, testified that they were some of the tenants of the Mayapyap
property; that they were paying their shares to the overseers of Francisco de Borja
and sometimes to his wife, which the administrator was not able to contradict, and
the lower Court found no reason why the administrator would fail to take possession
of this property considering that this was even the subject of the agreement of
February 16, 1940, executed by the heirs of the Intestate. 

The lower Court, giving due credence to the testimonies of the witnesses for the
oppositors, computed the loss the estate suffered in the form of unreported income
from the rice lands for 10 years at P67,000 (6,700 a year) and the amount of P4,000
from the remaining portion of the land not devoted to rice cultivation which was
being leased at P20 per hectare. Consequently, the Court held the administrator
liable to appellees in the sum of P17,750 which is 1/4, of the total amount which
should have accrued to the estate for this item. 

But if We exclude the 3 years of occupation, the income for 7 years would be
P46,900 for the ricelands and P2,800 (at P400 a year) for the remaining portion not
devoted to rice cultivation or a total of P48,700, 1/4 of which is P12,175 which We
hold the administrator liable to the oppositors. 

(c) The Hacienda Jalajala located in said town of Rizal, was divided into 3 parts: the
Punta section belonged to Marcelo de Borja, the Bagombong pertained to Bernardo
de Borja and Francisco de Borja got the Jalajala proper. For the purpose of this case,
we will just deal with that part called Junta. This property has an area of 1,345,
hectares, 29 ares and 2 centares (Exh. 36) of which, according to the surveyor who
measured the same, 200 hectares were of cultivated rice fields and 100 hectares
dedicated to the planting of upland rice. It has also timberland and forest which
produce considerable amount of trees and firewoods. From the said property which
has an assessed value of P115,000 and for which the estates pay real estate tax of
P1,500 annually, the administrator reported the following. 

Expenditures

(not including administration’s

Year Income fees. 

1945 P625.00 P1,310.42

1946 1,800.00 3,471.00

1947 2,550.00 2,912.91

1948 1,828.00 3,311.88

1949 3,204.50 4,792.09

1950 2,082.00 2,940.91

P12,089.50 P18,739.21

This statement was assailed by the oppositors and to substantiate their charge that
the administrator did not file the true income of the property, they presented several
witnesses who testified that there were about 200 tenants working therein, that
these tenants paid to Crisanto de Borja rentals at the rate of 6 cavanes of palay per
hectare; that in the years of 1943 and 1944, the Japanese were the ones who
collected their rentals, and that the estate could have received no less than 1,000
cavanes of palay yearly. After the administrator had presented witnesses to refute
the facts previously testified to by the witnesses for the oppositors, the Court held
that the report of the administrator did not contain the real income of the property
devoted to rice cultivation, which was fixed at 1,000 cavanes every year — for 1941,
1942, 1945, 1946, 1947, 1948, 1949 and 1950, or a total of 8,000 cavanes valued
at P73,000. But as the administrator accounted for the sum of P11,155 collected
from rice harvests and if to this amount we add the sum of P8,739.20 for expenses,
this will make a total of P19,894.20, thus leaving a deficit of P53,105.80, 1/4 of
which will be P13,276.45 which the administrator is held liable to pay the heirs of
Quintin de Borja. 

It was also proved during the hearing that the forestland of this property yields
considerable amount of marketable firewoods. Taking into consideration the
testimonies of witnesses for both parties, the Court arrived at the conclusion that the
administrator sold to Gregorio Santos firewoods worth P600 in 1941, P3,500 in 1945
and P4,200 in 1946 or a total of P8,300. As the report included only the amount of
P625, there was a balance of P7,675 in favor of the estate. The oppositors were not
able to present any proof of sales made after these years, if there were any and the
administrator was held accountable to the oppositors for only P1,918.75. 

(d) The estate also owned ricefields in Cainta, Rizal, with a total area of 22 hectares,
76 ares and 66 centares. Of this particular item, the administrator reported an
income of P12,104 from 1945 to 1951. The oppositors protested against this report
and presented witnesses to disprove the same. 

Basilio Javier worked as a tenant in the land of Juliana de Borja which is near the
land belonging to the Intestate, the 2 properties being separated only by a river. As
tenant of Juliana de Borja, he knew the tenants working on the property and also
knows that both lands are of the same class, and that an area accommodating one
cavan of seedlings yields at most 100 cavanes and 60 cavanes at the least. The
administrator failed to overcome this testimony. The lower Court considering the
facts testified to by this witness made a finding that the property belonging to this
Intestate was actually occupied by several persons accommodating 13 1/2 cavanes
of seedlings; that as for every cavan of seedlings, the land produces 60 cavanes of
palay, the whole area under cultivation would have yielded 810 cavanes a year and
under the 50-50 sharing system (which was testified to by witness Javier), the estate
should have received no less than 405 cavanes every year. Now, for the period of 7
years — from 1941 to 1950, excluding the 3 years of war — the corresponding
earning of the estate should be 2,835 cavanes, out of which the 405 cavanes from
the harvest of 1941 is valued at P1,215 and the rest 2,430 cavanes at P10 is valued
at P24,300, or all in all P25,515. If from this amount the reported income of P12,104
is deducted, there will be a balance of P13,411.10 1/4, of which or P3,352.75 the
administrator is held liable to pay to the oppositors. 

(e) The records show that the administrator paid surcharges and penalties with a
total of P988.75 for his failure to pay on time the taxes imposed on the properties
under his administration. He advanced the reason that he lagged in the payment of
those tax obligations because of lack of cash balance for the estate. The oppositors,
however, presented evidence that on October 29, 1939, the administrator received
from Juliana de Borja the sum of P20,475.17 together with certain papers pertaining
to the intestate (Exh. 4), aside from the checks in the name of Quintin de Borja.
Likewise, for his failure to pay the taxes on the building at Azcarraga for 1947, 1948
and 1949, said property was sold at public auction and the administrator had to
redeem the same at P3,295.48, although the amount that should have been paid
was only P2,917.26. The estate therefore suffered a loss of P378.22. Attributing
these surcharges and penalties to the negligence of the administrator, the lower
Court adjudged him liable to pay the oppositors 1/4 of P1,366.97, the total loss
suffered by the Intestate, or P341.74. 
(f) Sometime in 1942, a big fire razed numerous houses in Pateros, Rizal, including
that of Dr. Crisanto de Borja. Thereafter, he claimed that among the properties
burned therein was his safe containing P15,000 belonging to the estate under his
administration. The administrator contended that this loss was already proved to the
satisfaction of the Court who approved the same by order of January 8, 1943,
purportedly issued by Judge Servillano Platon (Exh. B). The oppositors contested the
genuineness of this order and presented on April 21, 1950, an expert witness who
conducted several tests to determine the probable age of the questioned document,
and arrived at the conclusion that the questioned ink writing" (Fdo)" appearing at the
bottom of Exhibit B cannot be more than 4 years old (Exh. 39). However, another
expert witness presented by the administrator contradicted this finding and testified
that this conclusion arrived at by expert witness Mr. Pedro Manzañares was not
supported by authorities and was merely the result of his own theory, as there was
no method yet discovered that would determine the age of a document, for every
document has its own reaction to different chemicals used in the tests. There is,
however, another fact that called the attention of the lower Court: the administrator
testified that the money and other papers delivered by Juliana de Borja to him on
October 29, 1939, were saved from said fire. The administrator justified the
existence of these valuables by asserting that these properties were locked by
Juliana de Borja in her drawer in the "casa solariega" in Pateros and hence was not
in his safe when his house, together with the safe, was burned. This line of reasoning
is really subject to doubt and the lower Court opined, that it runs counter to the
ordinary course of human behavior for an administrator to leave in the drawer of the
"aparador" of Juliana de Borja the money and other documents belonging to the
estate under his administration, which delivery has receipted for, rather than to keep
it in his safe together with the alleged P15,000 also belonging to the Intestate. The
subsequent orders of Judge Platon also put the defense of appellant to bad light, for
on February 6, 1943, the Court required Crisanto de Borja to appear before the
Court of examination of the other heirs in connection with the reported loss, and on
March 1, 1943, authorized the lawyers for the other parties to inspect the safe
allegedly burned (Exh. 35). It is inconceivable that Judge Platon would still order the
inspection of the safe if there was really an order approving the loss of those
P15,000. We must not forget, in this connection, that the records of this case were
burned and that at the time of the hearing of this incident in 1951, Judge Platon was
already dead. The lower Court also found no reason why the administrator should
keep in his possession such amount of money, for ordinary prudence would dictate
that as an administration funds that come into his possession in a fiduciary capacity
should not be mingled with his personal funds and should have been deposited in the
Bank in the name of the intestate. The administrator was held responsible for this
loss and ordered to pay 1/4 thereof, or the sum of P3,750. 

(g) Unauthorized expenditures —

1. The report of the administrator contained certain sums amounting to P2,130 paid
to and receipted by Juanita V. Jarencio the administrator’s wife, as his private
secretary. In explaining this item, the administrator alleged that he needed her
services to keep receipts and records for him, and that he did not secure first the
authorization from the court before making these disbursements because it was
merely a pure administrative function. 

The keeping of receipts and retaining in his custody records connected with the
management of the properties under administration is a duty that properly belongs
to the administrator, necessary to support the statement of accounts that he is
obliged to submit to the court for approval. If ever his wife took charge of the
safekeeping of these receipts and for which she should be compensated, the same
should be taken from his fee. This disbursement was disallowed by the Court for
being unauthorized and the administrator required to pay the oppositors 1/4 thereof
or P532.50. 

2. The salaries of Pedro Enriquez, as collector of the Azcarraga property; of Briccio

Matienzo and Leoncio Perez, as encargados, and of Vicente Panganiban and
Herminigildo Macetas as forest-guards were found justified, although unauthorized,
as they appear to be reasonable and necessary for the care and preservation of the
Intestate. 

3. The lower Court disallowed as unjustified and unnecessary the expenses for
salaries paid to special policemen amounting to P1,509. Appellant contended that he
sought for the services of Macario Kamungol and others to act as special policemen
during harvest time because most of the workers tilling the Punta property were not
natives of Jalajala but of the neighboring towns and they were likely to run away
with the harvest without giving the share of the estate if they were not policed. This
kind of reasoning did not appear to be convincing to the trial judge as the cause for
such fear seemed to exist only in the imagination. Granting that such kind of
situation existed, the proper thing for the administrator to do would have been to
secure the previous authorization from the Court if he failed to secure the help of the
local police. He should be held liable for this unauthorized expenditure and pay the
heirs of Quintin de Borja 1/4 thereof or P377.25. 

4. From the year 1942 when his house was burned, the administrator and his family
took shelter at the house belonging to the Intestate known as "casa solariega"
which, in the Project of Partition, was adjudicated to his father, Francisco de Borja.
This property, however, remained under his administration and for its repairs he
spent from 1945-1950, P1,465.14, duly receipted. 

None of these repairs appear to be extraordinary for the receipts were for nipa, for
carpenters and thatchers. Although it is true that Rule 85, Section 2 provides that:

SEC. 2. EXECUTOR OR ADMINISTRATOR TO KEEP BUILDINGS IN REPAIR. — An

executor or administrator shall maintain in tenantable repair the houses and other
structures and fences belonging to the estate, and deliver the same in such repair to
the heirs or devisees when directed so to do by the court. 

yet considering that during his occupancy of the said "casa solariega" he was not
paying any rental at all, it is but reasonable that he should take care of the expenses
for the ordinary repair of said house. Appellant asserted that had he and his family
not occupied the same, they would have to pay someone to watch and take care of
said house. But this will not excuse him from this responsibility for the
disbursements he made in connection with the aforementioned repairs because even
if he stayed in another house, he would have had to pay rentals or else take charge
also of expenses for the repairs of his residence. The administrator should be held
liable to the oppositors in the amount of P366.28. 

5. Appellant reported to have incurred expenses amounting to P6,304.75 for alleged

repairs on the rice mill in Pateros, also belonging to the Intestate. Of the
disbursements made therein, the items corresponding, to Exhibits I, I-1, I-21, L-26,
L-15, L-64 and L-65, in the total sum of P570.70 were rejected by the lower court on
the ground that they were all unsigned although some were dated. The lower Court,
however, made an oversight in including the sum of P150 covered by Exhibit L-26
which was duly signed by Claudio Reyes because this does not refer to the repair of
the rice-mill but for the roofing of the house and another building and shall be
allowed. Consequently, the sum of P570.70 shall be reduced to P420.70 which added
to the sum of P3,059 representing expenditures rejected as unauthorized to wit:

Exhibit L-59 P500.00 Yek Wing

Exhibit L-60 616.00 Yek Wing

Exhibit L-61 600.00 Yek Wing

Exhibit L-62 840.00 Yek Wing

Exhibit L-63 180.00 Yek Wing

Exhibit Q-2 323.00 scale "Howe" 

Total P3,059.00

will give a total of P3,479 1/4 of which is P869.92 that belongs to the oppositors.  

6. On the reported expenses for planting in the Cainta ricefields: — In his statement
of accounts, appellant reported to have incurred a total expense of P5,977 for the
planting of the ricefields in Cainta, Rizal, from the agricultural year 1945-46 to 1950-
51. It was proved that the prevailing sharing system in this part of the country was
on 50-50 basis. Appellant admitted that expenses for planting were advanced by the
estate and liquidated after each harvest. But the report, except for the agricultural
year 1950 contained nothing of the payments that the tenants should have made. If
the total expenses for said planting amounted to P5,977, 1/2 thereof or P2,988.50
should have been paid by the tenants as their share of such expenditures, and as
P965 was reported by the administrator as paid back in 1950, there still remains a
balance of P2,023.50 unaccounted for. For this shortage, the administrator is
responsible and should pay the oppositors 1/4 thereof or P505.87. 

7. On the transportation expenses of the administrator: — It appears that from the

year 1945 to 1951, the administrator charged the estate with a total of P5,170 for
transportation expenses. The unreceipted disbursements were correspondingly
itemized, a typical example of which is as follows:

"1950

"Gastos de viaje del administrador

"From Pateros

"To Pasig 50 x P 4.00 = P200.00

"To Manila 50 x P10.00 = P500.00

"To Cainta 8 x P 8.00 = P 64.00

"To Jalajala 5 x P35.00 = P175.00

P939.00" 

(Exhibit W-54)

From the report of the administrator, We are being made to believe that the
Intestate estate is a losing proposition and assuming arguendo that this is true, that
precarious financial condition which he, as administrator, should know, did not deter
Crisanto de Borja from charging to the depleted funds of the estate comparatively
big amounts for his transportation expenses. Appellant tried to justify these charges
by contending that he used his own car in making those trips to Manila, Pasig and
Cainta and a launch in visiting the properties in Jalajala, and they were for the
gasoline consumed. This rather unreasonable spending of the estate’s fund prompted
the Court to observe that one will have to spend only P0.40 for transportation in
making a trip from Pateros to Manila and practically the same amount in going to
Pasig. From his report for 1949 alone, appellant made a total of 97 trips to these
places or an average of one trip for every 3 1/2 days. Yet We must not forget that it
was during this period that the administrator failed or refused to take cognizance of
the prevailing rentals of commercial places in Manila that caused certain loss to the
estate and for which he was accordingly held responsible. For the reason that the
alleged disbursements made for transportation expenses cannot be said to be
economical, the lower Court held that the administrator should be held liable to the
oppositors for 1/4 thereof or the sum of P1,292.50, though We think that this sum
should still be reduced to P500. 

8. Other expenses:
The administrator also ordered 40 booklets of printed contracts of lease in the name
of the Hacienda Jalajala which cost P150. As the said hacienda was divided into 3
parts, one belonging to this Intestate and the other two parts to Francisco de Borja
and Bernardo de Borja, ordinarily the Intestate should only shoulder 1/3 of the said
expense, but as the tenants who testified during the hearing of the matter testified
that those printed forms were not being used, the Court adjudged the administrator
personally responsible for this amount. The records reveal, however, that this printed
form was not utilized because the tenants refused to sign any, and We can presume
that when the administrator ordered for the printing of the same, he did not foresee
this situation. As there is no showing that said printed contracts were used by
another and that they are still in the possession of the administrator which could be
utilized anytime, this disbursement may be allowed. 

The report also contains a receipt of payment made to Mr. Severo Abellera in the
sum of P375 for his transportation expenses as one of the two commissioners who
prepared the Project of Partition. The oppositors were able to prove that on May 24,
1941, the Court authorized the administrator to withdraw from the funds of the
Intestate the sum of P300 to defray the transportation expenses of the
commissioners. The administrator, however, alleged that he used this amount for the
payment of certain fees necessary in connection with the approval of the proposed
plan of the Azcarraga property which was then being processed in the City Engineer’s
Office. From that testimony, it would seem that appellant could even go to the extent
of disobeying the order of the Court specifying for what purpose that amount should
be appropriated and took upon himself the task of judging for what it will serve best.
Since he was not able to show or prove that the money intended and ordered by the
Court to be paid for the transportation expenses of the commissioners was spent for
the benefit of the estate as claimed, the administrator should be held responsible
therefor and pay to the oppositors 1/4 of P375 or the sum of P93.75. 

The records reveal that for the service of summons to the defendants in Civil Case
No. 84 of the Court of First Instance of Rizal, P104 was paid to the Provincial Sheriff
of the same province (Exhibit H-7). However, an item for P40 appeared to have been
paid to the Chief of Police of Jalajala allegedly for the service of the same summons.
Appellant claimed that as the defendants in said case lived in remote barrios, the
services of the Chief of Police as delegate or agent of the Provincial Sheriff were
necessary. He forgot probably the fact that local chiefs of police are deputy sheriffs
ex-officio. The administrator was therefore ordered by the lower Court to pay 1/4 of
said amount or P10 to the oppositors. 

The administrator included in his Report the sum of P550 paid to Atty. Filamor for his
professional services rendered for the defense of the administrator in G. R. No. L-
4179, which was decided against him, with costs. The lower Court disallowed this
disbursement on the ground that this Court provided that the costs of that litigation
should not be borne by the estate but by the administrator himself, personally. 

Costs of a litigation in the Supreme Court taxed by the Clerk of Court, after a verified
petition has been filed by the prevailing party, shall be awarded to said party and will
only include his fee and that of his attorney for their appearance which shall not be
more than P40; expenses for the printing and the copies of the record on appeal; all
lawful charges imposed by the Clerk of Court; fees for the taking of depositions and
other expenses connected with the appearance of witnesses or for lawful fees of a
commissioner (De la Cruz, Philippine Supreme Court Practice, p. 70-71). If the costs
provided for in that case, which this Court ordered to be chargeable personally
against the administrator are not recoverable by the latter, with more reason this
item could not be charged against the Intestate. Consequently, the administrator
should pay the oppositors 1/4 of the sum of P550 or P137.50. 

(e) The lower Court in its decision required appellant to pay the oppositors the sum
of P1,395 out of the funds still in the possession of the administrator. 

In the statement of accounts submitted by the administrator, there appeared a cash

balance of P5,851.17 as of August 31, 1951. From this amount, the sum of
P1,002.96 representing the Certificate of Deposit No. 21619 and Check No. 57338,
both of the Philippine National Bank and in the name of Quintin de Borja, was
deducted leaving a balance of P4,848. As Judge Zulueta ordered the delivery to the
oppositors of the amount of P1,890 in his order of October 8, 1951; the delivery of
the amount of P810 to the estate of Juliana de Borja in his order of October 23,
1951, and the sum of P932.32 to the same estate of Juliana de Borja by order of the
Court of February 29, 1952, or a total of P3,632.32 after deducting the same from
the cash in the possession of the administrator, there will only be a remainder of
P134.98. 

The Intestate is also the creditor of Miguel B. Dayco, heir and administrator of the
estate of Crisanta de Borja, in the sum of P900 (Exhibits S and S-1). Adding this
credit to the actual cash on hand, there will be a total of P1,034.98, 1/4 of which or
P258.74 properly belongs to the oppositors. However, as there is only a residue of
P134.98 in the hands of the administrator and dividing it among the 3 groups of
heirs who are not indebted to the Intestate, each group will receive P44.99, and
Miguel B. Dayco is under obligation to reimburse P213.76 to each of them. 

The lower Court ordered the administrator to deliver to the oppositors the amount of
P1,395.90 and P314.99 each to Francisco de Borja and the estate of Juliana de
Borja, but as We have arrived at the computation that the three heirs not indebted
to the Intestate ought to receive P44.99 each out of the amount of P134.98, the
oppositors are entitled to the sum of P1,080.91 — the amount deducted from them
as taxes but which the Court ordered to be returned to them — plus P44.99 or a
total of P1,125.90. It appearing, however, that in a Joint Motion dated November 27,
1952, duly approved by the Court, the parties agreed to fix the amount at
P1,125.58, as the amount due and said heirs have already received this amount in
satisfaction of this item, no other sum can be chargeable against the administrator. 

(f) The probate Court also ordered the administrator to render an accounting of his
administration during the Japanese occupation on the ground that although appellant
maintained that whatever money he received during that period is worthless, same
having been declared without any value, yet during the early years of the war, or
during 1942-43, the Philippine peso was still in circulation, and articles of prime
necessity as rice and firewood commanded high prices and were paid with jewels or
other valuables. 

But We must not forget that in his order of December 11, 1945, Judge Peña required
the administrator to render an accounting of his administration only from March 1,
1945, to December of the same year without ordering said administrator to include
therein the occupation period. Although the Court below mentioned the condition
then prevailing during the war-years, We cannot simply presume, in the absence of
proof to that effect, that the administrator received such valuables or properties for
the use or in exchange of any asset or produce of the Intestate, and in view of the
aforementioned order of Judge Peña, which We find no reason to disturb, We see no
practical reason for requiring appellant to account for those occupation years when
everything was affected by the abnormal conditions created by the war. The records
of the Philippine National Bank show that there was a current account jointly in the
names of Crisanto de Borja and Juanita V. Jarencio, his wife, with a balance of
P36,750.35 in Japanese military notes and admittedly belonging to the Intestate and
We do not believe that the oppositors or any of the heirs would be interested in an
accounting for the purpose of dividing or distributing this deposit. 

(g) On the sum of P13,294 for administrator’s fees:

It is not disputed that the administrator set aside for himself and collected from the
estate the sum of P13,294 as his fees from 1945 to 1951 at the rate of P2,400 a
year. There is also no controversy as to the fact that this appropriated amount was
taken without the order or previous approval by the probate Court. Neither is there
any doubt that the administration of the Intestate estate by Crisanto de Borja is far
from satisfactory. 

Yet it is a fact that Crisanto de Borja exercised the functions of an administrator and
is entitled also to a certain amount as compensation for the work and services he has
rendered as such. Now, considering the extent and size of the estate, the amount
involved and the nature of the properties under administration, the amount collected
by the administrator for his compensation at P200 a month is not unreasonable and
should therefore be allowed. 

It might be argued against this disbursement that the records are replete with
instances of highly irregular practices of the administrator, such as the pretended
ignorance of the necessity of a book or ledger or at least a list of chronological and
dated entries of money or produce the Intestate acquired and the amount of
disbursements made for the same properties; that admittedly he did not have even a
list of the names of the lessees to the properties under his administration, nor even a
list of those who owed back rentals, and although We certainly agree with the
probate Court in finding appellant guilty of acts of maladministration, specifically in
mixing the funds of the estate under his administration with his personal funds
instead of keeping a current account for the Intestate in his capacity as
administrator, We are of the opinion that despite these irregular practices for which
he was held already liable and made in some instances to reimburse the Intestate for
amounts that were not properly accounted for, his claim for compensation as
administrator’s fees shall be as they are hereby allowed. 

Recapitulation. — Taking all the matters threshed herein together, the administrator
is held liable to pay to the heirs of Quintin de Borja the following:

Under Paragraphs III and IV:

(a) P7,084.27

(b) 12,175.00

(c) 16,113.95

(d) 3,352.75
(e) 341.74

(f) 3,750.00

(g) 1. 532.50

2. 377.25

4. 366.28

5. 869.92

6. 505.87

7. 500.00

8-a. 

b. 93.75

c. 10.00

d. 137.50

P46,210.78

In view of the foregoing, the decision appealed from is modified by reducing the
amount that the administrator was sentenced to pay the oppositors to the sum of
P46,210.78 (instead of P83,337.31), plus legal interests on this amount from the
date of the decision appealed from, which is hereby affirmed in all other respects.
Without pronouncement as to costs. It is so ordered. 
G.R. No. 102942 April 18, 1997

AMADO F. CABAERO and CARMEN C. PEREZ, petitioners, 

vs.
HON. ALFREDO C. CANTOS in his capacity as Presiding Judge of the Regional
Trial Court of Manila, Br., VII, and EPIFANIO CERALDE, respondents.

PANGANIBAN, J.:

May the accused-petitioners who were charged with estafa, file an answer with
counterclaim for moral and exemplary damages plus attorney's fees and litigation
expenses against the private complainant in the same criminal action?

This is the main issue raised in this petition 1 filed under Rule 65 of the Rules of Court
assailing the Orders dated July 1, 1991,2 and August 21, 1991,3 of respondent Judge
"for being contrary to law and (for) having been issued by the respondent judge in
excess of his jurisdiction and with grave abuse of discretion tantamount to lack of
jurisdiction."4

The Order of July 1, 1991, reads:

THE Answer with Counterclaim filed by the accused through counsel,

dated February 12, 1991, as well as the Opposition thereto; the
Memorandum filed by the Private Prosecutor, in Support of Motion to
Expunge from the Records And/Or to Dismiss Answer with Counterclaim;
the Supplement; and Comment on Supplement, are all ordered expunged
from the Records, considering that this is a criminal case wherein the civil
liability of the accused (sic) is impliedly instituted therein.

Petitioners pleaded for reconsideration 5 of said Order but respondent judge, in the
Order of August 21, 1991, denied their motion, thus:

ACTING on the Motion for Reconsideration dated July 17, 1991, of the
accused through counsel, this Court finds no merit therein, such that said
motion is hereby denied.

The Facts

This petition emanated from Crim. Case No. 90-18826 of the Regional Trial Court
("RTC") of Manila. Said case commenced on October 18, 1990, with the filing of an
Information6 against petitioners charging them with estafa for allegedly defrauding
private respondent Epifanio Ceralde of the sum of P1,550,000.00. The accusatory
portion of the Information reads as follows:
 That in or about and during the period comprised between September,
1987 and October 30, 1987, both dates inclusive, in the City of Manila,
Philippines, the said accused, conspiring and confederating together and
mutually helping each other, did then and there wilfully, unlawfully and
feloniously defraud one EPIFANIO CERALDE in the following manner, to
wit: the said accused induced and succeeded in inducing the said
EPIFANIO CERALDE to advance the total amount of P1,550,000.00 to be
paid to M.C. Castro Construction, Co. representing the purchase price of
six (6) parcels of land located in Pangasinan which the Aqualand Ventures
& Management Corporation, a joint business venture organized by
accused AMADO F. CABAERO and the said EPIFANIO CERALDE, purchased
from the said company, with the understanding that the said amount
would be returned to the said EPIFANIO CERALDE as soon as the loan for
P1,500,000.00 applied for by the said Aqualand Ventures & Management
Corporation with Solid Bank, of which said accused AMADO F. CABAERO
is the Senior Vice-President, is released, but both accused, once the said
loan has (sic) been approved by the bank, in furtherance of their
conspiracy and falsely pretending that accused CARMEN C. PEREZ had
been authorized by the said Aqualand Ventures & Management
Corporation to receive the check for P1,500,000.00 for and in its own
behalf, succeeded in inducing the cashier of said Solid Bank to release the
same to accused CARMEN C. PEREZ, thereby enabling her to encash the
aforesaid check, and instead of turning over the said amount to the said
EPIFANIO CERALDE, accused failed and refused, and still fail and refuse,
to do so despite repeated demands made to that effect, and with intent
to defraud, misappropriated, misapplied and converted the said amount
to their own personal use and benefit, to the damage and prejudice of the
said EPIFANIO CERALDE in the aforesaid amount of P1,550,000.00,
Philippine currency.

Contrary to law.

Arraigned on January 7, 1991, petitioners entered a plea of not guilty. On February

5, 1991, Atty. Ambrosio Blanco entered his appearance as private prosecutor. 7

The Presiding Judge of the RTC of Manila, Branch IV, Hon. Elisa R. Israel, in an
Order8 dated February 11, 1991, inhibited herself "out of delicadeza" from further
hearing the case pursuant to Section 1 of Rule 137 of the Rules of Court after
"considering that the complainant is a relative by affinity of a nephew of her
husband." Thereafter, the case was reraffled to Branch VII presided over by
respondent Judge Alfredo Cantos.

On April 2, 1991, petitioners filed an Answer with Counterclaims 9 alleging that the
money loaned from Solidbank mentioned in the Information was duly applied to the
purchase of the six (6) parcels of land in Pangasinan, and that the filing of said
Information was unjustified and malicious. Petitioners included the following
prayer: 10

WHEREFORE, it is respectfully prayed that after trial judgment be

rendered:

1. Dismissing, or quashing the information, and the civil action impliedly

instituted in the criminal action;

2. Ordering the complaining witness Ceralde to pay to the accused the

following amounts:

(a) P1,500,000.00 as moral damages;

 (b) P500,000.00 as exemplary damages;

(c) P100,000.00 as attorney's fees; and

(d) P20,000.00, as litigation expenses.

Accused pray for such other reliefs, legal and equitable in the premises.

During the initial hearing on April 15, 1991, the prosecution verbally moved that the
answer with counterclaim be expunged from the records and/or be dismissed. The
respondent judge, after the exchange of arguments between the prosecution and the
defense, gave the contending parties time to submit a Memorandum and Comment
or Opposition, respectively.

The Memorandum of the private prosecutor justified his Motion to Expunge the
answer with counterclaim for two reasons: (1) the trial court had no jurisdiction over
the answer with counterclaim for non-payment of the prescribed docket fees and (2)
the "compulsory counterclaim against complainant is barred for failure to file it
before arraignment." 11

In their Opposition, petitioners argued that this Court in Javier vs. Intermediate

Appellate Court 12 laid down, for "procedural soundness," the rule that a counterclaim
should be permitted in a criminal action where the civil aspect is not reserved.
Further, inasmuch as petitioners' counterclaim was compulsory in nature, they were
not required to pay docket fees therefor. Additionally, the Rules do not specifically
provide for the period for filing of counterclaims in criminal cases, whereas Section 3
of Rule 9 and Section 9 of Rule 6 allow the filing, with leave of court, of a
counterclaim at any time before judgment. Thus, petitioners contended that their
filing was within the proper period. 13

As previously indicated, respondent Judge Cantos granted the prosecution's motion

to expunge in an Order dated July 1, 1991, and denied the petitioners' motion for
reconsideration in an Order dated August 21, 1991.

On the theory that there is no plain, speedy and adequate remedy in the ordinary
course of law, the petitioners, through counsel, filed this instant petition.

The Issue

The sole issue raised by petitioners is: 14

Whether or not the respondent judge committed grave abuse of

discretion, amounting to lack or excess of jurisdiction in ordering that the
answer with counterclaim of the petitioners in Criminal Case No. 90-
88126, together with all pleadings filed in relation thereto, be expunged
from the records.

Petitioners invoke Section 1, Rule 111 of the Rules on Criminal Procedure, which
provides that unless the offended party waived, reserved or instituted the civil action
prior to the criminal action, the civil action for recovery of civil liability is impliedly
instituted with the criminal action. They contend that it is not only a right but an
"outright duty" of the accused to file an answer with counterclaim since failure to do
so shall result in the counterclaim being forever barred.

Petitioners argue that under Rule 136 of the Rules of Court, particularly Section 8
thereof, clerks of court are instructed to "keep a general docket, each page of which
shall be numbered and prepared for receiving all the entries in a single case, and
shall enter therein all cases . . ." Thus, respondent Judge Cantos allegedly erred in
expunging all records with respect to the Answer with Counterclaim for, on appeal,
"if the records elevated . . . are incomplete and inaccurate, there arises a grave
danger that the ends of justice and due process shall not be served and instead
frustrated." 15

Petitioners further allege that the Order of July 1, 1991, failed to resolve the legal
issues raised by the parties as it neglected to state the legal basis therefor, as
required by Section 14, Article VIII of the Constitution, "thereby leaving the
petitioners to speculate on why they were being deprived of their right to plead and
prove their defenses and counter-claim as far as the civil aspect of the case was
concerned." 16

This Court, realizing the significance of the present case, required on August 3,
1992, the appearance of the Solicitor General as counsel for respondent court. The
Republic's counsel, in his Manifestation dated December 22, 1992, cited Javier and
sided with petitioners in maintaining that the instant "petition is meritorous."

Preliminary Matters

Litis Pendentia as a Defense

In his Memorandum dated September 30, 1992, private respondent belatedly

interposes litis pendentia to defeat the petition. He alleges that the present petition
is barred by the cross-claim of the petitioners against Aqualand Ventures and
Management Corporation, of which petitioners are stockholders and officers, in Civil
Case No. 90-53035 (filed against both petitioners and the private respondent by
Solidbank on May 14, 1990). Considerations of due process prevent us from taking
up the merits of this argument in favor of private respondent. 17 This cross-claim was
never raised in the trial court — certainly not in the Memorandum dated April 19,
1991, submitted to the court a quo  in support of respondent Ceralde's motion to
expunge the answer with counterclaim. The Rules 18 require that "(a) motion
attacking a pleading or a proceeding shall include all objections then available, and
all objections not so included shall be deemed waived." Consequently and
ineluctably, the ground of litis pendentia which was not argued in the court a quo  is
deemed waived. 19

The Payment of Filing Fees

Anent filing fees, we agree with petitioners that inasmuch as the counterclaim is
compulsory, there is no necessity to pay such fees, as the Rules do not require them.
This Court already clarified in Sun Insurance Office, Ltd. (SIOL), vs. Asuncion 20 the
instances when docket fees are required to be paid to enable the court to acquire
jurisdiction:

1. It is not simply the filing of the complaint or appropriate initiatory

pleading, but the payment of the prescribed docket fee, that vests a trial
court with jurisdiction over the subject-matter or nature of the action.
Where the filing of the initiatory pleading is not accompanied by payment
of the docket fee, the court may allow payment of the fee within a
reasonable time but in no case beyond the applicable prescriptive or
reglementary period.

2. The same rule applies to permissive counterclaims, third-party claims

and similar pleadings, which shall not be considered filed until and unless
the filing fee prescribed therefor is paid. The court may also allow
payment of said fee within a reasonable time but also in no case beyond
its applicable prescriptive or reglementary period. (Emphasis supplied)

Obviously, no docket fees are required to be paid in connection with the filing of a
compulsory counterclaim.
 The Main Issue: Propriety of
Answer with Counterclaim

In Javier upon which petitioners anchor their thesis, the Court held that a
counterclaim for malicious prosecution is compulsory in nature; thus, it should be
filed in the criminal case upon the implied institution of the civil action.

The facts in Javier may be summarized as follows:

Leon S. Gutierrez, Jr., private respondent therein, was charged with violation of BP
Blg. 22 before the Regional Trial Court of Makati. The civil case had not been
expressly reserved, hence it was impliedly instituted with the criminal action.

Later, Accused Gutierrez filed a complaint for damages against Private Complainants
(Petitioners) Javiers before the Regional Trial Court of Catarman, Northern Samar,
wherein he alleged that he had been merely inveigled by the Javiers into signing the
very check that was the subject of the criminal case.

In resolving the question of whether he can raise that claim in a separate civil action
for damages filed by him against petitioners therein, this Court, speaking through
Mr. Justice Isagani A. Cruz (Ret.), ruled: 21

It was before the Makati court that the private respondent, as defendant
in the criminal charge of violation of B.P. Blg. 22, could explain why he
had issued the bouncing check. As the civil action based on the same act
was also deemed filed there, it was also before that same court that he
could offer evidence to refute the claim for damages made by the
petitioners.  This he should have done in the form of a counterclaim for
damages for his alleged deception by the petitioners.  In fact, the
counterclaim was compulsory and should have been filed by the private
respondent upon the implied institution of the civil action for damages in
the criminal action.

A counterclaim is compulsory and is considered barred if not set up where

the following circumstances are present: (1) that it arises out of, or is
necessarily connected with the transaction or occurrence that is the
subject matter of the opposing party's claim; (2) that it does not require
for its adjudication the presence of third parties of whom the court cannot
acquire jurisdiction, and (3) that the court has jurisdiction to entertain
the claim.

All these circumstances are present in the case before the Regional Trial
Court of Makati.

This being so, it was improper for the private respondent to file his civil
complaint in the Regional Trial Court of Northern Samar alleging the very
defense he should be making in the Regional Trial Court of Makati. It is,
of course, not possible for him now to invoke a different defense there
because he would be contradicting his own verified complaint in the
Regional Trial Court in Northern Samar. In effect, therefore, he is arguing
that both courts have jurisdiction to consider the same claim of deception
he is making in connection with the same transaction and involving the
same parties. (Emphasis supplied)

In Javier, the accused maintained in his separate action for damages that he had
been inveigled by the private complainants into signing what was alleged to be a
bouncing check. In the present case, petitioners claim in their answer with
counterclaim that they never personally benefited from the allegedly defrauded
amount nor did they spend the same for a purpose other than that agreed upon with
Private Respondent Ceralde. Thus, in both cases, the accused seek recovery of
damages for what they perceive to be malicious prosecution against them.

As categorically recognized in the case of Javier, a claim for malicious prosecution or

"grossly unfounded suit" as a compulsory counter-claim has no appropriate venue
other than the same criminal case which is alleged to be a malicious suit. The
counterclaim stands on the same footing and is to be tested by the same rules as if it
were an independent action. 22 A counterclaim is defined as any claim for money or
other relief which a defending party may have against an opposing
party. 23 Compulsory counterclaim is one which at the time of suit arises out of, or is
necessarily connected with, the same transaction or occurrence that is the subject
matter of plaintiff's complaint. 24 It is compulsory in the sense that if it is within the
jurisdiction of the court, and does not require for its adjudication the presence of
third parties over whom the court cannot acquire jurisdiction, it must be set up
therein, and will be barred in the future if not set
25
up. 

In justifying his Order, Judge Cantos ruled that "this is a criminal case wherein the
civil liability of the accused (sic) is impliedly instituted therein." This justification begs
the question. Basically, that is the reason why petitioners herein filed their answer
with counterclaim for, apparently, in hiring a private prosecutor, Private Respondent
Ceralde intended to prosecute his civil claim together with the criminal action. Hence,
as a protective measure, petitioners filed their counterclaim in the same case. Since
under Section 1, Rule 111 26 of the Revised Rules of Court, the civil action which is
deemed impliedly instituted with the criminal action, if not waived or reserved,
includes recovery of indemnity under the Revised Penal Code, and damages under
Article 32, 33, 34 and 2176 of the Civil Code arising from the same act or omission
of the accused, should not the accused have the right to file a counterclaim in the
criminal case? Obviously, the answer is in the affirmative, as was held in Javier.

In ruling that an action for damages for malicious prosecution should have been filed
as a compulsory counterclaim in the criminal action, the Court in Javier sought to
avoid multiplicity of suits. The Court there emphasized that the civil action for
malicious prosecution should have been filed as a compulsory counterclaim in the
criminal action. The filing of a separate civil action for malicious prosecution would
have resulted in the presentation of the same evidence involving similar issues in
two proceedings: the civil action impliedly instituted with the criminal action, and the
separate civil action for damages for malicious prosecution.

Some Reservations in 

the Application of Javier

The logic and cogency of Javier notwithstanding, some reservations and concerns
were voiced out by members of the Court during the deliberations on the present
case. These were engendered by the obvious lacuna in the Rules of Court, which
contains no express provision for the adjudication of a counterclaim in a civil action
impliedly instituted in a criminal case. The following problems were noted:

1) While the rules on civil procedure 27 expressly recognize a defendant's entitlement

to plead his counterclaim and offer evidence in support thereof, 28 the rules on
criminal procedure 29 which authorize the implied institution of a civil action in a
criminal case are, in contrast, silent on this
30
point   and do not provide specific guidelines on how such counterclaim shall be
pursued.

2) A judgment in a criminal action is not required to provide for the award of a

counterclaim. Thus, Section 2, Rule 120 of the Rules of Court, states:

Sec. 2. Form and contents of judgment. —

 xxx xxx xxx

If it is for conviction, the judgment shall state (a) the legal qualifications
of the offense constituted by the acts committed by the accused, and the
aggravating or mitigating circumstances attending the commission
thereof, if there are any; (b) the participation of the accused in the
commission of the offense whether as principal, accomplice, or accessory
after the fact; (c) the penalty imposed upon the accused; and (d) the
civil liability or damages caused by the wrongful act to be recovered from
the accused by the offended party, if there is any, unless the
enforcement of the civil liability by a separate action has been reserved
or waived. (Emphasis supplied)

3) Allowing and hearing counterclaims (and possibly cross-claims and third-party

complaints) in a criminal action will surely delay the said action. The primary issue in
a criminal prosecution that is under the control of state prosecutors is the guilt of the
accused and his civil liability arising from the same act or omission. 31 Extending the
civil action arising from the same act or omission to counterclaims, cross-claims and
third-party complaints, and allowing the accused and other parties to submit
evidence of their respective claims will complicate the disposition of the criminal
case.

4) Adjudication of compulsory counterclaims and/or related claims or pleadings

logically includes the application of other rules which, by their very nature, apply
only to civil actions. The following matters may be invoked in connection with the
filing of an answer with a counterclaim: the genuineness and due execution of an
actionable document which are deemed admitted unless specifically denied under
oath; 32 affirmative defenses like res judicata, prescription and statute of frauds
which are deemed waived by failure to interpose them as affirmative defenses in an
answer; and the failure of a defendant to file an answer seasonably may result in his
default in the civil aspect but not in the criminal. As a consequence of these matters,
the entry of plea during arraignment will no longer signal joinder of issues in a
criminal action.

5) In an impliedly instituted civil action, an accused is not sufficiently apprised of the

specific basis of the claims against him. An accused learns of the implied institution
of a civil action from the contents of an information. An information, however, is filed
in behalf of the People of the Philippines. Hence, it does not contain the ultimate
facts relating to the civil liability of the accused. Section 6, Rule 110 of the Rules of
Court, provides:

Sec. 6. Sufficiency of complaint or information. — A complaint or

information is sufficient if it states the name of the accused; the
designation of the offense by the statute; the acts or omissions
complained of as constituting the offense; the name of the offended
party; the approximate time of the commission of the offense; and the
place wherein the offense was committed.

The foregoing section does not mandate the inclusion of the ultimate facts which can
be specifically admitted or denied in an answer.

6) Because an accused is not sufficiently apprised of the specific basis of the civil
action against him, he may file a motion for bill of particulars or take advantage of
discovery procedures. The end result, in any case, will be delay and complication in
the criminal action and even confusion among the parties.

7) The Rules of Court does not specify the reckoning date for the filing of an answer
in an impliedly instituted civil action. In an ordinary civil action, an answer should be
filed within fifteen (15) days from service of summons. The concept of summons,
however, is alien to a criminal action. So, when does the 15-day period begin?

8) Moreover, an accused can file his answer with counterclaim only after the initial
hearing, because the private complainant may still reserve
his civil action at any time before the prosecution commences to present
evidence. 33 On the other hand, an answer in an ordinary civil action should be filed
before the start of hearing, because hearing commences only after the issues have
been joined, i.e., after the responsive pleadings have been filed.

9) Confusion in the application of the rules on civil procedure will certainly encourage
litigants to challenge before appellate courts interlocutory incidents of the impliedly
instituted civil action. While these challenges are pending, the criminal actions that
demand speedy resolution, particularly where the accused is denied bail in capital
offenses, will stagnate. Witnesses may disappear or lose recollection of their
intended testimony, and the prosecutors may lose momentum and interest in the
case. And the accused is effectively deprived of his right to speedy trial.

10) On top of the above procedural difficulties, some members of the Court believe
that a cause of action for malicious prosecution may be premature because there is
as yet no finding of such wrongful prosecution. This fact is precisely what the trial
court still has to determine.

By the foregoing discussion, we do not imply any fault in Javier. The real problem
lies in the absence of clear-cut rules governing the prosecution of impliedly instituted
civil actions and the necessary consequences and implications thereof. For this
reason, the counter-claim of the accused cannot be tried together with the criminal
case because, as already discussed, it will unnecessarily complicate and confuse the
criminal proceedings. Thus, the trial court should confine itself to the criminal aspect
and the possible civil liability of the accused arising out of the crime. The counter-
claim (and cross-claim or third party complaint, if any) should be set aside or refused
cognizance without prejudice to their filing in separate proceedings at the proper
time. 34

At balance, until there are definitive rules of procedure 35 to govern the institution,
prosecution and resolution of the civil aspect (and the consequences and implications
thereof) impliedly instituted in a criminal case, trial courts should limit their
jurisdiction to the civil liability of the accused arising from the criminal case.

On the other hand, this Court is only too well aware that the antecedent case was
filed in the Respondent Court on October 18, 1990. Although it has dragged on for
more than six (6) years now, trial has yet to start because of the herein procedural
question raised on certiorari. In view of this, it is to the best interest of the parties
that the trial of the criminal action should now proceed. The trial has waited too
long; it is time to continue and finish it with all reasonable dispatch. In fairness to
the accused, he may file separate proceedings to litigate his counterclaim after the
criminal case is terminated and/or in accordance with the new Rules which may be
promulgated as and when they become effective.

WHEREFORE, premises considered, the questioned Orders dated July 1, 1991 and
August 21, 1991 are hereby MODIFIED. The counter-claim of the accused is hereby
set aside without prejudice. The Respondent Regional Trial Court of Manila is
DIRECTED to proceed with the trial of the criminal action and the civil action arising
from the criminal offense that is impliedly instituted therein, with all judicious
dispatch. No. costs. SO ORDERED.
G.R. No. 127683 August 7, 1998

LETICIA P. LIGON, petitioner, 
vs.
COURT OF APPEALS and IGLESIA NI CRISTO, respondents.

DAVIDE, JR., J.:

This petition, "as appeal under Rule 45 and at the same time as a special civil action
for certiorari under Rule 65 of the Rules of Court," seeks to reverse the Decision 1 of
the Court of Appeals of 11 September 1996 in CA-G.R. SP No. 40258 and its
Resolution 2 of 3 January 1997 denying petitioner's motion for reconsideration of the
Decision.

As far as could be gathered from the voluminous pleadings filed by the parties in this
case and in CA-G.R. SP No. 40258, the factual antecedents are as follows:

Petitioner Leticia P. Ligon (hereafter LIGON) is the mortgagee in three deeds of

mortgage covering two parcels of land located along Tandang Sora, Barangay Culiat,
Quezon City, covered by Transfer Certificates of Title (TCT) Nos. 170567 (now RT-
26521) and 176616 (now RT-26520) belonging to the Islamic Directorate of the
Philippines (hereafter IDP). These deeds of mortgage were executed by certain
Abdulrahman R.T. Linzag and Rowaida Busran-Sampaco on 21 March 1988, 25 April
1988, and 29 July 1988 as security for the loans of P3 million, P2 million, and P4
million, respectively, which IDP allegedly obtained from LIGON. 3

It must be pointed out that two groups had earlier vied for control of the IDP,
namely, (1) the Carpizo group headed by Engr. Farouk Carpizo and (2) the Abbas
group led by Zorayda Tamano and Atty. Firdaussi Abbas. In its decision of 3 October
1986 in SEC Case No. 2687, the Securities and Exchange Commission (SEC)
declared null and void the election of both groups to the IDP Board of Trustees.
Nevertheless, on 20 April 1989, the Carpizo group caused the signing of an alleged
Board Resolution authorizing the sale of the two parcels of land mentioned above to
private respondent Iglesia ni Cristo (hereafter INC). The sale was evidenced by a
Deed of Absolute Sale 4 dated 20 April 1989, wherein IDP and INC stipulated that the
former would evict all squatters and illegal occupants in the two lots within forty-five
(45) days from execution of the sale.
IDP failed to clear the lots of squatters; hence, on 19 October 1990 INC filed with the
Regional Trial Court (RTC) of Quezon City a complaint for specific performance with
damages, which was docketed as Civil Case No. Q-90-6937.

On 30 May 1991, IDP's original Board of Trustees headed by Senator Mamintal

Tamano, or the Tamano group, filed a petition with SEC to annul the sale of the two
lots to INC. The case was docketed as SEC Case No. 4012. On 5 July 1993, the SEC
promulgated its decision in SEC Case No. 4012 annulling, inter alia, the sale of the
two parcels of land to INC. Aggrieved, INC filed a special civil action
for certiorari before the Court of Appeals, which was docketed as CA-G.R. SP No.
33295. In its decision of 28 October 1994, the Court of Appeals granted INC's
petition and set aside the portion of the SEC decision declaring the sale null and void.
Consequently, the Tamano group appealed to this Court in a petition for review in
G.R. No. 117897 entitled Islamic Directorate of the Philippines v. Court of Appeals.

Meanwhile, on 12 September 1991, the RTC rendered a partial judgment in Civil

Case No. Q-90-6937; and on 7 October 1991, it rendered an amended partial
judgment granting the reliefs prayed for by INC except the prayer for damages,
which was to be resolved later.

On 31 October 1991, the INC filed with the RTC of Quezon City a complaint 5 for the
annulment of the deeds of mortgage over the two lots, impleading as defendants
therein LIGON, Abdulrahman R.T. Linzag, Rowaida Busran-Sampaco, and the IDP.
The case was docketed as Civil Case No. Q-91-10494. In its answer, 6 IDP interposed
a cross-claim against LIGON. On the other hand, LIGON filed an answer 7 with
counterclaim; across-claim against IDP; and a third-party complaint against Pablo de
Leon, Guillermo Vina, and Aida Vina.

Later, LIGON filed a motion 8 in Civil Case No. Q-91-10494 to declare INC and IDP in
default for their failure to file an answer to her counterclaim and cross-claim,
respectively. She further prayed that she be allowed to present evidence ex-parte.
INC opposed 9 the motion, saying that some of the grounds raised by LIGON in her
counterclaim were sufficiently dealt with in INC's complaint, while the other grounds
were in the nature of a compulsory counterclaim and did not therefore require an
answer. On 30 September 1992, the trial court granted LIGON's motion and allowed
LIGON to present evidence ex-parte to support her cross-claim against IDP. 10

Then, on 2 August 1995, LIGON filed in Civil Case No. Q-91-10494, an urgent
motion 11 for rendition of partial judgment against IDP in the cross-claim for the
foreclosure of the mortgages. On 27 October 1995, the trial court rendered a partial
judgment 12 (1) ordering IDP to pay LIGON the amounts of P3 million, P2 million, and
P4 million "with interest at 36% per annum compounded annually" from the dates
the loans became due and demandable; and (2) directing the foreclosure sale of the
mortgaged properties in case of non-payment of said amounts.

On 21 November 1995, INC filed a Motion for Reconsideration 13 of the partial

judgment, which was, however, denied by the trial court in its Order 14 of 20 March
1996 on the following grounds:

. . . [T]he INC has no personality to seek a reconsideration of the partial

judgment.

Firstly, the judgment involves a cross-claim in which INC is not a party;

the right to appeal from a judgment or to move for a reconsideration
thereof is a right inherent to the party in the cross-claim affected
adversely by the judgment. Section 2, Rule 3 of the Rules of Court
provides that a case shall be prosecuted and defended in the name of the
real party-in-interest. INC is not a party to the mortgages hence it is not
a real party-in-interest to the foreclosure thereof.
 x x x           x x x          x x x

Not being a party to the cross-claim, as indeed it cannot be being the

plaintiff and cross-claim being a suit between co-parties, INC has no right
to file he instant motion.

Secondly, INC is the plaintiff in this case that sued IDP. Thus, the
interests of INC as plaintiff are adverse to or in conflict with those of IDP,
a defendant. The plaintiff cannot take up the cudgels for an adverse
party, the defendant.

Thirdly, the right of the INC to file this motion rests on its being a
subsequent purchaser of the property or its being the new owner; thus, it
claims it steps into the shoes of IDP. The right of IDP as a party to a case
should be distinguished from its rights as owner-seller of the property,
especially in this case where not only did INC sue IDP but IDP also chose
not to exercise its right to move for a reconsideration of the partial
judgment or to appeal therefrom.

More importantly, even assuming arguendo that INC is now the new
owner of the mortgaged property, the fact remains that the sale to it on
April 20, 1989, is admittedly after the execution of the real estate
mortgages in 1988; the mortgages were registered in 1991 while the sale
was never inscribed in the TCTs of the IDP. The INC is simply a
subsequent buyer whose rights were explicitly defined in the case
of Limpin vs. IAC (supra).

Finally, this Court has already ruled that INC is not a party to the
mortgages and may have no right to question the validity thereof . . .

Consequently, INC filed with the Court of Appeals a petition 15 for certiorari with

prayer for the issuance of a temporary restraining order to annul the aforementioned
partial judgment and the order denying private respondent's motion for
reconsideration. The case was docketed as CA-G.R. SP No. 40258.

In its decision 16 of 11 September 1996 in CA-G.R. SP No. 40258, the Court of

Appeals ruled in favor of INC and justified its ruling in this wise:

Technically, while the IDP can be declared in default for failure to file its
answer to Ligon's counterclaim, and that Ligon's motion to present her
evidence ex-parte against the IDP is not irregular, the respondent court
should not have rendered a partial judgment based on the evidence
presented by Ligon, without giving the INC an opportunity to present its
evidence contra as well as to substantiate its allegations in the complaint
that the mortgage contracts are null and void and of no binding force and
effect. . . .

x x x           x x x          x x x

Had respondent court, upon motion by respondent Ligon allowed her to

introduce her evidence and afterwards afforded the INC of the
opportunity to be heard in its complaint to prove that the loans and the
mortgages are invalid, such recourse could have prevented the most
mischievous consequences in the administration of justice to suitors, that
of depriving one of his day in court — the affording of an opportunity to
be heard on the other.

x x x           x x x          x x x
 We find sufficient basis to hold that respondent court committed grave
abuse of discretion tantamount to lack or in excess of jurisdiction in
rendering a partial judgment at that stage of the proceedings, the
dispositive portion of which would even indicate that respondent Ligon
was awarded more than what she prayed for. . . .

We further find that respondent court exceeded its jurisdiction in

rendering partial judgment in favor of respondent Ligon without first
giving petitioner its day in court since the issues in the respective claims
of the parties against each other are interrelated and inseparably
intertwined with one another — one maintains that the mortgages are
null and void, while the other asks for foreclosure of the same mortgage
contracts — respondent court could have deferred disposition of one
claim adverse to the claim of the other until the claim of both are heard
and the parties afforded the opportunity to present their evidence in
support of their opposing claim.

This decision prompted LIGON's "Urgent Motions to Vacate Null and Void Decision
Dated September 11, 1996, Dismiss the Petition and/or for Reconsideration" 17 and
"Motion to Recuse Associate Justices Artemon D. Luna, Ramon A. Barcelona, and
Salvador J. Valdez, Jr.," 18 which was accompanied by "Amended Urgent Motions to
Vacate Null and Void Decision Dated September 11, 1996, Dismiss the Petition
and/or for Reconsideration." 19These were denied by the Court of Appeals in its
Resolution 20 of 3 January 1997.

Undaunted by the foregoing adversities in CA-G.R. SP No. 40258, LIGON filed the
instant petition on 27 February 1997. LIGON claims that respondent Court of Appeals
(1) acted with grave abuse of discretion in refusing to order INC to implead or
include IDP as an indispensable party in the petition for certiorari; (2) acted without
jurisdiction in annulling the decision of the lower court; and (3) erred in not
dismissing INC's petition because INC was not aggrieved by the trial court's decision
and was guilty of forum-shopping.

LIGON asserts that IDP was an indispensable party in INC's action in CA-G.R. SP No.
40258 because IDP is "the mortgagor and defendant in the foreclosure suit instituted
by petitioner Ligon before the lower court"; it has "such interest in the controversy
that a final decree would necessarily affect its rights and interests"; and, "an action
to annul a contract cannot be maintained without joining both contracting parties as
defendants or respondents." Since IDP was not impleaded in said case, the petition
should have been dismissed pursuant to Section 7, Rule 3 of the Rules of
Court. 21 The Court of Appeals, therefore, acquired no jurisdiction over the case; and
its decision was a total nullity.

As to the second ground, LIGON claims that the Court of Appeals was powerless to
annul the trial court's judgment because IDP was not a party in CA-G.R. SP No.
40258.

Regarding the third ground, LIGON asserts that INC was not aggrieved by the trial
court's decision because at no time was it a party to the action for foreclosure of the
mortgages; moreover, INC did not show that it would suffer substantial injury or
manifest injustice in case of foreclosure of the mortgages. She asserts that IDP was
the aggrieved party, then tirelessly reiterates her argument that IDP should have
been joined as petitioner or respondent in the certiorari proceeding.

As to forum-shopping, LIGON maintains that "both litis pendentia and res

judicata [were] irrepressibly present and attendant" in INC's action before the
appellate court. INC filed three actions, in all of which there was identity of (1)
parties or interests represented, (2) right or causes, and (3) reliefs sought. Civil
Case No. Q-90-6937 was for the enforcement of the stipulation in the Deed of
Absolute Sale between INC and IDP obliging IDP to clear the properties sold of
squatters. In Civil Case No. Q-91-10494, INC sought to stop the foreclosure of the
mortgages. The third case was CA-G.R. SP. No. 40258, wherein the same relief was
being sought by INC, that is, to enjoin the foreclosure of the mortgages. LIGON
claims that the issues in the three cases were so intertwined that the resolution of
any one would constitute res judicata in the others.

For its part, INC argues that IDP was not an indispensable party in CA-G.R. SP No.
40258. LIGON's reliance on Section 7, Rule 3 of the Rules of Court on compulsory
joinder of indispensable parties is misplaced. INC contends that the rules on ordinary
civil actions, including said Section 7, apply only suppletorily to special civil actions.
Section 5, Rule 65 of the Rules of Court declares that the defendants in a special civil
action for certiorari shall be the person or persons interested in sustaining the
proceeding in court to be joined with the court or judge whose act or omission is
being contested. It is "illogical and absurd" to argue that IDP is interested in
defending the validity of an adverse partial judgment.

As regards LIGON's second ground, INC counters that the special civil action
for certiorari was an independent action and not a continuation of the proceedings
before the trial court. Thus, not all the parties in the case at the trial court could be
included in the independent action for certiorari.

Anent the third ground, INC maintains that it was aggrieved by the foreclosure
judgment because, being the new owner of the subject lots, it would suffer
substantial injury and manifest injustice from the foreclosure of the mortgages. INC
relies on Article 1609 of the Civil Code, which subrogates the vendee to the rights
and actions of the vendor.

INC claims it did not engage in forum-shopping, as the cases it filed involved
different issues. Civil Case No. Q-90-6937 involved the validity of the sale of the IDP
properties to INC; Civil Case No. Q-91-10494, the validity of the mortgages; and CA-
G.R. SP No. 40258, the validity of the partial judgment rendered by the trial court.
The judgment in one case was not determinative of the issues in the other cases.

As to the trial court's declaration that IDP was in default, INC contends that the
same was illegal, since IDP did not have to file an answer to LIGON's cross-claim
pursuant to Section 4, Rule 18 of the Rules of Court. 22

INC further argues that LIGON'S cross-claim for foreclosure of the mortgages could
not proceed ahead of the main action for annulment of said mortgages.

Meanwhile, on 14 May 1997, this Court promulgated its decision 23 in G.R. No.
117897 (Islamic Directorate of the Philippines v. Court of Appeals). It set aside the
decision of the Court of Appeals of 28 October 1994 in CA-G.R. SP No. 33295 and
upheld the decision of the SEC holding null and void the sale of the two lots to INC.
This Court clarified and decided the issue therein as follows:

The main question though in this petition is: Did the Court of Appeals
commit reversible error in setting aside that portion of the SEC's Decision
in SEC Case No. 4012 which declared the sale of two (2) parcels of land
in Quezon City between the IDP-Carpizo Group and private respondent
INC as null and void?

We rule in the affirmative.

There can be no question as to the authority of the SEC to pass upon the
issue as to who among the different contending groups is the legitimate
Board of Trustees of the IDP since this is a matter properly falling within
 the original and exclusive jurisdiction of the SEC by virtue of Sections 3
and 5 (c) of Presidential Decree No. 902-A:

x x x           x x x          x x x

. . . If the SEC can declare who is the legitimate IDP Board, then by
parity of reasoning, it can also declare who is not the legitimate IDP
Board. This is precisely what the SEC did in SEC Case No. 4012 when it
adjudged the election of the Carpizo Group to the IDP Board of Trustees
to be null and void. By this ruling, the SEC in effect made the unequivocal
finding that the IDP-Carpizo Group is a bogus Board of Trustees.
Consequently, the Carpizo Group is bereft of any authority whatsoever to
bind IDP in any kind of transaction including the sale or disposition of IDP
property.

x x x           x x x          x x x

. . . Nothing thus becomes more settled than that the IDP-Carpizo Group
with whom private respondent INC contracted is a fake Board.

Premises considered, all acts carried out by the Carpizo Board,

particularly the sale of the Tandang Sora property, allegedly in the name
of the IDP, have to be struck down for having been done without the
consent of the IDP thru a legitimate Board of Trustees.

x x x           x x x          x x x

The Carpizo Group-INC sale is further deemed null and void ab

initio because of the Carpizo Group's failure to comply with Section 40 of
the Corporation Code pertaining to the disposition of all or substantially
all assets of the corporation:

x x x           x x x          x x x

The Tandang Sora property, it appears from the records, constitutes the
only property of the IDP. Hence, its sale to a third-party is a sale or
disposition of all the corporate property and assets of IDP falling squarely
within the contemplation of the foregoing section. For the sale to be valid,
the majority vote of the legitimate Board of Trustees, concurred in by the
vote of at least 2/3 of the bona fidemembers of the corporation should
have been obtained. These twin requirements were not met as the
Carpizo Group which voted to sell the Tandang Sora property was a fake
Board of Trustees, and those whose names and signatures were affixed
by the Carpizo group together with the sham Board Resolution
authorizing the negotiation for the sale were, from all indications,
not bona fide members of the IDP as they were made to appear to
be. . . .

All told, the disputed Deed of Absolute Sale executed by the fake Carpizo
Board and private respondent INC was intrinsically void ab initio.

Before addressing the issues raised in the present petition, it must be recalled that
LIGON describes her petition as an "appeal under Rule 45 and at the same time as a
special civil action of certiorari under Rule 65 of the Rules of Court." This Court
cannot tolerate such a chimera. The remedies of appeal and certiorari are mutually
exclusive and not alternative nor successive. 24 It is settled that the averments in the
complaint, and not the nomenclature given by the parties, determine the nature of
the action. 25 Considering that this petition primarily consists of allegations charging
the Court of Appeals with having acted with grave abuse of discretion and without
jurisdiction, this Court shall treat this petition as a special civil action
for certiorari under Rule 65 of the Rules of Court.

Returning to the instant petition, the first issue must be resolved against LIGON.

At the time CA-G.R. SP No. 40258 was filed, the law on who should be parties in a
special civil action for certiorariwere Sections 1 and 5 of Rule 65 of the Rules of
Court, 26 which provided:

Sec. 1. Petition for certiorari. — When any tribunal, board, or officer

exercising judicial functions, has acted without or in excess of its or his
jurisdiction, or with grave abuse of discretion and there is no appeal, nor
any plain, speedy, and adequate remedy in the ordinary course of law, a
person aggrieved thereby may file a verified petition in the proper court
alleging the facts with certainty and praying that judgment be rendered
annulling or modifying the proceedings, as the law requires, of such
tribunal, board or officer.

Sec. 5. Defendants and costs in certain cases. — When the petition filed
relates to the acts or omissions of a court or judge, the petitioner shall
join, as parties defendant with such court or judge, the person or persons
interested in sustaining the proceedings in the court. . . .

There can be no dispute on the fact that insofar as the partial decision in Civil
Case No. Q-91-10494, challenged in CA-G.R. SP No. 40258, is concerned, IDP
can by no yardstick be considered as a party interested in sustaining the
challenged partial decision pursuant to the aforequoted Section 5. In fact, IDP
was also an aggrieved party in said partial decision. It could have challenged
the partial decision and the previous order declaring it in default.

Neither is there merit in the second ground relied upon by LIGON. While LIGON may
be correct in her argument that a cross-claim must be answered, and the party who
fails to file an answer thereto may be declared in default, 27one should not lose sight
of the true nature of a cross-claim. Section 7 28 of Rule 6 of the Rules of Court
defines a cross-claim as any claim by one party against a co-party arising out of the
transaction or occurrence that is the subject matter either of the original action or of
a counterclaim. It may include a claim that the party against whom it is asserted is
or may be liable to the cross-claimant for all or part of a claim asserted in the action
against the cross-claimant. The answer then to the cross-claim is meant to join the
subsidiary issues between the co-parties in relation to the opposing party's claim
against the cross-claimant. 29 Needless to state, until the principal issue between the
plaintiff and the defendant cross-claimant shall have been heard and determined, it
would be premature to decide the cross-claim.

It may also be pointed out that in her cross-claim against IDP, LIGON alleged that
IDP unjustly refused to pay the loans it contracted from her, which had become due
and demandable. She thus prayed that the trial court render judgment.

1. Ordering IDP, INC, VINA and DE LEON to pay solidarily

defendant, third party plaintiff and cross claimant LIGON the
sum of P9 Million plus stipulated interest of 36% per annum
from the due dates of the obligations within ten (10) days
from finality of the judgment and attorney's fees of
P900,000.00 plus appearance fee of P1,000.00 per
appearance in Court and conferences with adverse parties as
attorney's fees;

2. Should they fail to pay the said sums within the

abovementioned period of time, ordering the foreclosure of
 the real estate mortgages, the sale at public auction of the
property subject matter of said mortgages . . . and the
application of the proceeds thereof to the satisfaction of the
sums due defendant and cross claimant LIGON, including the
taxes paid, attorney's fees and costs of foreclosure and
litigation.

Earlier however, IDP charged in its Answer with Cross-claim 30 that LIGON should
have known that the persons she transacted with had no authority to bind IDP to the
loans and mortgages she was trying to enforce. Further, IDP alleged that it never
benefited from the money loaned from LIGON. Thus, IDP argued that as far as it was
concerned, the subject loans and mortgages were null and void. IDP prayed that
judgment be rendered.

1. Declaring that the mortgages executed by ATTY.

ABDULRAHMAN LINZAG and MRS. ROWAIDA BUSHRAN
SAMPACO and annotated in the Transfer Certificates of Title . .
. are null and void as far as defendant IDP is concerned;

2. Ordering and directing the Register of Deeds of Quezon City

to cancel the registered or annotated mortgages on the
aforementioned Transfer Certificates of Title;

3. Ordering the cross-claim defendant Ligon to deliver the

original of the reconstituted Transfer Certificates of Title. . . .

From the foregoing, it is inevitable that IDP's cross-claim effectively joined the
subsidiary issues between the co-parties. Requiring an answer to LIGON's cross-
claim would be superfluous. Consequently, declaring IDP in default on the cross-
claim was improper.

LIGON's contention that INC was not aggrieved by the trial court's order of
foreclosure of mortgages cannot be taken seriously. INC's principal cause of action
was the annulment of the mortgages. The partial decision resolved this issue against
INC through the backdoor and without INC having presented its evidence. In short,
the trial court disregarded the fact that LIGON's cross-claim was connected with, or
dependent on, the subject of INC's original complaint.

As regards the final issue, we hold that INC did not engage in forum-shopping. There
is forum-shopping when as a result of an adverse decision in one forum or, it may be
added, in anticipation thereof, a party seeks a favorable opinion in another forum
through means other than appeal or certiorari, 31 raising identical causes of action,
subject matter, and issues. 32 Forum-shopping exists when two or more actions
involve the same transactions, essential facts, and circumstances; and raise identical
causes of action, subject matter, and issues. 33 Yet another indication is when the
elements of litis pendencia are present or where a final judgment in one case will
amount to res judicata in the other case. The test is whether in the two or more
pending cases there is an identity of (a) parties, (b) rights or causes of action, and
(c) reliefs sought. 34

INC instituted Civil Case No. Q-90-6937 to compel IDP to comply with its
undertaking to clear of squatters the lots the latter sold to the former. On the other
hand, in Civil Case No. Q-91-10494 INC sought to annul the mortgages and enjoin
LIGON from foreclosing them. The two cases involved different transactions and
sought different reliefs. Moreover, INC won in Civil Case No. Q-90-6937; hence, it
cannot be said that the later Civil Case No. Q-91-10494 was filed as a result of an
adverse decision in one forum. On the other hand, CA-G.R. SP No. 40258 was a
special civil action for certiorari, which was instituted, and correctly so, in reaction to
an adverse partial decision in Civil Case No. Q-91-10494.
Unfortunately, the dismissal of the instant petition cannot inure to the benefit of INC,
since its opposition to LIGON's cause has been rendered moot and academic by the
decision in G.R. No. 117897 declaring null and void the sale of the IDP properties to
INC. Upon the other hand, the validity of the deeds of mortgage in favor of LIGON
has yet to be settled in Civil Case No. Q-91-10494.

WHEREFORE, the instant petition is DISMISSED for lack of merit. Costs against
petitioner LETICIA P. LIGON. SO ORDERED.

G.R. No. 101566 March 26, 1993

HON. FLORENCIO A. RUIZ, JR., SENT OF GOD FOUNDATION, INC., S OF G

FOUNDATION, INC., RAUL G. FORES, SENEN P. VALERO and FATHER ODON
DE CASTRO, petitioners, 
vs.
THE HON. COURT OF APPEALS, SPS. OLEGARIO ORBETA and SUSANA
ROSARIO S. ORBETA, respondents.

Antonio Coronel and Norberto L. Villarama for petitioners.

Eladio B. Samson for private respondents.

Antonio E. Escober collaborating counsel for private respondents.

RESOLUTION

GRIÑO-AQUINO, J.:

The private respondents, spouses Olegario Orbeta and Susana Rosario S. Orbeta,
have filed a motion for reconsideration of the decision dated August 17, 1992 of this
Court which reversed the decision of the Court of Appeals 1 granting the petition
for certiorari in CA-G.R. SP No. 17013, "Spouses Olegario Orbeta and Susana
Rosario S. Orbeta, petitioners vs. Hon. Florencio A. Ruiz, Jr., et al." and upholding on
procedural grounds, the orders of the Regional Trial Court of Ilocos Sur, dismissing
the Crisologos' complaint and the Orbetas' answer with cross claim, in Civil Case No.
313-KC, entitled "Carmeling P. Crisologo, et al., vs. Sent of God Foundation Inc., et
al."
This is a splinter case arising from the complaint filed on July 29, 1988 by Carmeling
P. Crisologo and her children for revocation of two (2) deeds of donation: (a) the first
was a donation made on September 17, 1976, of a
100-hectare island in Cabugao, Ilocos Sur; and (b) the second was a donation of two
(2) lots in Guimod, San Juan, Ilocos Sur, to the Sent of God Foundation, Inc., which
was represented in both transactions by Carmeling's niece, Susana Rosario Orbeta,
and her husband, Olegario Orbeta, who were members of the Sent of God
Foundation, Inc., otherwise known as the Caryana Movement, a religious cult headed
by a Benedictine monk, Father Odon de Castro, as the group's spiritual director. The
donations were subject to three (3) conditions imposed by the donors, to wit:

(1) that the donated land shall be used exclusively to provide a monastic
life and experience according to the rules of St. Benedict, and for such
other religious and charitable purposes as may be determined by the
donee;

(2) that the donee shall not sell, lease or allow the use of the parcels of
land donated or any part thereof for any other purposes; and

(3) that in the remote event that the donee no longer needs the property
for its religious and charitable purposes, the same shall revert to the
donors or their heirs.

Ten years later, on November 7, 1986, the Sent of God Foundation, Inc.,
represented by its chairman of the board of trustees, Dr. Raul Fores, with the
consent of the donors, transferred the Puro-Salomague Island (renamed St. Benedict
Island by Fr. Odon de Castro) to the S of G Foundation, Inc., represented by Senen
P. Valero, subject to the same conditions as the original donation.

Unfortunately, the Caryana Movement was denied canonical recognition and its
spiritual director was himself expelled from the Benedictine order and stripped of his
priestly functions by the Archbishop of Manila, Jaime Cardinal Sin.

Disturbed by these developments, for one of the conditions of her donation to the
Movement was that the Island would be used "to provide a monastic life and
experience according to the rules of St. Benedict," Mrs. Crisologo wrote a letter on
February 8, 1988 to Dr. Fores, asking for the return of her island. Dr. Fores assured
her that the papers would be prepared for that purpose. On February 23, 1988, she
wrote another letter to Dr. Fores reminding him of his promise to return the Island
and offering to reimburse the Foundation for its improvements on the island. Dr.
Fores asked for a conference with Mrs. Crisologo to hasten the return of the island to
her. But shortly thereafter, in the same month of February, 1988 and continuing up
to March, the Sent of God Foundation, Inc. and S of G Foundation, Inc., abandoned
Puro-Salomague Island. Their agents destroyed and demolished almost all the
improvements thereon.

A third letter dated March 9, 1988 was written by Mrs. Crisologo, addressed to Mrs.
Concepcion (Chit) Feria, a member of the Sent of God Foundation, Inc., reiterating
her request for the return of the island, but nothing happened.

On July 29, 1988, Mrs. Crisologo and her children filed a complaint (Civil Case No.
313-KC, Regional Trial Court, Branch 24, of Cabugao, Ilocos Sur) against the Sent of
God Foundation, Inc., the S of G Foundation, Inc., Raul G. Fores, Senen P. Valero,
Fr. Odon de Castro and Spouses Olegario and Susana Rosario S. Orbeta for the
revocation of the donation and the return of the island to the donors.

In their answer dated August 30, 1988, the defendants (except the Orbetas)
admitted the donations but denied that they had violated the conditions thereof.
They further alleged that the Crisologos had no basis for revoking the donations
because canonical recognition is not required for a lay community to live a Christian
life in accordance with the rules of St. Benedict; that the expulsion of Fr. Odon de
Castro from his Order is pending review by the authorities in Rome; and that the
circular of the Archdiocese of Manila disallowing him to perform priestly functions
was already known to the Crisologos when they gave their consent to the donation of
the island to the S of G Foundation, Inc., to which the island was transferred because
the S of G Foundation is a qualified tax-exempt donee. They alleged that they did not
destroy, but only "dismantled," their improvements on the island preparatory to the
transfer of the group to Sabang in order to avoid harassment by Susana Orbeta who
had been expelled by the Sent of God Foundation, Inc., allegedly for violating the
rule of poverty of St. Benedict. They admitted Dr. Fores' promise to return the island
to the Crisologos but gave reasons for the delay in effecting the reconveyance,
among which was the legal problem allegedly raised by dispossessed farmers. They
denied that they abandoned the island for they merely transferred from the upper
portion thereof to the lower portion where the rule of poverty may be more properly
observed. Their answer contained a counterclaim for attorney's fees and expenses of
litigation. They prayed that the complaint be dismissed, or, in the alternative, that
the Crisologos and the Department of Agrarian Reform be compelled to interplead
their claims to the island.

Plaintiffs filed an answer to the counterclaim on September 22, 1988.

The Orbetas filed a separate Answer with Cross-claim on September 30, 1988,
making common cause with the plaintiffs. They alleged that in January 1976, Fr.
Odon de Castro instructed Mrs. Orbeta to look for an ideal place in Ilocos Sur to
house the monastery of the Caryana Movement, so she thought of approaching her
aunt, Mrs. Crisologo, who is a devout Catholic and devotee of St. Benedict, and who
is considered one of the biggest landowners in Ilocos Sur. Even if she had not met
Fr. Odon, Dr. Fores, and Senen Valero, pillars of the Sent of God Foundation, Inc.,
Mrs. Crisologo was persuaded by Mrs. Orbeta to give her Puro-Salomague Island for
the use of the Caryana Movement. Upon inspection by Fr. Odon, the island was
found suitable for the purposes of the movement, but since the Sent of God
Foundation, Inc., did not have money to buy it, Mrs. Orbeta persuaded her aunt to
donate it to the Foundation subject to certain conditions already mentioned in the
complaint. The Orbetas confirmed that the Foundation violated the conditions of the
donation when it was denied canonical permission to teach the monastic life
according to the rules of St. Benedict. The Orbetas joined the plaintiffs' demand for
the reversion of the island to the donors. The Orbetas further alleged that because of
the "misrepresentation, deceptions, questionable practices and heretical teachings of
defendant Fr. Odon de Castro, they (Orbetas) disassociated themselves from the
Caryana Movement; that as the denial of church recognition for the Caryana
Movement and the dismissal of Fr. Odon de Castro, as a Catholic monk of the
Benedictine Order, violated the conditions of the donations, the Orbetas alleged that
they have a legal obligation to return the island to the plaintiffs; and that the alleged
protest of the farmers is a concoction of the Foundations to delay the return of the
island to the Crisologos for the tenancy case between some farmers and Mrs.
Crisologo had been settled in 1980 yet, by an Order dated May 28, 1980 of the
Minister of Agrarian Reform.

The Orbetas asserted a cross claim against their co-defendants for moral and
exemplary damages and expenses of litigation because the refusal of the
Foundations to reconvey the island to the Crisologos caused the Orbetas to be
dragged into this case, and has put them (Orbetas) "in a bad perspective"
(p. 148, Rollo). They prayed that judgment be rendered for the plaintiffs and that the
Foundations and their co-defendants be ordered to pay damages.

On November 24, 1988, the Foundations, etc. filed a "Motion to Dismiss Crossclaim
(of the Orbetas) and to Strike Out."
On December 5, 1988, the Foundations, etc. (except the Orbetas) filed a "Motion to
Dismiss and to Drop Defendants," alleging that: (1) the complaint states no cause of
action against the Foundations because they did not violate the conditions of the
donation; and (2) the individual defendants (Fores, Valero and Fr. De Castro) are not
real parties in interest for they merely acted for the Foundations which have legal
personalities separate from their officers. Furthermore, the original deeds of donation
in favor of the Sent of God Foundation, Inc. have already been cancelled by the
execution of a third deed of donation by the Sent of God Foundation, Inc. in favor of
the S of G Foundation, Inc., with the consent of the plaintiffs. The motion was set for
hearing on December 16, 1988 at 2:00 p.m.

A copy of the motion to dismiss was received by the Secretary of plaintiffs' counsel,
Attorney Eduardo Alcantara, on December 14, 1988, or one day short of the
reglementary 3-day notice. On January 2, 1989, Attorney Alcantara, who was in
Manila when the motion was received in his office in Vigan, filed an "Explanation and
Vigorous Opposition to the Motion to Dismiss and Drop Defendants." However, on
the same date, Judge Florencio A. Ruiz, Jr. issued an Order overruling the Opposition
for "having been filed out of time" and dismissing the complaint because "the
grounds alleged in support thereof (are) meritorious, even as no timely opposition to
defendants' motion to dismiss had been filed by any of the adverse parties on or
before the scheduled date and time of hearing thereon . . ." The Orbetas' cross claim
was also dismissed because it had "no more leg to stand on." (p. 160, Rollo.)

On January 12, 1989, the plaintiffs filed a motion for reconsideration, which was
adopted by the Orbetas in an urgent ex parte manifestation dated February 7, 1989.
This motion was denied on February 8, 1989. The Crisologos then sought a review of
the order of dismissal by the Court of Appeals through a petition for certiorari under
Rule 65 of the Rules of Court, alleging grave abuse of discretion on the part of the
trial court. Docketed as CA-G.R. No. SP-16837, it was dismissed on May 2, 1989, 2 on
the ground that the proper remedy was an ordinary appeal. The appellate court ruled
that "since the petitioner did not appeal the questioned order of January 2, 1989, of
respondent court dismissing the complaint, said order had become final and
executory." (p. 42, Rollo.)

The Orbetas who had not joined the Crisologos in CA-G.R. No.
SP-16837, filed their own petition for certiorari in the Court of Appeals where it was
docketed as CA-G.R. SP No. 17013. Their petition prospered. On September 28,
1990, the Court of Appeals3 annulled Judge Ruiz's order of dismissal and reinstated
the complaint. Reconsideration of this decision was denied on August 27, 1991. The
Foundations, etc. appealed to this Court which, as previously stated, reversed the
Court of Appeals.

The Orbetas filed a motion for reconsideration of our decision. The Court denied it by
resolution dated October 21, 1992. However, the Orbetas filed a timely Motion to
Recall that resolution. They invited the court's attention to the fact that the
resolution denying their motion for reconsideration did not carry the necessary votes
of three (3) justices for only Justices Cruz and Aquino voted on it as Justice Bellosillo
took no part and Justice Medialdea was on sick leave of absence, when the motion
for reconsideration was deliberated upon.4 Consequently, the Division decided to
refer the case to the Court En Banc which recalled the resolution for lack of the
necessary votes and constituted a Special First Division 5 to deliberate on the Orbetas'
motion for reconsideration.

After a careful review and study of the records, the Court finds merit in the motion
for reconsideration. The Court of Appeals did not commit a reversible error in setting
aside the orders of Judge Florencio A. Ruiz, Jr. granting the motion to dismiss the
complaint in Civil Case No. 313-KC because:
(1) Judge Ruiz gravely abused his discretion in proceeding to hear and grant the
motion to dismiss of the defendants (except the Orbetas) without the requisite 3-day
notice to the plaintiffs; and

(2) The Orbetas are proper parties-in-interest to seek a review on certiorari of the
trial court's order dismissing the complaint in Civil Case No. 313-KC.

The trial court gravely abused its discretion in issuing the order of dismissal because
the plaintiffs were given only two (2) days' notice (the Orbetas none at all) of the
hearing of the motion to dismiss. The notice was received in the office of the
plaintiffs' counsel (not by counsel himself) on December 14, 1988. The motion was
heard on December 16, 1988.

The motion to dismiss was filed after the defendants had already answered the
complaint. Having already filed their answer, the Foundations were estopped from
filing a motion to dismiss the complaint, for a motion to dismiss should be filed
"within the time for pleading," i.e., within the time to answer (Sec. 1, Rule 16, Rules
of Court).

The allegation of the defendants (except the Orbetas) that the complaint did not
state a cause of action was not a proper ground to dismiss it for said defendants
could not have joined issue upon the material allegations of the complaint if the
same did not state a sufficient cause of action against them. A careful perusal of the
complaint of the Crisologos, and the Orbetas' "answer," shows that the elements of a
cause of action are pleaded therein.

While the Orbetas were impleaded as defendants in the action, together with the
Foundations, Fr. Odon de Castro, Dr. Raul G. Fores, and Senen Valero, they filed a
separate answer making common cause with the plaintiffs. Their answer included a
cross claim for damages against their co-defendants. Their answer with cross-claim
was, in effect, a complaint against the Sent of God Foundation, Inc. and the other
defendants. This peculiarity of their pleading could not have been missed by the trial
court, for the other defendants in fact accused them of collusion with the plaintiffs.
In view of that circumstance, the trial court should have looked beyond the form, to
the substance, of their pleading. In the interest of justice and orderly procedure, the
trial court should have treated their answer as a complaint and should have ordered
them to disassociate themselves from the other defendants and be joined as
additional plaintiffs in the case, for that is the side with which they have aligned
themselves.

The Orbetas had an interest in the subject matter of the Crisologos' suit for they
were the conduit, through whom the Crisologos effected the donation of their island
to the Sent of God Foundation, Inc. They were signatories of the deed of donation of
Puro-Salomague Island. Being instrumental in obtaining the donations from the
Crisologos, they are de facto plaintiffs with an actual interest in the enforcement of
the conditions of the donation and in the recovery of the donated property on
account of the donee's violations of the conditions of the donation.

Being de facto plaintiffs, the Orbetas could file in the Court of Appeals a separate
petition for review on certiorari of the trial court's order dismissing their demand for
the reversion of the island to the donors.

The finality of the trial court's order dismissing the Crisologos' complaint was not an
obstacle to the plaintiffs' and the Orbetas' recourse to the Court of Appeals by a
petition for certiorari under Rule 65 of the Rules of Court for such a petition may be
filed "within a reasonable time," not within the time to appeal (Great Pacific Life
Assurance Corporation vs. NLRC, 188 SCRA 139; Andaya vs. NLRC, 188 SCRA 253).
Even if appeal should have been the proper remedy against an oppressive and
arbitrary order or decision of a lower court, the aggrieved party may avail of the
special civil action of certiorari when appeal would not be a speedy and adequate
remedy. In this case, appeal would have been neither speedy nor adequate for the
plaintiffs and the Orbetas had not been given a chance to prove their causes of
action, hence, there was no evidence in the records upon which to anchor a
judgment by the Appellate Court in their favor.

. . . the Appellate Court can legally entertain the special civil action
of certiorari in CA-G.R. No. 14821-SP considering the broader and
primordial interests of justice  which compel an occasional departure from
the general rule that the extraordinary writ of certiorari cannot substitute
for a lost appeal, the order of March 15, 1979 having become final upon
the lapse of the reglementary period of appeal. (Pachoco vs. Tumangday
and Fernando, etc., 108 Phil. 239; Co Chuan Seng vs. CA, 128 SCRA 308;
Destileria Limtuaco & Co. vs. IAC, 157 SCRA 706; Del Pozo, et al. vs.
Judge Penaco, 167 SCRA 577; Fernando Pelagio, et al. vs. The Hon. Court
of Appeals, et al., G.R. No. 63188, June 13, 1990; Emphasis supplied.)

Certiorari is one such remedy. Considered extraordinary, it is made

available only when there is no appeal, nor any plain, speedy or adequate
remedy in the ordinary course of the law (Rule 65, Rules of Court,
Section 1). The long line of decisions denying the petition for certiorari,
either before appeal was availed of or specially in instances where the
appeal period has lapsed, far outnumbers the instances
when certiorari was given due course. The few significant exceptions
were: when public welfare and the advancement of public policy
dictate: or when the broader interests of justice so require, or when the
writs issued are null (Yu Tirona vs. Nanawa, No. L-22107, September 30,
1967, 21 SCRA 395, 400; Director of Lands vs. Santamaria, 44 Phil. 594,
596, cited in 3 Moran, Comments on the Rules of Court, 170-172
(1980), or when the questioned order amounts to an oppressive exercise
of judicial authority. (Acain vs. IAC, 155 SCRA 100; Sunbeam
Convenience Foods Inc., et al. vs. Hon. Court of Appeals, et al., 181
SCRA 443; Emphasis supplied.)

IN VIEW OF ALL THE FOREGOING, we GRANT the motion for reconsideration and
AFFIRM the decision dated September 28, 1990 of the Court of Appeals in CA-G.R.
SP No. 17013. The orders dated January 2, 1989  and February 8, 1989  of herein
petitioner, Judge Florencio A. Ruiz, Jr., in Civil Case No. 313-KC are hereby
ANNULLED AND SET ASIDE. Said civil case should proceed to trial on the merits with
all reasonable dispatch. Costs against the petitioners. SO ORDERED.
[G.R. No. 139951. November 23, 2000]

RAMON M. VELUZ, petitioner, vs. COURT OF APPEALS and RUDECON

MANAGEMENT CORPORATION, respondents.

DECISION
GONZAGA-REYES, J.:

This Petition for Review on Certiorari seeks the reversal of the Resolution of the
Court of Appeals[1] in CA G.R. SP No. 51492 entitled Ramon M. Veluz vs. Rudecon
Management Corporation dismissing the Petition for Certiorari[2] filed by herein
petitioner, Ramon M. Veluz, from the Decision of the Regional Trial Court [3], National
Capital Judicial Region, Branch 78, Quezon City which affirmed the decision of the
Metropolitan Trial Court, Branch 41, Quezon City ordering the herein petitioner to
vacate Unit 4-D or Room 404 of Tempus Place I Condominium located at 21 Matalino
Street, Diliman Quezon City; to pay herein respondent P20,000.00 a month as
reasonable rental for the use of the subject unit until petitioner vacates the same; to
pay the respondent P10,000.00 for and as attorneys fees and costs of the suit; and
dismissing the petitioners counterclaim.
The material facts are as follows:
 On September 15, 1997, the respondent Rudecon Management Corporation
(RUDECON) filed an action for unlawful detainer against the petitioner, Ramon M.
Veluz (VELUZ) in the Metropolitan Trial Court, Branch 41, Quezon City.
On July 7, 1998, the MTC rendered its decision [4] in favor of the plaintiff and
ordered VELUZ to vacate the property subject of the action, as earlier cited.
VELUZ appealed to the RTC, National Capital Judicial Region, Branch 78, Quezon
City. During the pendency of the appeal with the RTC, Sisenando Singson
(SINGSON) through Attorney Manuel N. Camacho (ATTORNEY CAMACHO), filed a
Motion for Intervention with an attached Answer in Intervention with affirmative
defenses and compulsory counterclaim against RUDECON claiming that he is the real
party in interest being the owner of the property subject of the ejectment case by
virtue of a swapping agreement between him and Pablo Tolentino (TOLENTINO), the
party to whom RUDECON allegedly sold the said property under an Absolute Deed of
Sale, and that VELUZ is his lessee. [5] RUDECON opposed the motion for intervention
and also filed a Motion to Show Cause why intervenor SINGSON and his counsel
should not be cited for contempt for forum shopping inasmuch as SINGSON earlier
filed an action for damages and reconveyance of the subject property in Civil Case
No. Q-98-35444 which is pending in Branch 79 of said court. [6]
On November 5, 1998, the motion for intervention was denied on the ground that
in the exercise of its appellate jurisdiction, the RTC can decide the ejectment case
based only on the records and the memoranda of the parties; that the RTC is not
allowed to conduct a new trial or hearing on the merits; that a motion for
intervention is no longer allowed after rendition of judgment by the trial court; and
that the claim of ownership of the would-be intervenor has been raised by SINGSON
as plaintiff in Civil Case No. Q-98-35444 wherein his rights can be fully protected. [7]
On November 6, 1998, the RTC found RUDECONs Motion to Show Cause well
taken and reprimanded both SINGSON and ATTORNEY CAMACHO for forum shopping
without prejudice to administrative sanctions against ATTORNEY CAMACHO. [8]
Meanwhile, RUDECON filed a Motion for Execution pending appeal and a Second
Motion for Execution pending appeal, which were both granted by the RTC on
October 15, 1998.[9] The writ of execution ordered VELUZ and anyone claiming rights
under him to vacate the subject property and restore possession thereof to
RUDECON.[10]
On December 1, 1998, the RTC rendered its decision against VELUZ affirming in
toto the decision of the MTC.[11]
Motion for reconsideration of the RTC decision was denied [12] prompting VELUZ to
file a Petition for Certiorari with prayer for injunctive relief with the Court of Appeals
docketed as CA G.R. No. 51492 through his lawyer, ATTORNEY CAMACHO (also
SINGSONs lawyer) on March 12, 1999.[13]
On April 15, 1999, the Court of Appeals, without necessarily giving due course to
the petition, required the respondent RUDECON to file comment within ten (10) days
and also allowed the petitioner to file a reply within five (5) days from receipt of said
comment.[14]
On April 27, 1999, RUDECON filed comment to the petition praying for its outright
dismissal. RUDECON further alleged that the petitioner and his counsel were guilty of
forum shopping since another petition, CA-G.R SP No. 49648 (a petition
for certiorari filed by SINGSON through his lawyer, ATTORNEY CAMACHO of the
decision of the RTC in Civil Case No. Q-98-35326 and the orders issued by it which
affirmed the order of ejectment issued by the MTC against VELUZ) was already
pending in the Court of Appeals. [15]Subsequently, on April 29,1999, RUDECON filed a
MANIFESTATION AND MOTION[16] with MOTION TO SHOW CAUSE WHY PETITIONER
AND HIS COUNSEL SHOULD NOT BE CITED FOR CONTEMPT AND BE PENALIZED FOR
FORUM-SHOPPING (CA-G.R. SP No. 51492) [17] and SECOND MOTION TO SHOW
CAUSE WHY PETITIONER AND HIS COUNSEL SHOULD NOT BE CITED FOR
CONTEMPT AND BE PENALIZED FOR FORUM-SHOPPING (CA-G.R. SP No. 49648)
[18]
. Briefly, the motions alleged that ATTORNEY CAMACHO failed to inform the Court
of Appeals that he filed two Petitions for Certiorari raising substantially the same
facts, issues and relief sought by substantially the same parties docketed as CA-G.R.
SP No. 49648 in favor of his client SINGSON, and CA-G.R. SP No. 51492 in favor of
his other client VELUZ in violation of Supreme Court Circular No. 04-94 dated April 1,
1994 and Section 3, Rule 46 of the 1997 Rules of Civil Procedure proscribing forum-
shopping.
On July 1, 1999, the Court of Appeals rendered its decision now subject of this
present petition dismissing on the ground of forum shopping herein petitioners
Petition for Certiorari of the RTC decision. [19] In dismissing the petition, the Court of
Appeals ratiocinated that the allegations of RUDECON in its Motion to Show Cause
Why Petitioner and His Counsel Should Not Be Cited For Contempt And Be Penalized
For Forum-Shopping (CA-G.R. SP No. 51492) to the effect that the petitioners were
guilty of forum-shopping remained unrebutted inasmuch as the petitioner did not file
a Reply to the Comment filed by RUDECON.
Motion for reconsideration was denied [20] hence this present petition where the
petitioner raises the following issues:

(1) Whether or not, there was violation of procedural due process in the dismissal of
the Petition for Review/Certiorari  in said CA-G.R. SP No. 51492 under Rule 42/65 by
the Court of Appeals merely because of herein Petitioners failure to file a Comment
or Reply to private Respondents Motion to Show Cause without having been required
by the Court of Appeals to file the same as usually required of parties to conform
with procedural due process of law.

(2) Whether or not a Petition for Review/Certiorari under Rule 42/65 filed with the
Court of Appeals, docketed as CA-G.R. SP No. 51492, originating from an unlawful
detainer case filed against therein petitioner and thereafter appealed by Petition for
Review to the Regional Trial Court of Quezon City, may be dismissed for Forum
Shopping on the ground that another Petition for Certiorari under Rule 65 has been
filed with the Court of Appeals by an indispensable party (therein petitioners lessor),
albeit not impleaded in the unlawful detainer case and whose intervention was
denied by the appellate Regional Trial Court, but nevertheless was the party against
whom the adverse decisions were enforced and implemented. [21]

In support of his petition, VELUZ argues that he was denied procedural due
process when the Court of Appeals dismissed his petition for review for failure to file
a reply to RUDECONs comment. Moreover, the Motion to Show Cause filed by
RUDECON was resolved without giving him the opportunity to be heard on said
motion. VELUZ maintains that his failure to file a reply should not have been
construed by the Court of Appeals as an admission of the allegation of forum
shopping for the allegation of forum shopping is a newly alleged matter. Under the
Rules of Court, any new matter alleged in an answer is deemed controverted should
the opposing party fail to file a reply.
VELUZ also contends that the claim of RUDECON that he is guilty of forum
shopping is devoid of any legal and factual basis considering that he is not a party to
the petition filed by SINGSON in CA-G.R. No. 49648. He claims that forum shopping
exists when the elements of litis pendentia are present or where a final judgment in
one case would amount to res judicata in the other. Since he is not a party in CA-
G.R. No. 49648, there can neither be litis pendentia or res judicata.
Finally, the petitioner prays that this Court resolve the petition on the merits
inasmuch as the facts of the present case are undisputed and the pleadings of the
parties necessary for the final determination of the controversy are before this Court.
We find the petition partly meritorious.
 First of all, the conclusion of the Court of Appeals that the allegation made by
RUDECON that VELUZ was guilty of forum shopping was unrebutted since VELUZ
failed to file a reply to the comment is erroneous.
Under Section 10, Rule 6 of the 1997 Rules of Civil Procedure, any new matter
alleged by way of defense in the answer (or comment as in this case) is deemed
controverted should a party fail to file a reply thereto. Except in cases where the
answer alleges the defense of usury in which case a reply under oath is required
otherwise the allegation of usury is deemed admitted, or is based on an actionable
document in which case a verified reply is necessary otherwise the genuineness and
due execution of said actionable document is generally deemed admitted, the filing
of a reply is merely optional as the new matters raised in the answer are deemed
controverted even without a reply.[22] Considering that the allegation that VELUZ was
guilty of forum-shopping is a new matter raised in RUDECONs comment, such
allegation should have been deemed controverted when the petitioners did not file a
reply thereto and it should not, as ruled by the Court of Appeals, have been deemed
unrebutted.
Secondly, the Court of Appeals also erred in basing its dismissal of VELUZs
petition on RUDECONs Motion to Show Cause and not on RUDECONs comment.
RUDECONs Motion to Show Cause essentially prayed that the petitioner and his
counsel ATTORNEY CAMACHO be ordered to show cause why they should not be
found guilty of direct and indirect contempt on the ground of forum-shopping. Said
motion was not filed as an answer to the petition for it was a distinct pleading from
RUDECONs comment which, aside from the petition, should have been the basis for
the Court of Appeals order of dismissal pursuant to Section 4 of Rule 42 of the Rules
of Court which provides that:
SEC. 4. Action on the Petition. The Court of Appeals may require the respondent
to file a comment on the petition, not a motion to dismiss, within ten (10) days
from notice, or dismiss the petition if it finds the same to be patently without merit,
prosecuted manifestly for delay, or that the questions raised are too unsubstantial to
require consideration. (emphasis supplied)
In basing its order of dismissal on RUDECONs motion to show cause, the Court of
Appeals in effect treated the same as a motion to dismiss in contravention of the
tenor of the above section.
We are however not persuaded by the assertion of the petitioner that he was
denied procedural due process.
The petitioners claim that the Court of Appeals never required him to file a reply
to the comment is belied by the Resolution of the Court of Appeals dated April 15,
1999, which states:

WITHOUT necessarily giving due course to this petition for certiorari with a prayer for
injunctive reliefs (sic), the Court RESOLVES to require the responent to COMMENT
thereon (not to file a Motion To Dismiss) within ten (10) days from notice hereof,
which Comment may be deemed as an Answer in the event the petition is given due
course.

Petitioner may file a Reply within five (5) days from receipt of the Comment.

Action on the temporary restraining order is held in abeyance pending receipt of

respondents comment on the petition.

SO ORDERED.[23] (italics supplied)

The above order is plain and simple and clearly states that the petitioner was given
an opportunity to file a reply to the comment.
 As regards the claim of forum shopping, a review of the two petitions filed with
the Court of Appeals shows that there was no forum shopping. There is forum
shopping when, in the two or more cases pending, there is identity of parties, rights
or causes of action and relief sought.[24] Forum shopping exists where the elements
of litis pendentia  are present or when a final judgment in one case will amount to res
judicata in the other.[25] For litis pendentia to exist, the following requisites must be
present:
1. Identity of parties, or at least such parties as those representing the same
interests in both actions;
2. Identity of rights asserted and reliefs prayed for, the reliefs being founded
on the same facts;
3. Identity with respect to the two preceding particulars in the two cases, such
that any judgment that may be rendered in the pending case, regardless of
which party is successful, would amount to res judicata in the other case.[26]
In the present case, the petitioner admits that the facts and circumstances of the
two subject petitions and the causes of action and relief sought therein are identical.
[27]
 However, we agree that there is neither identity of parties nor an identity of
rights asserted.CA-G.R. No. SP No. 51492 is a petition for certiorari filed by VELUZ
while CA-G.R. SP No. 49648 is a petition for certiorari and prohibition filed by
SINGSON. In his petition, VELUZ asserts his right to possess as lessee the subject
property pursuant to a lease contract entered into by him and the alleged owner
SINGSON. On the other hand, SINGSON, in his petition, asserts his better right to
possess the subject property by virtue of his ownership thereof arising from an
alleged swapping agreement between him and TOLENTINO to whom RUDECON had
allegedly sold the property. Although both VELUZ and SINGSON were represented by
the same ATTORNEY CAMACHO, it is clear that VELUZ and SINGSON are asserting
different rights.[28] Moreover, a judgment rendered in CA-G.R. No. SP No. 51492 will
not amount to res judicata as against SINGSON who was not a party to the appealed
case in the subject petition, i.e. MTC Civil Case No. 18436 or RTC Civil Case No. Q-
98-35326 (appeal of the MTC decision where SINGSONs motion to intervene was
denied).
Accordingly, VELUZ cannot be held guilty of forum shopping inasmuch as the
requisites of litis pendentia have not concurred.
On August 25, 2000, RUDECON filed a Manifestation and Motion where RUDECON
claims that VELUZ and ATTORNEY CAMCAHO again violated the prohibition on forum
shopping when they failed to inform this Court of the pendency of the following
actions filed by them concerning the same alleged facts and circumstances arising
from the present petition:
1. Commission on Bar Discipline Case No. 00-752 entitled Pablo Tolentino et.
al. vs. Rudegelio D. Tacorda a complaint for disbarment or suspension from
the practice of law filed against Attorney Rudegelio D. Tacorda, RUDECONs
president;
2. I.S. No. 99-7152 entitled Sisenando Singson vs. Rudegelio D. Tacorda for
violation of Art. 316 (1) of the Revised Penal Code;
3. I.S. No. 99-7171 entitled Sisenando Singson vs. Rudegelio D. Tacorda for
violation of Art. 318 of the Revised Penal Code; and
4. CA-G.R. CV No. 64281 entitled Sisenando Singson vs. Rudecon
Management Corporation the appeal of SINGSON from the dismissal of his
complaint for reconveyance of the subject property.
Indeed, these cases involve the same facts and circumstances due to the fact
that they arise from the same alleged transactions claimed by the respective
parties. However, the causes of action in each of these subsequent cases are distinct
from the case at hand and are in fact distinct from each other. Moreover, except for
the disbarment proceedings, it does not appear that VELUZ is a party to any of the
three other cases. Neither does it appear that CAMACHO acted as counsel in any of
them. Consequently there can be no forum shopping since the requisites of litis
pendentia do not obtain.
Finally, we deny the petitioners prayer that this Court decide the substantive
issues of the case inasmuch as the Court of Appeals has not yet passed upon the
factual issues raised by the parties.
WHEREFORE, the Resolution of the Court of Appeals dismissing herein
petitioners Petition for Certiorari is hereby REVERSED and SET ASIDE and the case is
remanded to the Court of Appeals for further proceedings. SO ORDERED.

G.R. No. L-475             August 31, 1946

ISAAC CAPAYAS, ETC., petitioner, 

vs.
THE COURT OF FIRST INSTANCE OF ALBAY, ET AL., respondents.

Ramon C. Fernandez for petitioner.

Victorino P. Abrera for respondents.

FERIA, J.:

This is a petition for mandamus to compel the respondent Court of First Instance of

Albay to admit the so-called amended third-party complaint filed by petitioner
against several persons named therein, on the ground that the refusal of the
respondent court to admit the same constitutes an unlawful neglect of the
performance of a duty specifically enjoined upon it by law, pursuant to Rule 12 of the
Rules of Court, sections 1 and 2 of which read as follows:

SECTION 1. Claim against one not a party to an action.—When a defendant

claims to be entitled against a person not a party to the action, hereinafter
called the third-party defendant, to contribution, indemnity, subrogation or any
other relief, in respect of the plaintiff's claim, he may file, with leave of court,
against such person a pleading which shall state the nature of his claim and
shall be called the third-party complaint.

SEC. 2. Motion for leave.—Before the service of his answer a defendant may
move ex parte  or, after the service of his answer, on notice to the plaintiff, for
leave as third-party plaintiff to file a complaint against a third-party defendant.

Petitioner's contention is untenable.

First. Because from the said provisions it clearly appears that it is not a court's duty
especially enjoined by law to admit a third-party complaint. Were it a ministerial
duty, it would not be necessary for the defendant to obtain leave of court to file such
complaint; because if the court has the duty to admit, the defendant has the
correlative right to file, a third-party complaint without necessity of such leave. Of
course, when the law says that a third party complaint may be filed with leave of
court, it refers to a complaint that alleges facts which prima facie  show that the
defendant is entitled against the third-party defendant to contribution, etc., etc.
Otherwise the court can not legally grant leave to a defendant to file it, because it
would not be a third-party complaint.

In the case of General Taxicab Assn., Inc. vs. O' Shea, U.S. Court of Appeals, Dist.
Court of Columbia, January 15, 1940, the court said: "Against this background of
statutes and decisions, the Supreme Court, in framing Rule 14(a), chose the
language "a defendant may move . . .  for leave  as a third-party plaintiff to serve a
summons and complaint upon a person not a party to the action, . . .' and the
language 'if the motion is granted. . . .' We think there can be no doubt that it was
thus intended to make the impleading of third parties in the Federal practice
discretionary with the trial court. See 1 Moore, op. cit., supra, 741: 'Whether a party
to an action shall be allowed to implead an additional party rests in the discretion of
the court. This is in accord with the English, New York and Wisconsin practices.'" (2
Fed. Rules Service, 14a.15, Case No. 1.)

Secondly. Because the respondent court would have committed an error if it had
admitted the so-called third-party complaint filed by the petitioner against Isidora
Lladoc, Fulgencio Lladoc and Gregorio Navera, since the facts alleged therein do not
show that the petitioner is entitled to indemnify against them "in respect to plaintiff's
claim."The test to determine whether the claim is, whether it arises out of the same
transaction on which the plaintiff's claim is based, or the third-party's claim, although
arising out of another or different contract or transaction, is connected with the
plaintiff's claim.

According to the decision in the case of Crim vs. Lumberman's Mutual Casualty Co.
(26 Fed. Supp., 715 [1 Fed. Rules Service, 14a11. Case No. 1]),the test to
determine when a third-party defendant may be impleaded is whether he could have
been joined originally as a defendant by the plaintiff. But this could be applied only if
there could be asserted against the defendant as the third-party defendant, jointly
and severally or in the alternatives, any right to relief arising out of the same
transaction. For example in an action against the surety in a bond, the surety may
bring in as a third party defendant, the principle who had agreed to indemnify the
surety, because the surety's claim arises out of the same transaction (United States
vs. United States Fidelity and Guaranty Co. vs. Kolling, U.S. Dist. Ct., D. Minn.,
February 1, 1940, 2 Fed. Rules Service 14a.222, Case No. 1). The above test does
not cover all cases in which impleading a third-party may be and have been allowed,
which are also covered by the test we have laid down in the previous paragraph.
Under Rule 14 of Federal Rules of Civil Procedure, which corresponds to our Rule 12,
the bringing in of a third-party defendant is proper if he would be liable to the
plaintiff or to the defendant for all or part of the plaintiff's claim against the original
defendant, although the third-party defendant's liability arises out of another
transaction. So in the case of Carbola Chemical Co., Inc. vs Trundle Engineering Co.
(U. S. Dist. Ct., S. D. N. Y., December 26, 1942), it was held that in an action for
breach of contract to render engineering services and to survey a plant, the
defendant was allowed to bring as a third-party defendant, the manufacturer which
sold defendant's equipment to the plaintiff (7 Fed. Rules Service, 14a.11, Case No.
1). And in a negligence action by the purchaser of a confection in which it is alleged
that the confection contained a foreign object, the defendant may bring in the person
who supplied him with the constituent containing the foreign object, as a third-party
defendant (Saunders vs. Southern Dairies, Inc., U.S. Dist. Ct., District of Columbia,
November 6, 1939 [2 Fed. Rules Service, 14a.226, Case No. 31]).

Another test, provided for by section 4, Rule 12, of our Rules of Court, is whether the
third-party defendant may assert any defenses which the third-party plaintiff has or
may have to the plaintiff's claim. If he may properly assert such defenses, then he is
a proper third-party defendant; otherwise he is not and the claim against him can
not be considered as a third-party complaint.

Petitioner's claim for indemnity against Lladoc and others does neither arise out of
the same transaction or the alleged petitioner's tortuous acts on which plaintiff's
action is based, nor is it based on a different transaction but connected with the
plaintiff's claim. Plaintiff's claim against petitioner and his co-defendants is, according
to the allegations in the complaint, (a) to recover from them damages for the palay
which have been illegally harvested from certain lands belonging to the plaintiff, and
(b) to enjoin them from entering said lands and disturbing and molesting the
plaintiff's right of ownership and possession thereof. Whereas the petitioner's claim
against Isidora Lladoc and others is to recover from the latter the value of the three
parcels of land and their fruits amounting to P3,200 plus legal interest, for having
said Isidora, as administratrix of the intestate estate of Ceferino Guanzon, sold said
lands in 1927 without authority of the court to Domingo Imperial, from whom said
lands were acquired by the plaintiff. And in the present case, it is clear that if the so-
called third-party complaint be allowed, Isidora Lladoc and others named therein as
third-party defendants could not assert any defense which the petitioner has or may
have to the plaintiff's claim.

Lastly. Because the causes of action in this complaint against the petitioner are that
"on the month of April, 1944, the defendants by force, intimidation and threat . . .
entered upon the aforesaid lands (described in the complaint) and harvested and
collected . . . 400 cavanes  of palay produced therefrom"; and that "the defendants
persist in their threat to enter upon said lands with the purpose of disturbing and
molesting the plaintiff's right of ownership and possession thereof." From these
allegations it appears that the petitioner is being sued in his personal capacity, and
not as administrator of intestate estate of Ceferino Guanzon; because he was
appointed as administrator only on July 1, 1944, according to petitioner's Exhibit A;
and it is not within the powers and duties conferred by law upon an administrator to
do the acts complained of. Being sued in his individual capacity, it is evident that the
petitioner can not file, in his capacity as administrator of the intestate estate of
Ceferino Guanzon, a third-party complaint against Isidora Lladoc and others. It
requires no elaborate argument to show that, under the provisions of section 1, Rule
12, a defendant can not file a third-party complaint in a different capacity in which
he is being sued; otherwise his claim against the third-party defendant would not be
in respect to plaintiff's claim. In other words, the would be third-party defendants
can not be made liable to the petitioner for all or part of the plaintiff's claim against
the petitioner.

Petition is therefore denied with costs against the petitioner. So ordered.

G.R. No. L-53969 February 21, 1989

PURIFICACION SAMALA and LEONARDO ESGUERRA, petitioners, 

vs.
HON. LUIS L. VICTOR, CFI of Cavite, Br. II, EMERITA C. JUMANAN and RICARDO
JUMANAN, respondents.

FERNAN, C.J.:
This is a petition for review on certiorari  seeking the reversal of the decision of the
Court of First Instance of Cavite, Branch II, Cavite  City, in Civil Case No. N-2411
entitled:  "Emerita C. Jumanan, et al., plaintiffs, v. Felisa R. Garcia, et aI,
defendants; Felisa R. Garcia, et al., third-party plaintiffs, v. Purification Samala, et
al., third party defendants; Purification Samala, fourth-party plaintiff, v. The lmperial
Insurance, Inc., fourth-party defendant", absolving the defendants from any liability
and ordering the third party defendants and fourth party plaintiffs, Purificacion 
Samala and Leonardo Esguerra (petitioners herein) and the fourth party defendant
Imperial Insurance, Inc., jointly and severally to pay to plaintiffs (respondents
herein) the damages mentioned in the decision.[1]

The factual background of this case as found by the trial court is as follows:

"At approximately 6:30 o'clock in the morning of February 7, 1976, plaintiff Emerita
C. Jumanan was riding a passenger jeepney on her way from her residence at
Binakayan, Kawit, Cavite to her place of work at the Department (now Ministry) of
Public Information in Intramuros, Manila, where she was employed.  The said
passenger jeepney, which is owned by defendants Felisa and Tomas Garcia, was the
being driven by defendant Virgilio Profeta and was bound for Manila carrying about
twelve passengers.

"While the aforesaid passenger jeepney where Emerita C. Jumanan was riding was
about to make a left turn on the road just below the bridge at Barrio Mabolo, Bacoor,
Cavite, a delivery panel of the Luau restaurant bearing plato no. UH-413 '73, driven
by Domingo Medina was approaching them the opposite direction from Manila,
followed by the Saint Raphael Transit passenger bus, owned by third party defendant
Purificacion Samala and being driven by third party defendant Leonardo Esguerra. 
The Saint Raphael Transit passenger bus was running fast and after overtaking a
vehicle the Saint Raphael Transit bumped the back portion of the delivery panel so
violently and strongly causing the delivery panel to swerve abruptly to the path of
the oncoming passenger jeepney in which plaintiff Emerita C. Jumanan was on
board.  So forceful was the impact of the collision between the delivery panel and the
passenger jeepney that several passengers of the jeepney were injured, including
plaintiff Emerita C. Jumanan.

"Taken to the National Orthopedic Hospital, after an emergency treatment at the

Katigbak clinic at Binakayan, Kawit, Cavite, Emerita C. Jumanan was examined and
found to be suffering from 'tenderness and swelling of the right thigh, tenderness
over the left hip, tenderness over the nape and back of the neck of the right
shoulder; limitation of left extremity, light limitation of motion of right extremity;
contusion left hip and right thigh and fracture of left inferior ramus of ischium'
(Exhibits D and D-1).  Admitted and treated at the National Orthopedic Hospital on
February 7, 1976, Emerita C. Jumanan was discharged on a wheel chair on February
20, 1976 and advised to have complete bed rest for thirty days." [2]
Emerita C. Jumanan, assisted by her husband Ricardo Jumanan, filed before the CFI
of Cavite a complaint for damages arising physical injuries suffered by her as a
passenger of the jeepney bearing plate no. PUJ-VY-542 '75 allegedly owned and
operated by the four-named defendant, spouses Felisa and Tomas Garcia, Emetiquio
M. Jarin and Juanita Madlangbayan, and driven by the last named defendant, Virgilio
Profeta.

In their separate answers, both Jarin and Madlangbayan denied liability, claiming
they no longer owned the passenger jeepney at the time of the incident in question,
said ownership having been transferred to the spouses Garcia.  While admitting to be
the owners of the passenger jeepney, the spouses Garcia nonetheless denied
liability, alleging that the vehicular collision complained of was attributable to the
fault and negligence of the owner and driver of the Saint Raphael Transit passenger
bus with plate no. XGY-297 PUB-Phil. '75.  Consequently, a third-party complaint
was filed by defendants spouses Garcia and Virgilio Profeta against Purification
Samala and Loenardo Esguerra, owner and driver, respectively, of the Saint Raphael
Transit bus.  The latter defendants, in turn, filed a fourth-party complaint against the
insurer of the Saint Raphael Transit Bus, Imperial Insurance, Inc., which was
declared in default for failure to appear at the pre-trial conference.

After trial, respondent Judge rendered a decision in favor of the defendants, the
dispositive portion of which reads:

"PREMISES CONSIDERED, judgment is hereby rendered -

1.  Absolving defendants, Felisa and Tomas Garcia, Virgilio Profeta, Juanito
Madlangbayan and Emetiquio Jarin from any liability;

2.  Ordering the third party defendants and fourth party plaintiffs, Purification
Samala and Leonardo Esguerra, and the fourth party defendant Imperial Insurance,
Inc., jointly and severally, to pay to plaintiffs Emerita C. Jumanan and Ricardo
Jumanan the following:

(a)  Actual or compensatory damages in the amount of P7,958.83;

(b)  Moral damages in the amount of P5,000.00;

(c)  Exemplary damages in the amount of P3,000.00; and

(d)  Attorney's fees and expenses of litigation in the amount of P2,000.00.

Plus costs of this suit.

SO ORDERED."[3]
Third party defendants Purificacion Samala and Leonardo Esguerra moved to
reconsider said decision, but to no avail.  Hence, this appeal by certiorari, therein
third party defendants (petitioners herein) contending that:

1.  The lower court erred in holding that the third-party defendants and fourth party
plaintiff and the fourth party defendant are jointly and severally liable to pay the
claim of plaintiffs.

2.  The third-party defendants and fourth-party plaintiff should be absolved from any
liability since the principal defendants have been absolved from the claim of
plaintiffs, a matter not appreciated by the lower court;

3.  The Lower Court erred in not holding that since plaintiffs' cause of action is based
on culpa contractual against the defendants only, they cannot recover from the third-
party defendants and fourth-party plaintiffs on a cause of action based on tort or
quasi-delict.[4]

At issue in this case is the nature and office of a third-party complaint.

Appellants argue that since plaintiffs filed a complaint for damages against the
defendants on a breach of contract of carriage, they cannot recover from the third-
party defendants on a cause of action based on quasi-delict.  The third party
defendants, they allege, are never parties liable with respect to plaintiff's claim
although they are with respect to the defendants for indemnification, subrogation,
contribution or other reliefs.  Consequently, they are not directly liable to the
plaintiffs.  Their liability commences only when the defendants are adjudged liable
and not when they are absolved from liability as in the case at bar. [5]

Quite apparent from these arguments is the misconception entertained by appellants

with respect to the nature and office of a third party complaint.

Section 16, Rule 6 of the Revised Rules of Court defines a third party complaint as 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,
indemnification, subrogation, or any other relief, in respect of his opponent's claim."
In the case of Viluan vs. Court of Appeals, et al., 16 SCRA 742 [1966], this Court had
occasion to elucidate on the subjects covered by this Rule, thus:

"x x x As explained in the Atlantic Coast Line R. Co. vs. U.S. Fidelity & Guaranty Co.,
52 F. Supp. 177 (1943:)

'From the sources of Rule 14[6] and the decisions herein cited, it is clear that this
rule, like the admiralty rule, covers two distinct subjects, the addition of parties
defendant to the main cause of action, and the bringing in of a third party for a
defendant's remedy over'.  x x x

'If the third party complaint alleges facts showing a third party's direct liability to
plaintiff on the claim set out in plaintiff's petition, then third party 'shall' make his
defenses as provided in Rule 12 and his counterclaims against plaintiff as provided in
Rule 13.  In the case of alleged direct liability, no amendment (to the complaint) is
necessary or required.  The subject-matter of the claim is contained in plaintiff's
complaint, the ground of third party's liability on that claim is alleged in third party
complaint, and third party's defense to set up in his answer to plaintiff's complaint. 
At that point and without amendment, the plaintiff and third party are at issue as to
their rights respecting the claim.

'The provision in the rule that, 'The third-party defendant may assert any defenses
which the third-party plaintiff may assert to the plaintiff's claim,' applies to the other
subject, namely, the alleged liability of third party defendant.  The next sentence in
the rule, 'The third-party defendant is bound by the adjudication of the third party
plaintiff's liability to the plaintiff, as well as of his own to the plaintiff or to the third-
party plaintiff,' applies to both subjects.  If third party is brought in as liable only to
defendant and judgment is rendered adjudicating plaintiff's right to recover against
defendant and defendant's rights to recover against third party, he is bound by both
adjudications.  That part of the sentence refers to the second subject.  If third party
is brought in as liable plaintiff, then third party is bound by the adjudication as
between him and plaintiff.  That refers to the first subject.  If third party is brought
in as liable to plaintiff and also over to defendant, then third party bound by both
adjudications.  x x x'".
Under this Rule, a person not a party to an action may be impleaded by the
defendant either (a) on an allegation of liability to the latter; (b) on the ground of
direct liability to the plaintiff; or (c) both (a) and (b).  The situation in (a) is covered
by the phrase "for contribution, indemnity or subrogation;" while (b) and (c) are
subsumed under the catch-all "or any other relief, in respect of his opponent's
claim."

The case at bar is one in which the third party defendants are brought into the action
as directly liable to the plaintiffs upon the allegation that "the primary and immediate
cause as shown by the police investigation of said vehicular collision between (sic)
the above-mentioned three vehicles was the recklessness and negligence and lack of
imprudence (sic) of the third-party defendant Virgilio (should be Leonardo) Esguerra
y Ledesma then driver of the passenger bus".[7] The effects are that "plaintiff and
third party are at issue as to their rights respecting the claim" and "the third party is
bound by the adjudication as between him and plaintiff." It is not indispensable in
the premises that the defendant be first adjudged liable to plaintiff before the third-
party defendant may be held liable to the plaintiff, as precisely, the theory of
defendant is that it is the third party defendant, and not he, who is directly liable to
plaintiff.  The situation contemplated by appellants would properly pertain to
situation (a) above wherein the third party defendant is being sued for contribution,
indemnity or subrogation, or simply stated, for a defendant's "remedy over".

Anent appellants' claim that plaintiff who sued on contractual breach cannot recover
on the basis of quasi-delict, suffice it to say that as the primary purpose of this rule
is to avoid circuity of action and to dispose of in one litigation, the entire subject
matter arising from a particular set of facts [8] it is immaterial that the third-party
plaintiff asserts a cause of action against the third party defendant on a theory
different from that asserted by the plaintiff against the defendant. [9] It has likewise
been held that "a defendant in a contract action may join as third-party defendants
those liable to him in tort for the plaintiff's claim against him or directly to the
plaintiff."[10]

The incident complained of having been found to have been caused by the
negligence of appellant Leonardo Esguerra, driver and employee of co-appellant
Purification Samala, no reversible error was committed by the trial court in adjudging
the latter liable to plaintiffs-appellees.

WHEREFORE, the instant appeal by certiorari is hereby DISMISSED with costs

against appellants.  This decision is immediately executory. SO ORDERED.

G.R. No. 78848 November 14, 1988

SHERMAN SHAFER, petitioner, 
vs.
HON. JUDGE, REGIONAL TRIAL COURT OF OLONGAPO CITY, BRANCH 75, and
MAKATI INSURANCE COMPANY, INC., respondents.
R.M. Blanco for petitioner.

Camacho and Associates for respondents.

PADILLA, J.:

This is a petition for review on certiorari of the Order * of the Regional Trial Court,
Olongapo City, Branch 75, dated 24 April 1986 dismissing petitioner's third party
complaint filed in Criminal Case No. 381-85, a prosecution for reckless imprudence
resulting in damage to property and serious physical injuries. 1

On 2 January 1985, petitioner Sherman Shafer obtained a private car policy, GA No.
0889, 2 over his Ford Laser car with Plate No. CFN-361 from Makati Insurance
Company, Inc., for third party liability (TPL).<äre||anº•1àw>  During the effectivity
of the policy, an information 3 for reckless imprudence resulting in damage to
property and serious physical injuries was filed against petitioner. The information
reads as follows:

That on or about the seventeeth (17th) day of May 1985, in the City of
Olongapo, Philippines, and within the jurisdiction of this Honorable Court,
the above-named accused, being then the driver and in actual physical
control of a Ford Laser car bearing Plate No. CFN-361, did then and there
wilfully, unlawfully and criminally drive, operate and manage the said
Ford Laser car in a careless, reckless and imprudent manner without
exercising reasonable caution, diligence and due care to avoid accident to
persons and damage to property and in disregard of existing traffic rules
and regulations, causing by such carelessness, recklessness and
imprudence the said Ford Laser car to hit and bump a Volkswagen car
bearing Plate No. NJE-338 owned and driven by Felino llano y Legaspi,
thereby causing damage in the total amount of P12,345.00 Pesos,
Philippine Currency, and as a result thereof one Jovencio Poblete, Sr. who
was on board of the said Volkswagen car sustained physical injuries, to
wit:

1. 2 cm. laceration of left side of tongue.

2. 6 cm. laceration with partial transection of muscle (almost full

thickness) left side of face.

3. Full thickness laceration of lower lip and adjacent skin.

which injuries causing [sic] deformity on the face. 4

The owner of the damaged Volkswagen car filed a separate civil action against
petitioner for damages, while Jovencio Poblete, Sr., who was a passenger in the
Volkswagen car when allegedly hit and bumped by the car driven by petitioner, did
not reserve his right to file a separate civil action for damages. Instead, in the course
of the trial in the criminal case, Poblete, Sr. testified on his claim for damages for the
serious physical injuries which he claimed to have sustained as a result of the
accident.

Upon motion, petitioner was granted leave by the former presiding judge of the trail
court to file a third party complaint against the herein private respondent, Makati
Insurance Company, Inc. Said insurance company, however, moved to vacate the
order granting leave to petitioner to file a third party complaint against it and/or to
dismiss the same. 5

On 24 April 1987, the court a quo issued an order dismissing the third party
complaint on the ground that it was premature, based on the premise that unless the
accused (herein petitioner) is found guilty and sentenced to pay the offended party
(Poblete Sr.) indemnity or damages, the third party complaint is without cause of
action. The court further stated that the better procedure is for the accused
(petitioner) to wait for the outcome of the criminal aspect of the case to determine
whether or not the accused, also the third party plaintiff, has a cause of action
against the third party defendant for the enforcement of its third party liability (TPL)
under the insurance contract.6Petitioner moved for reconsideration of said order, but
the motion was denied; 7 hence, this petition.

It is the contention of herein petitioner that the dismissal of the third party complaint
amounts to a denial or curtailment of his right to defend himself in the civil aspect of
the case. Petitioner further raises the legal question of whether the accused in a
criminal action for reckless imprudence, where the civil action is jointly prosecuted,
can legally implead the insurance company as third party defendant under its private
car insurance policy, as one of his modes of defense in the civil aspect of said
proceedings.

On the other hand, the insurance company submits that a third party complaint is,
under the rules, available only if the defendant has a right to demand contribution,
indemnity, subrogation or any other relief in respect of plaintiff's claim, to minimize
the number of lawsuits and avoid the necessity of bringing two (2) or more suits
involving the same subject matter. The insurance company further contends that the
contract of motor vehicle insurance, the damages and attorney's fees claimed by
accused/third party plaintiff are matters entirely different from his criminal liability in
the reckless imprudence case, and that petitioner has no cause of action against the
insurer until petitioner's liability shall have been determined by final judgment, as
stipulated in the contract of insurance. 8

Compulsory Motor Vehicle Liability Insurance (third party liability, or TPL) is primarily
intended to provide compensation for the death or bodily injuries suffered by
innocent third parties or passengers as a result of a negligent operation and use of
motor vehicles.9 The victims and/or their dependents are assured of immediate
financial assistance, regardless of the financial capacity of motor vehicle owners.

The liability of the insurance company under the Compulsory Motor Vehicle Liability
Insurance is for loss or damage. Where an insurance policy insures directly against
liability, the insurer's liability accrues immediately upon the occurrence of the injury
or event upon which the liability depends, and does not depend on the recovery of
judgment by the injured party against the insured. 10

The injured for whom the contract of insurance is intended can sue directly the
insurer. The general purpose of statutes enabling an injured person to proceed
directly against the insurer is to protect injured persons against the insolvency of the
insured who causes such injury, and to give such injured person a certain beneficial
interest in the proceeds of the policy, and statutes are to be liberally construed so
that their intended purpose may be accomplished. It has even been held that such a
provision creates a contractual relation which inures to the benefit of any and every
person who may be negligently injured by the named insured as if such injured
person were specifically named in the policy. 11

In the event that the injured fails or refuses to include the insurer as party defendant
in his claim for indemnity against the insured, the latter is not prevented by law to
avail of the procedural rules intended to avoid multiplicity of suits. Not even a "no
action" clause under the policy-which requires that a final judgment be first obtained
against the insured and that only thereafter can the person insured recover on the
policy can prevail over the Rules of Court provisions aimed at avoiding multiplicity of
suits. 12
In the instant case, the court a quo erred in dismissing petitioner's third party
complaint on the ground that petitioner had no cause of action yet against the
insurance company (third party defendant). There is no need on the part of the
insured to wait for the decision of the trial court finding him guilty of reckless
imprudence. The occurrence of the injury to the third party immediately gave rise to
the liability of the insurer under its policy.

A third party complaint is a device allowed by the rules of procedure by which the
defendant can bring into the original suit a party against whom he will have a claim
for indemnity or remuneration as a result of a liability established against him in the
original suit.13 Third party complaints are allowed to minimize the number of lawsuits
and avoid the necessity of bringing two (2) or more actions involving the same
subject matter. They are predicated on the need for expediency and the avoidance of
unnecessary lawsuits. If it appears probable that a second action will result if the
plaintiff prevails, and that this result can be avoided by allowing the third party
complaint to remain, then the motion to dismiss the third party complaint should be
denied. 14

Respondent insurance company's contention that the third party complaint involves
extraneous matter which will only clutter, complicate and delay the criminal case is
without merit. An offense causes two (2) classes of injuries the first is the social
injury produced by the criminal act which is sought to be repaired thru the imposition
of the corresponding penalty, and the second is the personal injury caused to the
victim of the crime, which injury is sought to be compensated thru indemnity, which
is civil in nature. 15

In the instant case, the civil aspect of the offense charged, i.e., serious physical
injuries allegedly suffered by Jovencio Poblete, Sr., was impliedly instituted with the
criminal case. Petitioner may thus raise all defenses available to him insofar as the
criminal and civil aspects of the case are concerned. The claim of petitioner for
payment of indemnity to the injured third party, under the insurance policy, for the
alleged bodily injuries caused to said third party, arose from the offense charged in
the criminal case, from which the injured (Jovencio Poblete, Sr.) has sought to
recover civil damages. Hence, such claim of petitioner against the insurance
company cannot be regarded as not related to the criminal action.

WHEREFORE, the instant petition is GRANTED. The questioned order dated 24 April
1987 is SET ASIDE and a new one entered admitting petitioner's third party
complaint against the private respondent Makati Insurance Company, Inc. SO
ORDERED.

G.R. No. L-27802            October 26, 1968

REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, 
vs.
CENTRAL SURETY & INSURANCE COMPANY, ET AL., defendants-appellants.

CENTRAL SURETY & INSURANCE COMPANY, third-party plaintiff-appellant, 

vs.
PO KEE KAM, ET AL., third party defendants-appellees.

Assistant Solicitor General Antonio G. Ibarra and Solicitor Teodulo Diño for plaintiff-
appellee.
Manañgan & Mangoba for third-party plaintiff-appellant.
Percival M. Lopez for third-party defendants-appellees.

CASTRO, J.:

On October 23, 1959 the Republic of the Philippines (hereinafter referred to as the
Republic) filed suit against the Central Surety & Insurance Company (hereinafter
referred to as the Surety) and the latter's manager of the bond department,
Casimiro Mangoba. The complaint recites (1) that the Surety executed in favor of the
Deportation Board a bond in the amount of P5,000 for the temporary release of Po
Kee Kam, a Chinese citizen and respondent in deportation proceeding No. 730,
subject to certain conditions, principal among which are that the Surety undertakes
to have Po Kee Kam available at all times to the Deportation Board within 24 hours
from notice, that Po Kee Kam shall be personally present before the Deportation
Board at all hearings in the case, and that upon his failure to comply with any of the
above conditions, the bond shall be automatically confiscated and forfeited in favor
of the Government; (2) that because Po Kee Kam failed to appear at the hearing
scheduled for December 14, 1962 despite due notice to the Surety, the Deportation
Board on the same date issued an order for his arrest, which same order declared
the bond confiscated in favor of the Government; (3) that by letter of December 27,
1962, the Commissioner of Immigration informed the Surety of the forfeiture of the
bond and demanded the remittance to the Bureau of Immigration of the amount of
P5,000 on or before January 2, 1963; (4) that notwithstanding repeated demands
the Surety has failed to remit the said amount without justifiable cause. Prayer is
made that judgment be rendered sentencing the Surety and Mangoba to pay, jointly
and severally, to the Republic the amount of P5,000, with interest at the legal rate
from the filing of the complaint until full payment, and the sum of P1,000 as
attorney's fees and litigation expenses, plus costs.

On July 5, 1963 the Surety filed its answer, interposing inter alia, the defenses (1)
that its bond cannot be made liable beyond the amount of P5,000; (2) that it is not
liable for attorney's fees in the absence of any stipulation to that effect; (3) that the
court has no jurisdiction over the case as the amount involved is only P5,000; and
(4) that the Republic has no cause of action.

Mangoba's answer, filed on July 11, 1963, makes substantially the same averments
and interposes the same defenses as those contained in the Surety's answer. In
addition, he disclaims personal liability under the bond.

On July 30, 1963 the Surety filed a third-party complaint, with leave of court, against
Po Kee Kam and Tony Go (hereinafter referred to as the third-party defendants),
alleging that the Republic filed a complaint against it on the basis of a surety bond in
the amount of P5,000 issued in behalf of Po Kee Kam in favor of the Deportation
Board; that for and in consideration of the issuance of the said bond, the third-party
defendants, jointly and severally, executed an indemnity agreement in favor of the
Surety to indemnify it for damage, loss, costs, payments, advances and expenses of
whatever kind and nature which it might at any time incur as a consequence of
having executed the said bond. Prayer is made that in the event judgment is
rendered against it, the third party defendants be ordered, jointly and severally, to
reimburse it whatever amount it may be adjudged to pay to the Republic, plus
interest at the rate of 12% per annum, compounded quarterly, from the filing of the
complaint until the whole obligation is fully paid, 15% of the total amount due as
attorney's fees, and costs.

On September 7, 1963 the third-party defendants filed their answer, admitting some
material allegations of the third-party complaint, denying others, and interposing the
defense that the case is premature as the main case has not yet been terminated.

On December 2, 1963 upon verbal motion of the third party defendants, the trial
court dismissed the third-party complaint for lack of jurisdiction, in the following
words:

It appearing from the records that the third-party complaint was filed after the
passage of the new law conferring original jurisdiction on the Municipal Court in civil
cases involving not more than P10,000.00, and it likewise appearing that the third-
party complaint refers to a claim of only P6,000.00, the oral motion to dismiss filed
by the counsel for the third-party defendants is in order. Therefore, the court hereby
order's that the third-party complaint be, as it is hereby, dismissed, without
prejudice to the right of the third-party plaintiff to file a separate case in the
municipal court.

On the following day, December 3, 1963, the trial court rendered judgment, ordering
the surety to pay to the Republic the sum of P5,000, with interest thereon at the
legal rate from the date of the filing of the complaint until the whole amount shall
have been paid, plus costs, and absolving Mangoba from the complaint.

The Surety forthwith interposed its appeal to the Court of Appeals from the order of
December 2, 1963 dismissing its third-party complaint, and from the decision of
December 3, 1963 ordering it to pay the Republic the amount of P5,000, contending
that the trial court erred in (1) holding the Surety liable on the bond despite the fact
that it has not violated any condition thereof, (2) not declaring itself without
jurisdiction over the subject-matter of the action, and (3) dismissing the third-party
complaint. The Court of Appeals certified the case to this Court on May 10, 1967,
pursuant to section 2, Article VIII of the Constitution, and section 17(3) of Republic
Act 296, on the ground that the jurisdiction of the trial court is squarely in issue.

By formulation of the Surety, the issues tendered for resolution in this appeal are:
(1) Is the Surety liable on its bond? (2) Did the trial court have jurisdiction over the
subject-matter of the main action? (3) Did the trial court have jurisdiction over the
third-party complaint?

1. Upon the  first issue, it is argued that the Surety is not liable on its bond because
the two conditions thereof — that there must be notice to it by the Republic to
produce the person bonded, and that the latter fails to appear as required in the
notice — did not come to pass. Hence, the forfeiture of the bond is unwarranted. .

This pretense of the Surety is palpably without merit. Exhibit B 1 unequivocally shows
that the Surety received notice to produce the person of Po Kee Kam; in point of fact
the Surety even orally moved "for the postponement of the production of respondent
Po Kee Kam," which motion was denied in the order of December 14, 1962 of the
Deportation Board. It would have been pointless to ask for postponement to produce
the person of Po Kee Kam, if the Surety did not receive notice to that effect. At all
events, the trial court found that the Surety and Mangoba "were duly notified to
produce the said Po Kee Kam before the Deportation Board on December 14, 1962,
but the said Po Kee Kam failed to appear." This finding of the trial court is entitled to
respect, being fully supported by the evidence of record. 2
The trial court therefore did not err in ordering the Surety to pay to the Republic the
sum of P5,000, with interest thereon at the legal rate from the date of the filing of
the complaint until full payment thereof, plus costs.

2. Upon the second issue, it is insisted that the trial court had no jurisdiction over
the subject-matter of the action because the total amount involved is only P6,000
(P5,000 under the bond and P1,000 as attorney's fees), a court of first instance
being vested with jurisdiction only over cases in which the demand, exclusive of
interest, or the value of the property in controversy, exceeds P10,000, pursuant to
section 44 of Republic Act 296, as amended by Republic Act 3828 which took effect
on June 22, 1963. Although the present action was filed on June 20, 1963, two days
before the effectivity of Republic Act 3828 which broadened the jurisdiction of
municipal and city courts to include cases in which the demand, exclusive of interest,
or the value of the property in controversy, does not exceed P10,000, 3 it is
nonetheless argued that the court's jurisdiction over the case was lost on June 22,
1963, when Republic Act 3828 took effect, and therefore the case should have been
remanded to the municipal court.4

We disagree. It is not disputed that the trial court acquired jurisdiction over the
subject-matter on June 20, 1963 when the complaint was filed with it. It is of no
moment that summons was served and that the case was heard and decided after
the effectivity of Republic Act 3828, because the rule is firmly entrenched in our law
that jurisdiction once acquired continues until the case is finally terminated. 5

3. Upon the third issue, the Surety takes the position that if the trial court acquired
jurisdiction over the main case, "it follows that it could also take cognizance of the
third-party complaint which derives its life from the complaint."

The Surety has a point here. It is true that the third-party complaint was filed after
the effectivity date of Republic Act 3828. It is likewise true that the demand therein
made does not exceed P10,000, and, therefore, is not within the jurisdiction of the
Court of First Instance if it were an independent action. But the third-party complaint
is an ancillarysuit which depends on the jurisdiction of the court over the main
action. Since the trial court had acquired jurisdiction over the complaint, it
necessarily follows that it likewise had jurisdiction over the third-party complaint
which is but an incident thereof. This must be so because jurisdiction over the main
case embraces all incidental matters arising therefrom and connected therewith. 6 A
contrary rule would result in "split jurisdiction" which is not favored, 7 and in
multiplicity of suits, a situation obnoxious to the orderly administration of
justice.8 The court acquired jurisdiction over the third-party complaint, provided it
had jurisdiction over the main case, for the reason that the third-party complaint is
but a continuation thereof, its purpose being to seek "contribution, indemnity,
subrogation or any other relief, in respect to his opponent's claim." 9 Thus, in Talisay-
Silay Milling Co., et al. vs. CIR, et al.,10 this Court elaborated with incisiveness:

The third-party complaint is but a continuation of the main action, its purpose
being merely to seek "contribution, indemnity, subrogation or any other relief,
in respect of his opponent's claim." (Rule 6, See. 12.) The aim is to avoid the
actions which should be tried together to save the time and cost of a
reduplication of evidence, to obtain consistent results from identical or similar
evidence, and to do away with the serious handicap to a defendant of a time
difference between a judgment against him and a judgment in his favor against
the third party defendant.

Thus it has been held that "where a court has jurisdiction of a claim and the
parties in the principal action, it generally has jurisdiction also of a suit or
proceeding which is a continuation of or incidental and ancillary to the principal
action, even though it might not have jurisdiction of the ancillary proceeding if
it were an independent and original action or proceeding. The jurisdiction of the
 ancillary suit or proceeding is referrable to or dependent upon the jurisdiction
of the court over the principal suit or proceeding."

Petitioners urge that a rule similar to the rule on counterclaim be adopted. But
a third-party complaint cannot be likened to a counterclaim which must be
within the jurisdiction of the court trying the main case, because unlike a third-
party complaint, a counterclaim "need not diminish or defeat the recovery
sought by the opposing party, but may claim itself exceeding in amount or
different in kind from that sought in the opposing party's claim" (Rule 6, Sec.
6). A third-party complaint may likewise be likened to a cross claim under Rule
9, section 5. ... The principle is at once apparent, namely, that where an action
is ancillary to a main action over which a court has jurisdiction, no independent
jurisdiction is needed to enable the court to take cognizance of the ancillary
action.

There can therefore be no doubt that in dismissing that Surety's third-party

complaint the trial court committed a reversible error.

4. The Surety prays for the remand of the third-party complaint to the trial court for
further proceedings. It is our view that under the environmental circumstances,
there is no need to do so. The third-party defendants did not specifically deny the
execution of the indemnity agreement. They merely expressed insufficient knowledge
and information to form a belief as to the veracity thereof, without setting forth "the
substance of the matters" upon which they rely to support their denial as required by
the Rules.11 To obviate further litigation between the Surety and the third-party
defendants, this Court now decides the third-party complaint on the merits, and
orders the third-party defendants to reimburse the Surety the amount of the
judgment against it. The pleadings on record fully support this adjudication. 12

ACCORDINGLY, the order dated December 2, 1963 dismissing the third-party

complaint is set aside; the decision dated December 3, 1963 is modified in the sense
that the third-party defendants are hereby ordered to pay to the Surety whatever
sums the latter will pay to the Republic by virtue of the judgment appealed from.
Costs are assessed against the Surety in favor of the Republic, and against the third-
party defendants in favor of the Surety.
G.R. No. L-54452 July 20, l981

EASTERN ASSURANCE & SURETY CORPORATION, petitioner, 

vs.
HON. EMETERIO C. CUI (in his official capacity as Judge, Court of First
Instance of Manila, Branch XXV) and LORETA B. PAN, respondents.

ABAD SANTOS, J.:

This is a petition to review on certiorari the order, dated October 30, 1978, of the
respondent judge in Civil Case No. 115385, Court of First Instance of Manila.

The facts of the case, briefly, are the following:

On April 21, 1977, Transunion Corporation and Rey M. Pan doing business under the
name of Pan Phil. Trading entered into a dealership agreement for the sale of
merchandise. Pursuant thereto Pan Phil. Trading had to file a P 20,000 surety bond
and it complied by presenting a surety bond of Eastern Assurance & Surety
Corporation.

On May 15, 1978, Transunion filed a complaint (Civil Case No. 115385, CFI, Manila)
against Rey M. Pan, Pan Phil. Trading and Eastern Assurance & Surety Corporation
for the full payment of merchandise delivered in the amount of P 10,841.54.

After Eastern Assurance & Surety Corporation had filed its Answer with cross-claim,
it filed a motion to file a third-party complaint against Loreta B. Pan, wife of Rey M.
Pan. The reason given in the motion is that movant has a legal right against Loreta
B. Pan. It appears that in consideration of the surety bond, the Pan spouses
executed an Indemnity Agreement in favor of Eastern Assurance & Surety
Corporation.

On July 24, 1978, the respondent judge granted the motion and admitted the third-
party complaint.

Subsequently, Loreta B. Pan filed a motion to dismiss the third-party complaint on

the ground that venue was improperly laid. She invoked paragraph 7 of the
Indemnity Agreement which reads:

7. WAIVER OF VENUE OF ACTION:—We [meaning Rey M. Pan and Loreta

B. Pan] hereby agree that any question whichmay arise between the
Company and the undersigned by reason of this document and which has
to be submitted to the court of justice, shall be brought before the court
of competent jurisdiction of Quezon City, waiving for this purpose any
other proper venue.

Notwithstanding the opposition of Eastern Assurance & Surety Corporation, the

respondent judge in his order dated October 30, 1978, peremptorily dismissed the
third-party complaint on the ground that the motion to dismiss was "well-taken." The
respondent judge, may his tribe vanish, did not elaborate. A motion to reconsider the
order of dismissal was denied in a similar fashion.

We have to grant the petition despite the comment of the respondent judge to the
petition for review that in dismissing the third-party complaint he had to uphold the
policy of upholding the sanctity of contracts in preference to the policy against
multiplicity of suits. He even cites Roscoe Pound's Scope and Purpose of Sociological
Jurisprudence in 24 Harvard Law Review 607.
What the respondent judge and even petitioner's counsel failed to perceive is that
paragraph 7 of the Indemnity Agreement was imposed on the Pan spouses by the
petitioner surety company for its benefit and convenience and therefore the latter
could waive the provision by filing its complaint, not in Quezon City, but in Manila.
There is, therefore, no sanctity of contract to hold.

But even if we assume that paragraph 7 of the Indemnity Agreement created a

reciprocal obligation, it does not necessarily follow that it is applicable to the present
situation.

It has to be remembered that a third-party complaint is but ancillary to the main

action and is a procedural device to avoid multiplicity of suits. Because of its nature
the prescriptions on jurisdiction and venue applicable to ordinary suits may not
apply. Thus a third-party complaint has to yield to the jurisdiction and venue of the
main action. This view is supported by our decision in Republic vs. Central Surety &
Insurance Co., G.R. L-27802, Oct. 26, 1968, 25 SCRA 641, where we said:

3. Upon the third issue, the Surety takes the position that if the trial court
acquired jurisdiction over the main case, 'it follows that it should also
take cognizance of the third-party complaint which derives its life from
the complaint.'

The Surety has a point here. It is true that the third-party complaint was
filed after the effectivity date of Republic Act 3828. It is likewise true that
the demand therein made does not exceed P 10,000, and, therefore, is
not within the jurisdiction of the Court of First Instance if it were an
independent action. But the third-party complaint is an ancillary suit
which depends on the jurisdiction of the court over the main action. Since
the trial court had acquired jurisdiction over the complaint, it necessarily
follows that it likewise had jurisdiction over the third-party complaint
which is but an incident thereof. This must be so because jurisdiction over
the main case embraces all incidental matters arising therefrom and
connected therewith. A contrary rule would result in 'split jurisdiction
which is not favored, and in multiplicity of suits, a situation obnoxious to
the orderly administration of justice. The court acquired jurisdiction over
the third-party complaint, provided it had jurisdiction over the main case,
for the reason that the third-party complaint is but a continuation
thereof, its purpose being to seek 'contribution, indemnity, subrogation or
any other relief, in respect to his opponent's claim.' (At pp. 648-649. See
also Talisay-Silay Milling Co., Inc., and J. Amado Araneta vs. The Court of
Industrial Relations and Central Azucarera del Danao, L- 21582 No. 29,
1966, 18 SCRA 894.)

WHEREFORE, finding the petition to be well-taken, the same is hereby granted; the
order of the respondent judge dismissing the third-party complaint is rescinded. Cost
against respondents. SO ORDERED.
G.R. No. 86792 March 21, 1990

SPOUSES MARINO AND LINA JOEL SAPUGAY, petitioners, 

vs.
HON. COURT OF APPEALS, MOBIL PHILIPPINES, INC. AND RICARDO
CARDENAS, respondents.

Cuesta, Bermudez & Associates for petitioners.

Camacho & Associates for Mobil Phils., Inc.

REGALADO, J

For review in this petition is the decision 1 of respondent Court of Appeals in CA-G.R.
CV No. 07614 thereof, dated November 11, 1988, deleting the award made by the
court a quo 2 for rental, storage and guarding fees and unrealized profits, the
reduction of the other damages granted, and the exclusion and exclupation from
liability of respondent Ricardo P. Cardenas, as well as the resolution 3 of respondent
court of January 30, 1989 denying petitioner's motion for reconsideration.

The following facts, culled from respondent court's decision and sustained by the
evidence of record, are adopted by us in our adjudication:

1. On September 27, 1982, plaintiff Mobil Philippines, Inc. filed a

complaint for replevin with damages against defendant Lina Joel Sapugay
before the Court of First Instance of Rizal, Seventh Judicial District, Pasig,
Metro Manila. The complaint,which was duly amended on October 11,
1982 alleges the following: that upon the termination of the Dealership
Agreement between Mobil Oil Philippines, Inc. and Nemar Marketing
Corporation, defendant applied to the plaintiff to become a dealer of the
latter's products; that pending consideration of the dealership application,
plaintiff loaned to the defendant the properties installed in the premises
of Nemar at Sto. Tomas, Batangas, valued at P1,500,000.00; that for a
period of three (3) months from the date of application, defendant failed
to secure and file the required surety bond, compelling plaintiff to reject
defendant's application and the return and redelivery of the
aforementioned properties; that defendant refused to return said
equipments, and demanded instead that defendant be paid first the sum
of P15,000.00 daily as rental and guard's fees from June 8, 1982 up to
the day of actual pull-out. Thus, plaintiff prays for the return of said
properties or its value including damages, attorney's fees and costs of
suit.

2. On October 12, 1982, the lower court issued an order for the issuance
of a writ of replevin upon the filing of plaintiff's bond.

3. On November 29, 1982, defendant filed her answer alleging as

affirmative defenses that upon presentation of defendant's application,
plaintiff and it's manager, R.P. Cardenas, imposed upon them as a
condition for the approval of their application defendant's acquisition of
the premises where the business will be conducted; that consequently
applicant-defendant purchased the said land for seven hundred thousand
(P700,000.00) pesos; that on June 21, 1982, a preliminary agreement
was signed constituting defendant as plaintiff's authorized dealer,
whereupon plaintiff turned over to the defendant the equipment to be
 used therefor; that plaintiff instructed dependant to commence operation
whereupon the latter made the necessary preparations amounting to
P38,000.00; that defendant commenced operation on June 26, 1982,
pending execution of the formal dealership agreement; that on the last
week of July, 1982, they signed the formal dealership agreement a copy
of which was withheld from them by the plaintiff pending its notarization;
that as the formal agreement had already been signed, defendant and
her husband requested plaintiff that they be allowed to get gas even on a
cash basis, but plaintiff denied the request claiming that they still have to
post a surety bond which was initially fixed at P200,000.00 then later
increased to P700,000.00; that defendant and her husband exerted their
best effort to secure a bond but the bonding companies required a copy
of the dealership agreement which was continiously withheld from them
by plaintiff, that defendant discovered that plaintiff and its manager
intended all along, to award said dealership to Island Air Product
Corporation; that in furtherance of said scheme plaintiff caused all the LP-
Gas equipment to be publicly pulled out from defendant's premises. As
counterclaim, defendant prayed that plaintiff and its manager be made
liable for their pre-operation expenses rental, storage, and guarding fees,
unrealized profit including damages and the return of the LP-Gas
equipment to the premises.

4. On December 9, 1982, the writ of replevin dated October 22, 1982

issued by Honorable Eduardo C. Abaya of the Court of First Instance,
Rizal, Branch XXIV was duly executed.

5. On September 8, 1983, the pre-trial conference in Branch 132, Makati,

Metro Manila was terminated without any amicable settlement, and trial
was set for November 3, 1983.

6. On November 3, 1983, the trial court granted plaintiff's Motion for

Leave to Amend Complaint, alleging that plaintiff Mobil Oil Philippines,
Inc. having been taken over by Caltex Philippines, Inc., and prior to
dissolution, assigned and transferred all the rights, interest, claim and
cause of action in favor of Mobil Philippines, Inc.

7. On August 8, 1985, the trial court, after finding that plaintiff and its
manager, R.P. Cardenas, have reneged on its promise to award the
dealership to defendant Sapugay, rendered judgment in favor of the
latter, dismissing the complaint and ordering plaintiff and its manager to
pay the pre-operation expenses, rental, storage, and guarding fees of
plaintiff's LPG equipment; unrealized profits, moral damages including
litigation expenses, attorney's fees and costs of the suit.

8. On August 26, 1985, defendant filed a motion for application to have

plaintiffs bond posted by the Malayan Surety Company liable for the
satisfaction of the judgment.

9. On August 29, 1985, the plaintiff-corporation filed a notice of appeal

manifesting that it was appealing to the Court of Appeals from the
decision promulgated on August 8, 1985.

10. On September 17, 1985, the trial court issued an order denying the
defendant's motion considering that the lower court no longer had any
jurisdiction to act on the matter with the perfection of plaintiffs appeal. 4

On November 11, 1988, respondent Court of Appeals rendered a decision, disposing

as follows:
 WHEREFORE, the decision appealed from is hereby MODIFIED in that the
awards of rental, storage and guarding fees and the award of unrealized
profits, are hereby DELETED, and the award of damages REDUCED. The
decision is AFFIRMED in all other aspects with Mobil Philippines, lnc. being
solely liable. 5

The motion for reconsideration filed by herein petitioners, praying that the bond
posted by Malayan Insurance Co., Inc. in behalf of herein private respondents be
made liable for damages suffered by petitioners, was denied by respondent court in
its resolution dated January 30, 1989. Hence, this petition.

The issues raised by petitioners for resolution are whether respondent court
committed serious errors of law amounting to grave abuse of discretion and/or
excess of jurisdiction:

1. In excluding from the case and exculpating from liability respondent Ricardo
P. Cardenas, an indispensable party;

2. In deleting from the decision of the court a quo the awards for guarding fee
and unrealized profits; and

3. In holding that Malayan Insurance Co., Inc., is not liable on the bond.

In their comment, private respondents aver that since the counterclaim of petitioners
against the former is permissive in nature and since no docket fee was paid, the trial
court did not acquire jurisdiction over the case, hence the awards rendered on
petioners' counterclaim should be dismissed.

Under the first assigned error, petitioners assert that respondent Court of Appeals
erred in exculpating Cardenas from liability and in holding that said Cardenas, who is
not a party to the original action, may not be impleaded by petitioners in their
counterclaim on the ground that a counterclaim cannot be filed against a person who
is not an actual party to the litigation. In effect, what respondent court is saying is
that the trial court did not acquire jurisdiction over the person of Cardenas, hence he
cannot be held jointly liable with Mobil Philippines, Inc. (hereafter, Mobil for short).
On the contrary, petitioners submit that Cardenas is an indispensable party since he
was the one who negotiated with them in transacting the dealership agreement.

A counterclaim is defined as any claim for money or other relief which a defending
party may have against an opposing party. 6 However, the general rule that a
defendant cannot by a counterclaim bring into the action any claim against persons
other than the plaintiff admits of an exception under Section 14, Rule 6 which
provides that "when the presence of parties other than those to the original action is
required for the granting of complete relief in the determination of a counterclaim or
cross-claim, the court shall order them to be brought in as defendants, if jurisdiction
over them can be obtained." The inclusion, therefore, of Cardenas in petioners'
counterclaim is sanctioned by the rules.

The next question to be resolved is whether the trial court acquired jurisdiction over
the person of Cardenas. It has been held that a counterclaim stands on the same
footing as, and is to be tested by the same rules as if it were, an independent
action. 7 Hence, the same rules on jurisdiction in an independent action ordinarily
apply equally to a counterclaim.

In her answer, filed on November 29, 1982, to the amended complaint, petitioner
Lina Sapugay impleaded Cardenas as a defendant in her counterclaim therein, and
prayed that judgment be rendered holding specifically Mobil and Cardenas jointly and
severally liable to herein petitioners. 8 Thereafter, petitioner filed a "Motion to
Declare Plaintiff and its Manager, Ricardo P. Cardenas, in Default on Defendant's
Counterclaim" for failure of private respondents to answer the
9
counterclaim.   Cardenas was furnished copies of both the answer and the motion to
declare herein private respondents in
10
default.   Respondent Mobil filed an opposition to the motion to declare them in
default, alleging that they, the private respondents herein, may not be so
declared.11 The court below agreed with private respondents' reasoning therein that a
compulsory counterclaim being involved, the issues raised in the counterclaim are
deemed automatically joined by the allegations of the complaint, hence the
complaint itself stood as the answer to defendant's counterclaim. Consequently, the
trial court denied the motion to declare the herein private respondents in default. 12

It is noteworthy that Cardenas did not file a motion to dismiss the counterclaim
against him on the ground of lack of jurisdiction. While it is a settled rule that the
issue of jurisdiction may be raised even for the first time on appeal, this does not
obtain in the instant case. Although it was only Mobil which filed an opposition to the
motion to declare in default, the fact that the trial court denied said motion, both as
to Mobil and Cardenas on the ground that Mobil's complaint should be considered as
the answer to petioners' compulsory counterclaim, leads us to the inescapable
conclusion that the trial court treated the opposition as having been filed in behalf of
both Mobil and Cardenas and that the latter had adopted as his answer the
allegations raised in the complaint of Mobil. Obviously, it was this ratiocination which
led the trial court to deny the motion to declare Mobil and Cardenas in default.
Furthermore, Cardenas was not unaware of said incidents and the proceedings
therein as he testified and was present during the trial, not to speak of the fact that
as manager of Mobil he would necessarily be interested in the case and could readily
have access to the records and pleadings filed therein.

By adopting as his answer the allegations in the complaint which seeks affirmative
relief, Cardenas is deemed to have recognized the jurisdiction of the trial court over
his person and submitted thereto. He may not now be heard to repudiate or question
that jurisdiction. 13

Mobil likewise questions the jurisdiction of the trial court in entertaining the
counterclaim since no docket fee was paid. It avers that since it is a permissive
counterclaim, petitioners should have paid the necessary docket fee. On the
contrary, we find and so hold that the counterclaim of petitioners is compulsory in
nature since both the complaint and counterclaim involve the same transaction and
arose from the same occurrence. Besides, as earlier discussed, in Mobil's opposition
to the motion for a default order, it categorically stated that petitioners' counterclaim
is compulsory in nature, 14 which was likewise the view of the trial court and the
precise reason why it denied said motion. Private respondents are now estopped
from claiming otherwise. In the recent case of Sun Insurance Office, Ltd., et
al.  vs.  Hon. Asuncion, et al. 15 involving the rule on payment of docket fees in
ordinary actions, the rule was affirmed and made to apply specifically to permissive
counterclaims only, thereby excluding compulsory counterclaims from its purview.

As to the second assigned error, the finding of the Court of Appeals that no sufficient
and substantial evidence exists to warrant an award of guarding fees and unearned
profits is conclusively binding on this Court, for failure of private respondents to
show that the appellate court acted with grave abuse of discretion or erred in making
such finding. Fundamental is the rule that findings of fact of the Court of Appeals will
not be disturbed unless shown to have been rendered with arbitrariness, nor are any
of the jurisprudentially accepted exceptions thereto present in this case.

Anent the issue on the surety's liability upon the replevin bond, we do not believe
that Malayan Insurance Co., Inc. should be made liable thereon. As correctly
observed by respondent court, "the damages awarded by the trial court were based
on Articles 19 and 20 of the New Civil Code and not on the deprivation of personal
properties subject of the replevin bond. Moreover, no judgment was entered for the
return of the properties subject of the replevin bond to the defendant, the latter
never having raised the issue of rightful possession to the said properties." 16

A replevin bond is simply intended to indemnify the defendant against any loss that
he may suffer by being compelled to surrender the possession of the disputed
property pending the trial of the action. He cannot recover on the bond as for a
reconversion when he has failed to have the judgment entered for the return of the
property. Nor is the surety liable for payment of the judgment for damages rendered
against the plaintiff on a counterclaim or punitive damages for fraudulent or wrongful
acts committed by the plaintiffs and unconnected with the defendant's deprivation of
possession by the plaintiff. Indeed, even where the judgment was that the defendant
was entitled to the property, but no order was made requiring the plaintiff to return
it or assessing damages in default of a return, it was declared that until judgment
was entered that the property should be restored, there could be no liability on the
part of the sureties.17

There is no denying the active participation of Cardenas in the anomalous

transactions had with petitioner Lina Sapugay as found by the Court of Appeals, to
wit:

Indeed, a perusal of the letters referred to show that plaintiff corporation,

particularly its manager, gave cause for defendant Sapugay to believe
that she is the authorized supplier and refiller of Mobil Philippines, to wit,
plaintiff's letter to defendant signed by its Manager R.P. Cardenas dated
July 2, 1982 (Exhibit "2"), referred to defendant "as a major supplier of
LPG and as the authorized refiller of Mobil Oil Philippines . . . committed
to the government as well as to all Mobil LP-Gas customers to uphold the
highest standard in respect to marketing as well as safety (Exhibit "2-
b")." This belief is further bolstered by the Memorandum dated July 12,
1982 signed by Cardenas and sent to defendant by registered mail
(Exhibit "5") attaching a copy of Ministry Order No. 82-06-08 (Exhibit "3-
b") prohibiting LPG cylinder exchange and the refilling of other brands of
cylinder without the brand owner's authority.

As to the existence of a Formal Dealership Agreement, this Court failed to

find any other evidence other than defendant's testimony to substantiate
the allegation that plaintiff and defendant had already signed a dealership
agreement in July 1982 which the former withheld from the latter,
causing defendant's failure to submit the requisite bond. Moreover, this
Court notes that the blank standard dealership agreement form presented
by plaintiff (Exhibit "L"), shows no requirement for the filing of a bond.
Further, Manager Cardenas himself testified that this standard agreement
contained all the terms and conditions of a dealership, . . .

x x x           x x x          x x x

Thus, the lower court found that the requirement of posting a bond,
initially fixed at P200,000.00 then raised to P700,000.00 was
a  preplanned scheme of plaintiff and/or R.. Cardenas to put every
hindrance before the defendant so that the latter could not get the
dealership agreement . . .

x x x           x x x          x x x

As found by the trial court, all these acts of plaintiff and its manager,
R..  Cardenas, are contrary to Articles 19 and 20 of the New Civil Code, to
wit:
 Art. 19. Every person must, in the exercise of his rights and in
the performance of his duties act with justice, give everyone
his due and observe honesty and good faith.

Art. 20. Every person who, contrary to law, wilfully or

negligently causes damage to another, shall indemnify the
latter for the same.

for which plaintiff must be made to recompense the damages the

defendant suffered. (Emphasis supplied) 19

We, therefore, find and so hold that private respondent Ricardo P. Cardenas should
be held jointly and severally liable with his co-respondent Mobil Philippines, Inc. for
having acted in bad faith by impeding and preventing the award of the dealership to
petitioners through fraudulent means.

ACCORDINGLY, the judgment appealed from is hereby AFFIRMED with the

modification that respondents Mobil Philipines, Inc. and Ricardo P. Cardenas are held
jointly and severally liable to herein petitioners Marino and Lina Joel Sapugay. SO
ORDERED.
G.R. No. 91391             January 24, 1991

FRANCISCO I. CHAVEZ, in his capacity as Solicitor General, petitioner 

vs.
THE HON. SANDIGANBAYAN (First Division) and JUAN PONCE
ENRILE, respondents.

Ponce Enrile, Cayetano Reyes & Manalastas for private respondent.

GUTIERREZ, JR., J.:

The petitioner challenges the resolutions dated June 8, 1989 and November 2, 1989
of the Sandiganbayan issued in Civil Case No. 0033 which granted the motion of
private respondent Juan Ponce Enrile, one of the defendants in the civil case, to
implead the petitioner as additional party defendant in Enrile's counterclaim in the
same civil case and denied the petitioner's motion for reconsideration.

On July 31, 1987, the Republic of the Philippines, through the Presidential
Commission on Good Government (PCGG) with the assistance of Solicitor General
Francisco Chavez filed with the respondent Sandiganbayan a complaint docketed as
Civil Case No. 0033 against Eduardo Cojuangco, Jr. and Juan Ponce Enrile, among
others, for reconveyance, reversion and accounting, restitution and damages.

After the denial of his motion to dismiss, respondent Enrile filed his answer with
compulsory counterclaim and cross-claim with damages.

The Republic filed its reply to the answer and motion to dismiss the counterclaim.
The motion was opposed by respondent Enrile.

On January 30, 1989, respondent Sandiganbayan issued a resolution, to wit:

The resolution of the Motion to Dismiss the Counterclaim against the Plaintiff
government is deferred until after trial, the grounds relied upon not appearing
to be indubitable.

On the matter of the additional parties (Solicitor General Chavez, Ex-PCGG

Chairman Diaz, former Commissioners Doromal, Rodrigo, Romero and
Bautista), the propriety of impleading them either under Sec. 14, Rule 6 or
even under Sec. 12 as third-party defendant requires leave of Court to
determine the propriety thereof. No such leave has been sought. Consideration
thereof cannot be entertained at this time nor may therefore, the Motion to
Dismiss the same be considered. (Rollo, p. 329; Annex "H", Petition)

Respondent Enrile then requested leave from the Sandiganbayan to implead the
petitioner and the PCGG officials as party defendants for lodging this alleged
"harassment suit" against him.

The motion was granted in a resolution dated June 8, 1989, to wit:

 In respect to defendant Juan Ponce Enrile's Manifestation and Motion dated
February 23, 1989, praying for leave to implead additional parties to his
counterclaim, the Court, finding reason in the aforesaid Manifestation and
Motion, grants leave to implead the defendants named in the counterclaim and
admits defendant Juan Ponce Enrile's answer with counterclaim.

This is without prejudice to the defenses which said defendants may put forth
individually or in common, in their personal capacities or otherwise. (Rollo, p.
27)

In a later resolution dated November 2, 1989, respondent Sandiganbayan denied a

motion to reconsider the June 8, 1989 resolution. The dispositive portion of the
resolution states:

WHEREFORE, the Motions for Reconsideration of the Solicitor General and

former PCGG officials Ramon Diaz, Quintin Doromal, Orlando Romero, Ramon
Rodrigo and Mary Concepcion Bautista are denied, but, considering these
motions as in the nature of motions to dismiss counterclaim/answers,
resolution of these motions is held in abeyance pending trial on the merits.
(Rollo, p. 31)

Thereafter, all the PCGG officials filed their answer to the counterclaims invoking
their immunity from suits as provided in Section 4 of Executive Order No. 1. Instead
of filing an answer, the petitioner comes to this Court assailing the resolutions as
rendered with grave abuse of discretion amounting to lack of jurisdiction.

The lone issue in this petition is the propriety of impleading the petitioner as
additional party defendant in the counterclaim filed by respondent Enrile in Civil Case
No. 0033.

It may be noted that the private respondent did not limit himself to general
averments of malice, recklessness, and bad faith but filed specific charges that then
PCGG Chairman Jovito Salonga had already cleared the respondent and yet, knowing
the allegations to be false, the petitioner still filed the complaint. This can be gleaned
from excerpts found in respondent Enrile's Answer with Compulsory Counterclaim
and Cross-Claim:

x x x           x x x          x x x

Defendant-in-counterclaim Francisco Chavez was the Solicitor General who

assisted the PCGG in filing and maintaining the instant Complaint against
Defendant. As the incumbent Solicitor General, he continues to assist the PCGG
in prosecuting this case.

He is sued in his personal and official capacities.

On or about October 1986, the PCGG, speaking through the then Chairman,
now Senate President, Hon. Jovito R. Salonga, found and declared that "not
one of the documents left by then President and Mrs. Ferdinand E. Marcos
including the 2,300-page evidence turned over to the PCGG by the US State
Department implicates Enrile." Chairman Salonga stressed that in view of the
PCGG's findings, he refused to yield to the "pressure" exerted on him to
prosecute Defendant.

x x x           x x x          x x x

Notwithstanding the findings of the PCGG that there was absolutely no

evidence linking Defendant to the illegal activities of former President and Mrs.
Ferdinand E. Marcos, the PCGG, this time composed of Chairman Ramon Diaz,
 the Commissioners Quintin Doromal, Ramon Rodrigo, Orlando Romero and
Mary Concepcion Bautista, filed the Complaint against Defendant, among
others, on or about 22 July 1987.

Defendant has reasons to believe, and so alleges that Chairman Diaz, and
Commissioners Doromal, Rodrigo, Romero and Bautista ordered, authorized,
allowed or tolerated the filing of the utterly baseless complaint against
Defendant.

Solicitor General Francisco Chavez assisted or cooperated in, or induced or

instigated, the filing of this harassment suit against Defendant.

In so ordering, authorizing, allowing and tolerating the institution of the action

against Defendant, all the aforenamed officers, with malice and in evident bad
faith, and with grave abuse of power and in excess of their duty and authority,
unjustly and unlawfully obstructed, defeated, violated, impeded or impaired the
constitutional rights and liberties of Defendant . . . . (Rollo, pp. 260-262)

On the other hand, the petitioner submits that no counter-claim can be filed against
him in his capacity as Solicitor General since he is only acting as counsel for the
Republic. He cites the case of Borja v. Borja, 101 Phil. 911 [1957] wherein we ruled:

. . . The appearance of a lawyer as counsel for a party and his participation in a

case as such counsel does not make him a party to the action. The fact that he
represents the interests of his client or that he acts in their behalf will not hold
him liable for or make him entitled to any award that the Court may adjudicate
to the parties, other than his professional fees. The principle that a
counterclaim cannot be filed against persons who are acting in representation
of another — such as trustees — in their individual capacities (Chambers v.
Cameron, 2 Fed. Rules Service, p. 155; 29 F. Supp. 742) could be applied with
more force and effect in the case of a counsel whose participation in the action
is merely confined to the preparation of the defense of his client. Appellant,
however, asserted that he filed the counterclaim against said lawyer not in his
individual capacity but as counsel for the heirs of Quintin de Borja. But as we
have already stated that the existence of a lawyer-client relationship does not
make the former a party to the action, even this allegation of appellant will not
alter the result We have arrived at (at pp. 924-925)

Thus, the petitioner argues that since he is simply the lawyer in the case, exercising
his duty under the law to assist the Government in the filing and prosecution of all
cases pursuant to Section 1, Executive Order No. 14, he cannot be sued in a
counterclaim in the same case.

Presiding Justice Francis Garchitorena correctly observed that there is no general

immunity arising solely from occupying a public office.

The general rule is that public officials can be held personally accountable for acts
claimed to have been performed in connection with official duties where they have
acted ultra vires or where there is a showing of bad faith. We ruled in one case:

A number of cases decided by the Court where the municipal mayor alone was

held liable for back salaries of, or damages to dismissed municipal employees,
to the exclusion of the municipality, are not applicable in this instance.
In Salcedo v. Court of Appeals (81 SCRA 408 [1978]) for instance, the
municipal mayor was held liable for the back salaries of the Chief of Police he
had dismissed, not only because the dismissal was arbitrary but also because
the mayor refused to reinstate him in defiance of an order of the Commissioner
of Civil Service to reinstate.
 In Nemenzo v. Sabillano (25 SCRA 1 [1968]), the municipal mayor was held
personally liable for dismissing a police corporal who possessed the necessary
civil service eligibility, the dismissal being done without justifiable cause and
without any administrative investigation.

In Rama v. Court of Appeals (G.R. Nos. L-44484, L-44842, L-44591, L-44894,

March 16 1987), the governor, vice-governor, members of the Sangguniang
Panlalawigan, provincial auditor, provincial treasurer and provincial engineer
were ordered to pay jointly and severally in their individual and personal
capacity damages to some 200 employees of the province of Cebu who were
eased out from their positions because of their party affiliations. (Laganapan v.
Asedillo, 154 SCRA 377 [1987])

Moreover, the petitioner's argument that the immunity proviso under Section 4(a) of

Executive Order No. 1 also extends to him is not well-taken. A mere invocation of the
immunity clause does not ipso facto result in the charges being automatically
dropped.

In the case of Presidential Commission on Good Government v. Peña (159 SCRA 556

[1988]) then Chief Justice Claudio Teehankee, added a clarification of the immunity
accorded PCGG officials under Section 4(a) of Executive Order No. 1 as follows:

With respect to the qualifications expressed by Mr. Justice Feliciano in his

separate opinion, I just wish to point out two things: First, the main opinion
does not claim absolute immunity for the members of the Commission. The
cited section of Executive Order No. 1 provides the Commission's members
immunity from suit thus: "No civil action shall lie against the Commission or
any member thereof for anything done or omitted in the discharge of the task
contemplated by this order."  No absolute immunity like that sought by Mr.
Marcos in his Constitution for himself and his subordinates is herein involved. It
is understood that the immunity granted the members of the Commission by
virtue of the unimaginable magnitude of its task to recover the plundered
wealth and the State's exercise of police power was immunity from liability for
damages in the official discharge of the task granted the members of the
Commission much in the same manner that judges are immune from suit in the
official discharge of the functions of their office . . . " (at pp. 581-582)

Justice Florentino P. Feliciano stated in the same case:

It may be further submitted, with equal respect, that Section 4 (a) of Executive
Order No. 1 was intended merely to restate the general principle of the law of
public officers that the PCGG or any member thereof may not be held civilly
liable for acts done in the performance of official duty, provided that such
member had acted in good faith and within the scene of his lawful authority. It
may also be assumed that the Sandiganbayan would have jurisdiction to
determine whether the PCGG or any particular official thereof may be held
liable in damages to a private person injured by acts of such manner. It would
seem constitutionally offensive to suppose that a member or staff member of
the PCGG could not be required to testify before the Sandiganbayan or that
such members were exempted from complying with orders of this Court. (at
pp. 586- 587)

Immunity from suit cannot institutionalize irresponsibility and non-accountability nor

grant a privileged status not claimed by any other official of the Republic. (id., at
page 586)

Where the petitioner exceeds his authority as Solicitor General acts in bad faith, or,
as contended by the private respondent, "maliciously conspir(es) with the PCGG
commissioners in persecuting respondent Enrile by filing against him an evidently
baseless suit in derogation of the latter's constitutional rights and liberties" (Rollo, p.
417), there can be no question that a complaint for damages may be filed against
him. High position in government does not confer a license to persecute or recklessly
injure another. The actions governed by Articles 19, 20, 21, and 32 of the Civil Code
on Human Relations may be taken against public officers or private citizens alike.
The issue is not the right of respondent Enrile to file an action for damages. He has
the right. The issue is whether or not that action must be filed as a compulsory
counterclaim in the case filed against him.

Under the circumstances of this case, we rule that the charges pressed by
respondent Enrile for damages under Article 32 of the Civil Code arising from the
filing of an alleged harassment suit with malice and evident bad faith do not
constitute a compulsory counterclaim. To vindicate his rights, Senator Enrile has to
file a separate and distinct civil action for damages against the Solicitor General.

In the case of Tiu Po v. Bautista, (103 SCRA 388 [1981]), we ruled that damages
claimed to have been suffered as a consequence of an action filed against the
petitioner must be pleaded in the same action as a compulsory counterclaim. We
were referring, however, to a case filed by the private respondent against the
petitioners or parties in the litigation. In the present case, the counterclaim was filed
against the lawyer, not against the party plaintiff itself.

To allow a counterclaim against a lawyer who files a complaint for his clients, who is
merely their representative in court and not a plaintiff or complainant in the case
would lead to mischievous consequences.

A lawyer owes his client entire devotion to his genuine interest, warm zeal in the
maintenance and defense of his rights and the exertion of his utmost learning and
ability. (See Agpalo, Legal Ethics [1980] p. 147 citing Javier v. Cornejo, 63 Phil. 293
[1936]; In re Tionko, 43 Phil. 191 [1922]; In re: Atty. C. T. Oliva, 103 Phil. 312
[1958]; Lualhati v. Albert, 57 Phil. 86 [1932]; Toguib v. Tomol, Jr., G.R. Adm. Case
No. 554, Jan. 3, 1969; People v. Macellones, 49 SCRA 529 [1973]; Tan Kui v. Court
of Appeals, 54 SCRA 199 [1973]). A lawyer cannot properly attend to his duties
towards his client if, in the same case, he is kept busy defending himself.

The problem is particularly perplexing for the Solicitor General.1âwphi1 As counsel of

the Republic, the Solicitor General has to appear in controversial and politically
charged cases. It is not unusual for high officials of the Government to unwittingly
use shortcuts in the zealous desire to expedite executive programs or reforms. The
Solicitor General cannot look at these cases with indifferent neutrality. His perception
of national interest and obedience to instructions from above may compel him to
take a stance which to a respondent may appear too personal and biased. It is
likewise unreasonable to require Government Prosecutors to defend themselves
against counterclaims in the very same cases they are prosecuting.

As earlier stated, we do not suggest that a lawyer enjoys a special immunity from
damage suits. However, when he acts in the name of a client, he should not be sued
on a counterclaim in the very same case he has filed only as counsel and not as a
party. Any claim for alleged damages or other causes of action should be filed in an
entirely separate and distinct civil action.

WHEREFORE, the present petition is GRANTED. The questioned resolutions of the

Sandiganbayan are SET ASIDE insofar as they allow the counterclaim filed against
the petitioner. SO ORDERED.
G.R. No. 107356 March 31, 1995

SINGAPORE AIRLINES LIMITED, petitioner, 

vs.
THE COURT OF APPEALS and PHILIPPINE AIRLINES, respondents.

ROMERO, J.:

Sancho Rayos was an overseas contract worker who had a renewed contract with the
Arabian American Oil Company (Aramco) for the period covering April 16, 1980, to
April 15, 1981. As part of Aramco's policy, its employees returning to Dhahran, Saudi
Arabia from Manila are allowed to claim reimbursement for amounts paid for excess
baggage of up to 50 kilograms, as long as it is properly supported by receipt. On
April 1980, Rayos took a Singapore Airlines (SIA) flight to report for his new
assignment, with a 50-kilogram excess baggage for which he paid P4,147.50.
Aramco reimbursed said. amount upon presentation of the excess baggage ticket.

In December 1980, Rayos learned that he was one of several employees being
investigated by Aramco for fraudulent claims. He immediately asked his wife Beatriz
in Manila to seek a written confirmation from SIA that he indeed paid for an excess
baggage of 50 kilograms. On December 10, 1980, SIA's manager, Johnny Khoo,
notified Beatriz of their inability to issue the certification requested because their
records showed that only three kilograms were entered as excess and accordingly
charged. SIA issued the certification requested by the spouses Rayos only on April 8,
1981, after its investigation of the anomaly and after Beatriz, assisted by a lawyer,
threatened it with a lawsuit. On April 14, 1981, Aramco gave Rayos his travel
documents without a return visa. His employment contract was not renewed.

On August 5, 1981, the spouses Rayos, convinced that SIA was responsible for the
non-renewal of Rayos' employment contract with Aramco, sued it for damages. SIA
claimed that it was not liable to the Rayoses because the tampering was committed
by its handling agent, Philippine Airlines (PAL). It then filed a third-party complaint
against PAL. PAL, in turn, countered that its personnel did not collect any charges for
excess baggage; that it had no participation in the tampering of any excess baggage
ticket; and that if any tampering was made, it was done by SIA's personnel.

Judge Jesus O. Ibay of the Regional Trial Court of Manila, Branch 30, rendered
judgment on September 9, 1988, in favor of the plaintiffs, the dispositive portion of
which reads thus:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and

against the defendant Singapore Airlines Limited, sentencing the latter to
pay the former the following:
 1. The sum of Four Hundred Thirty Thousand Nine Hundred Pesos and
Eighty Centavos (P430,900.80) as actual damages, with interest at the
legal rate from the date of the filing of the complaint until fully paid.

2. The sum of Four Thousand One Hundred Forty-Seven Pesos and Fifty
Centavos (P4,147.50) as reimbursement for the amount deducted from
Mr. Rayos' salary, also with legal rate of interest from the filing of the
complaint until paid in full;

3. The sum of Fifty Thousand Pesos (P50,000.00) as moral damages;

4. The sum equivalent to ten Per Cent (10th) of the total amount due as
and for attorney's fees; and

5. The cost of suit.

The defendant's counterclaim is hereby dismissed.

ON THE THIRD PARTY COMPLAINT, the third-party defendant PAL is

ordered to pay defendant and third-party plaintiff SIA whatever the latter
has paid the plaintiffs.

SO ORDERED.

In so ruling, the court a quo concluded that the excess baggage ticket of Rayos was
tampered with by the employees of PAL and that the fraud was the direct and
proximate cause of the non-renewal of Rayos' contract with Aramco.

All parties appealed to the Court of Appeals. SIA's appeal was dismissed for non-
payment of docket fees, which dismissal was eventually sustained by this Court. The
Rayos spouses withdrew their appeal when SIA satisfied the judgment totaling
P802,435.34.

In its appeal, PAL claimed that the spouses Rayos had no valid claim against SIA
because it was the inefficiency of Rayos which led to the non-renewal of his contract
with Aramco, and not the alleged tampering of his excess bagged ticket On the other
hand, SIA argued that the only issue in the said appeal is whether or not it was
entitled to reimbursement from PAL, citing
the case of Firestone Tire and Rubber Company of the Philippines v. Tempongko.1

The appellate court disagreed with SIA's contention that PAL could no longer raise
the issue of SIA's liability to the Rayoses and opined "that SIA's answer to the
complaint should inure to the benefit of PAL, and the latter may challenge the lower
court's findings against SIA in favor of plaintiffs-appellees (the Rayos spouses) for
the purpose of defeating SIA's claim against it, and not for the purpose of altering in
any way the executed judgment against SIA." In its answer to the main complaint,
SIA set up the defense that the excess baggage ticket was indeed tampered with but
it was committed by PAL's personnel. On September 21, 1992, the appellate court
granted PAL's appeal and absolved it from any liability to SIA.

In this petition for review, SIA argues that PAL cannot validly assail for the first time
on appeal the trial court's decision sustaining the validity of plaintiff's complaint
against SIA if PAL did not raise this issue in the lower court. It added that the
appellate court should have restricted its ruling on the right of SIA to seek
reimbursement from PAL, as this was the only issue raised by SIA in its third-party
complaint against PAL.

The instant appeal is impressed with merit.

The petitioner correctly pointed out that the case of Firestone  squarely applies to the
case at bench. In said case, the Court expounded on the nature of a third-party
complaint and the effect of a judgment in favor of the plaintiff against the defendant
and in favor of such defendant as third-party plaintiff against, ultimately, the third-
party defendant. Speaking through then Justice and later Chief Justice Claudio
Teehankee, the Court stated:

The third-party complaint is, therefore, a procedural device whereby a

"third party" who is neither a party nor privy to the act or deed
complained of by the plaintiff, may be brought into the case with leave of
court, by the defendant, who acts as third-party plaintiff to enforce
against such third-party defendant a right for contribution, indemnity,
subrogation or any other relief, in respect of the plaintiff's claim. The
third-party complaint is actually independent of and separate and distinct
from the plaintiff's complaint. . . . When leave to file the third-party
complaint is properly granted, the Court renders in effect two judgments
in the same case, one on the plaintiff's complaint and the other on the
third-party complaint. When he finds favorably on both complaints, as in
this case, he renders judgment on the principal complaint in favor of
plaintiff against defendant and renders another judgment on the third-
party complaint in favor of defendant as third-party plaintiff, ordering the
third-party defendant to reimburse the defendant whatever amount said
defendant is ordered to pay plaintiff in the case. Failure of any of said
parties in such a case to appeal the judgment as against him makes such
judgment final and executory. By the same token, an appeal by one party
from such judgment does not inure to the benefit of the other party who
has not appealed nor can it be deemed to be an appeal of such other
party from the judgment against him.

It must be noted that in the proceedings below, PAL disclaimed any liability to the
Rayoses and imputed the alleged tampering to SIA's personnel. On appeal, however,
PAL changed its theory and averred that the spouses Rayos had no valid claim
against SIA on the around that the non-renewal of Sancho's contract with Aramco
was his unsatisfactory performance rather than the alleged tampering of his excess
baggage ticket. In response to PAL's appeal, SIA argued that it was improper for PAL
to question SIA's liability to the plaintiff, since this was no longer an issue on account
of the finality and, in fact, satisfaction of the judgment.

Surprisingly, the appellate court ignored the Court's pronouncements

in Firestone and declared:

[T]here is nothing in the citation which would suggest that the appellant
cannot avail of the defenses which would have been available to the non-
appealing party against the prevailing party which would be beneficial to
the appellant. After all, PAL's liability here is premised on the liability of
SIA to plaintiffs-appellees, In its own defense, it should have the right to
avail of defenses of SIA against plaintiffs-appellees which would redound
to its benefit. This is especially true here where SIA lost the capability to
defend itself on the technicality of failure to pay docket fee, rather than
on the merits of its appeal. To hold otherwise would be to open the door
to a possible collusion between the plaintiff and defendant which would
leave the third-party defendant holding the bag.

There is no question that a third-party defendant is allowed to set up in his answer

the defenses which the third-party plaintiff (original defendant) has or may have to
the plaintiff's claim. There are, however, special circumstances present in this case
which preclude third-party defendant PAL from benefiting from the said principle.
One of the defenses available to SIA was that the plaintiffs had no cause of action,
that is, it had no valid claim against SIA. SIA investigated the matter and discovered
that tampering was, indeed, committed, not by its personnel but by PAL's. This
became its defense as well as its main cause of action in the third-party complaint it
filed against PAL. For its part, PAL could have used the defense that the plaintiffs had
no valid claim against it or against SIA. This could be done indirectly by adopting
such a defense in its answer to the third-party complaint if only SIA had raised the
same in its answer to the main complaint, or directly by so stating in unequivocal
terms in its answer to SIA's complaint that SIA and PAL were both blameless. Yet,
PAL opted to deny any liability which it imputed to SIA's personnel. It was only on
appeal — in a complete turn around of theory — that PAL raised the issue of no valid
claim by the plaintiff against SIA. This simply cannot be allowed.

While the third-party defendant; would benefit from a victory by the third-party
plaintiff against the plaintiff, this is true only when the third-party plaintiff and third-
party defendant have non-contradictory defenses. Here, the defendant and third-
party defendant had no common defense against the plaintiffs' complaint, and they
were even blaming each other for the fiasco.

Fear of collusion between the third-party plaintiff and the plaintiffs aired by the
appellate court is misplaced if not totally unfounded. The stand of SIA as against the
plaintiffs' claim was transparent from the beginning. PAL was aware of SIA's defense,
and if it was convinced that SIA should have raised the defense of no valid claim by
the plaintiffs, it should have so stated in its answer as one of its defenses, instead of
waiting for an adverse judgment and raising it for the first time on appeal.

The judgment, therefore, as far as the Rayoses and SIA are concerned, has already
gained finality. What remains to be resolved, as correctly pointed out by petitioner, is
whether it is entitled to reimbursement from PAL, considering that PAL appealed that
part of the decision to the appellate court. This is where the rule laid down
in Firestone becomes applicable.

The trial court's decision, although adverse to SIA as defendant, made PAL ultimately
answerable for the judgment by ordering the latter to reimburse the former for the
entire monetary award. On appeal, PAL tried to exonerate itself by arguing that the
Rayoses had no valid claim against SIA. From PAL's viewpoint, this seemed to be the
only way to extricate itself from a mess which the court a quo ascribed to it. This
cannot, however, be allowed because it was neither raised by SIA in its answer to
the main complaint nor by PAL in its answer to the third-party complaint. The
prudent thing that PAL should have done was to state in its answer to the third-party
complaint filed by SIA against it everything that it may conceivably interpose by way
of its defense, including specific denials of allegations in the main complaint which
implicated it along with SIA.

The appellate court was in error when it opined that SIA's answer inured to the
benefit of PAL for the simple reason that the complaint and the third-party complaint
are actually two separate cases involving the same set of facts which is allowed by
the court to be resolved in a single proceeding only to avoid a multiplicity of actions.
Such a proceeding obviates the need of trying two cases, receiving the same or
similar evidence for both, and enforcing separate judgments therefor. This situation
is not, as claimed by the appellate court, analogous to a case where there are
several defendants against whom a complaint is filed stating a common cause of
action, where the answer of some of the defendants inures to the benefit of those
who did not file an answer. While such a complaint speaks of a single suit, a third-
party complaint involves an action separate and distinct from, although related to
the main complaint. A third-party defendant who feels aggrieved by some allegations
in the main complaint should, aside from answering the third-party complaint, also
answer the main complaint.
We do not, however, agree with the petitioner that PAL is solely liable for the
satisfaction of the judgment. While the trial court found, and this has not been
adequately rebutted by PAL, that the proximate cause of the non-renewal of Rayos'
employment contract with Aramco was the tampering of his excess baggage ticket
by PAL's personnel, it failed to consider that the immediate cause of such non-
renewal was SIA's delayed transmittal of the certification needed by Rayos to prove
his innocence to his employer.

SIA was informed of the anomaly in December 1980 but only issued the certification
four months later or, more specifically, on April 8, 1981, a few days before the
expiration of Rayos' contract. Surely, the investigation conducted by SIA could not
have lasted for four months as the information needed by the Rayoses could easily
be verified by comparing the duplicate excess baggage tickets which they and their
handling agent, PAL, kept the record purposes. The fact that the Rayos spouses had
to be assisted by counsel who threatened to file a damage suit against SIA if the
certification they urgently needed was not immediately issued only strengthens the
suspicion that SIA was not dealing with them in utmost good faith. The effect of
SIA's mishandling of Beatriz Rayos' request became instantly apparent when her
husband's contract was not renewed in spite of his performance which was
constantly "highly regarded" by the manager of Aramco's equipment services
department.

Former Chief Justice and noted remedial law expert Manuel V. Moran opined that "in
an action upon a tort, the defendant may file a third-party complaint against a joint
tort-feasor for contribution."2

The non-renewal of Rayos employment contract was the natural and probable
consequence of the separate tortious acts of SIA and PAL. Under mandate of Article
2176 of the Civil Code, Rayos is entitled to be compensated for such damages.
Inasmuch as the responsibility of two or more persons, or tort-feasors, liable for a
quasi-delict is joint and several, 3 and the sharing as between such solidary debtors is
pro-rata,4 it is but logical, fair, and equitable to require PAL to contribute to the
amount awarded to the Rayos spouses and already paid by SIA, instead of totally
indemnifying the latter.

WHEREFORE, the decision of the respondent Court of Appeals in CA-G.R. CV No.

20488 dated September 21, 1992, is hereby REVERSED and a new one is entered
ordering private respondent Philippine Airlines to pay, by way of contribution,
petitioner Singapore Airlines one-half (1/2) of the amount it actually paid to Sancho
and Beatriz Rayos in satisfaction of the judgment in Civil Case No. 142252, dated
September 9, 1988. SO ORDERED.
G.R. No. 155343 September 2, 2005

BENGUET CORPORATION, Petitioners, 
vs.
CORDILLERA CARABALLO MISSION, INC., herein represented by its
Chairman, Greg Bernabe, Jr., TEOFILO "BOY" DICANG and GREG BERNABE,
JR., Respondent.

DECISION

QUISUMBING, J.:

This petition for review on certiorari seeks to set aside the Resolution1 dated August
22, 2002 of the Court of Appeals in CA-G.R. SP No. 72150 and the Decision2 dated
June 14, 2002 of the Regional Trial Court of La Trinidad, Benguet, Branch VIII, in
Civil Case No. 2K-CV-1698, and thus reinstate the Decision3 dated December 21,
2001 of the Municipal Trial Court of Itogon, Benguet in Civil Case No. 314.

Petitioner Benguet Corporation owns Pilo mineral claim covering several hectares of
land in Virac, Itogon, Benguet. It planted pine trees in compliance with the directive
of the Department of Environment and Natural Resources (DENR) and built roads,
buildings and security gates in the covered area. Sometime in September 1997,
petitioner discovered that representatives of respondent Cordillera Caraballo Mission,
Inc. (CCMI) bulldozed and leveled the grounds within its Pilo mineral claim in
preparation for the construction of a school. Despite petitioner’s demands to cease,
respondents continued with the construction activities.

Petitioner filed a complaint4 for forcible entry against respondents in the Municipal

Trial Court (MTC) of Itogon, Benguet. The MTC ruled in favor of petitioner’s prior
possession of the land since August 10, 1964, vis-à-vis CCMI’s possession which
began only in 1994. The court ordered respondents to vacate the premises, restore
complete possession to the petitioner, and pay the cost. 5

On appeal, the RTC reversed the judgment of the MTC and dismissed the complaint
for failure to state a cause of action. It found that the complaint did not state the
means of dispossession and did not constitute an action for forcible entry. 6
Petitioner elevated the case to the Court of Appeals. The appellate court dismissed
the petition for failure to attach (a) the board resolution authorizing the affiant to file
the complaint, and (b) the certified copies of other pleadings and documents
pertinent and relevant thereto.7

Petitioner now comes before us alleging that

The Honorable Court of Appeals committed reversible error –

a) in denying due course the petition (sic);

b) in not considering the issues raised in the petition which are actually based on
facts not controverted but even stipulated by the parties;

c) in not disposing the issues which are not even factual but legal issues based on
duly established facts at the trial court.8

Simply stated, we are asked to resolve the following issues: (1) Is petitioner’s failure
to attach the board resolution and the copies of other pleadings an excusable
mistake? (2) Does the complaint state a cause of action? and (3) If it does, who
should have possession?

On the first issue, petitioner claims to have substantially complied with the rules, and
pleads for the liberal construction, as a matter of substantive justice. It averred that
affiant Marcelo A. Bolaño was authorized by the board but copies of the board
resolution were in its Makati Office while its counsel was based in Baguio City. It
maintains that the attached complaint and decisions of the MTC and RTC were
sufficient since the petition before the Court of Appeals was limited to pure questions
of law. It posits that the complaint itself is the best evidence to determine whether
the allegations therein sufficiently state a cause of action.

This Court has consistently held that the requirement regarding verification of a
pleading is formal, not jurisdictional.9 Such requirement is a condition affecting the
form of the pleading; non-compliance with this requirement does not necessarily
render the pleading fatally defective. Verification is simply intended to secure an
assurance that the allegations in the pleading are true and correct and not the
product of the imagination or a matter of speculation, and that the pleading is filed in
good faith.10 Further, the purpose of the aforesaid certification is to prohibit and
penalize the evils of forum-shopping.11 Considering that later on Mr. Bolaño’s
authority to sign the verification and certificate of non-forum shopping was
ratified12 by the board, there is no circumvention of these objectives.

On the necessity of other pleadings and documents, Section 2 of Rule 42 of the Rules
of Court requires attachments if these would support the allegations of the petition.
We note that the facts alleged in the petition filed before the Court of Appeals were
the same facts found in the decisions of the MTC and RTC. Accordingly, we find no
compelling need to attach other portions of the records. Besides, the appellate court
can always refer to the records transmitted 13 by the clerk of the trial court if it
wanted to verify the allegations.

The Rules of Civil Procedure should be applied with reason and liberality 14 to promote
its objective of securing a just, speedy and inexpensive disposition of every action
and proceeding. Rules of procedure are used to help secure and not override
substantial justice. Thus, the dismissal of an appeal on a purely technical ground is
frowned upon especially if it will result in unfairness. 15 No such result happened here.

Anent the second issue, which goes to the merits of the instant controversy,
petitioner asserts that it specifically alleged the acts constituting forcible entry and it
points to paragraphs 4, 5, and 6 of the complaint as well as to the annexed
photographs. For its part, the respondent defends the ruling of the RTC that
petitioner failed to state sufficiently a cause of action in the complaint before the
MTC.

The pertinent portion of the complaint reads:

...

3. The plaintiff is the owner as well as lawful and peaceful possessor of a parcel of
land covered by PILO Mineral Claim shown in the approved plan hereto attached
as Annex "A" hereof.

4. Sometime in the later part of September 1997, plaintiff’s caretaker noticed an

ongoing bulldozing and ground leveling activities within Pilo Mineral Claim. His
investigation revealed that the illegal activity was being undertaken by individual
defendants who were supervising the heavy equipment owned by one Pio Wasit.
When confronted, said defendant represented themselves to be representatives of
defendant Cordillera Caraballo Mission, Inc. To this effect, hereto attached….

5. The defendants were warned of their unlawful entry in the above-described

property of the plaintiff but defendants refused to stop to the damage and prejudice
of the plaintiff herein. In fact, in the process of forcible entry in the property, the
defendants destroyed young and full grown pine trees alike which your plaintiff had
been protecting and spending considerable amount therefor.

6. The unlawful activities by the defendants and their refusal to stop despite demand
prompted plaintiff to send them demand letter dated October 1, 1997, copy of which
is hereto attached as Annex "G", but in spite of the receipt of said letter, the
defendants ignored it and continued in their activities dispossessing plaintiff of its
peaceful possession over the property. In fact, the defendants even proceeded in
laying the foundation of the construction of a building as shown in the photographs
hereto attached as Annex "H".16

In actions for forcible entry, it may be stressed, two allegations are mandatory for
the municipal court to acquire jurisdiction. First, the plaintiff must allege his prior
physical possession of the property. Second, he must also allege that he was
deprived of his possession by any of the means provided for in Section 1, Rule 70 of
the Rules of Court, namely, force, intimidation, threat, strategy, and stealth. 17 If the
alleged dispossession did not occur by any of these means, the proper recourse is to
file not an action for forcible entry but a plenary action to recover possession with
the Regional Trial Court.18

Nothing in the complaint before the MTC would show how the entry was effected nor
how dispossession took place. The complaint merely stated that petitioner’s
caretaker noticed an ongoing bulldozing and leveling activities. The allegations that
these activities were illegal and that respondents’ entry was unlawful are not
statements of bare facts but conclusions of law. The complaint should have specified
what made the activities illegal and the entry unlawful. 19 Without these ultimate
facts, the MTC did not acquire jurisdiction over the case. In view of the foregoing,
the RTC properly reversed the MTC’s decision and then dismissed the complaint of
petitioner for failure to state a cause of action. The appellate court would not and did
not commit a reversible error in sustaining in effect the RTC’s decision of dismissal.

WHEREFORE, the petition is DENIED for lack of merit. The Resolution dated August
22, 2002 of the Court of Appeals in CA-G.R. SP No. 72150 and the Decision dated
June 14, 2002 of the Regional Trial Court of La Trinidad, Benguet, Branch VIII, in
Civil Case No. 2K-CV-1698 are AFFIRMED.
G.R. No. 117083 October 27, 1995

LAZARO V. KAVINTA, petitioner, 
vs.
HON. PRUDENCIO ALTRE CASTILLO, JR., Presiding Judge, Branch 220,
Regional Trial Court, Quezon City, and ANTONIO C. FRANCO, respondents.

RESOLUTION

DAVIDE, JR., J.:

The issue in this special civil action for certiorari is whether public respondent Judge
Prudencio Altre Castillo, Jr., has committed grave abuse of discretion in denying the
motion to dismiss the complaint in Civil Case No. Q-94-20532 on the ground that the
certification of non-forum shopping required under Administrative Circular No. 04-
941 was, nevertheless, subsequently submitted after the filing of the motion to
dismiss.

The antecedent disclosed by the parties in their pleadings are uncomplicated.

On 11 May 1994, private respondent represented by his attorney-in-fact, Angeles F.

Arroyo, filed with the Regional Trial Court of Quezon City a complaint against
petitioner Lazaro V. Kavinta and others2 a complaint for Recovery of Possession and
Issuance of Writ of Demolition. The case was docketed as Civil Case No. Q-94-20532
and was raffled to Branch 220 of said court, which is presided over by public
respondent Judge Castillo.

On 20 June 1994, the petitioner and his codefendants moved to dismiss the
complaint3 on the ground that "it does not comply with Administrative Circular No.
04-94 of the Supreme Court which took effect on April 1, 1994."

On 4 July 1994 private respondent filed, through counsel, an opposition to the

motion to dismiss,4 to which he attached as Annex "A" thereof the certification
required in Administrative Circular No. 04-94.5

On 20 July 1994, Judge Castillo issued an order 6 denying the motion to dismiss in
view of the submission of the aforesaid certification, and directing the defendants to
file their answer or responsive pleading "within the remaining reglementary period in
accordance with the Rules of Court."

On 3 August 1994, Judge Castillo issued an order 7 declaring petitioner's Reply to the
opposition to the motion to dismiss moot and academic in view of the order of 20
July 1994.

On 24 August 1994, petitioner filed a motion to reconsider his Reply as a motion for
the reconsideration of the order of 20 July 1994.8

On 2 September 1994, Judge Castillo issued an order 9 denying the Reply, which was
treated as a motion for reconsideration, and clarifying that

The language of the July 20, 1994 order is very clear and unambiguous.
The fifteen (15) days reglementary period to plead is reckoned from the
date defendants, through counsel, received the notice denying their
motion to dismiss.

Administrative Circular No. 04-94 of this Court issued by the Chief Justice on 8
February 1994 and which took effect on 1 April 1994 pertinently provides:

Revised Circular No. 28-91, dated February 8, 1994 applies to and

governs the filing of petitions in the Supreme Court and the Court of
Appeals and is intended to prevent the multiple filing of petitions or
complaints involving the same issues in other tribunals or agencies as a
form of forum shopping.

Complementary thereto and for the same purpose, the following

requirements, in addition to those in pertinent provisions of the Rules of
Court and existing circulars, shall be strictly complied with in the filing of
complaints petitions, applications or other initiatory pleadings in all courts
and agencies other than the Supreme Court and the Court of Appeals,
and shall be subject to the sanctions provided hereunder:

1. The plaintiff, petitioner, applicant or principal party seeking relief in the

complaint, petition, application or other initiatory pleading shall certify
under oath in such original pleading, or in a sworn certification annexed
thereto and simultaneously filed therewith, to the truth of the following
facts and undertakings: (a) he has not theretofore commenced any other
action or proceeding involving the same issues in the Supreme Court, the
Court of Appeals, or any other tribunal or agency; (b) to the best of his
knowledge, no such action or proceeding is pending in the Supreme
Court, the Court of Appeals or any other tribunal or agency; (c) if there is
any such action or proceeding which is either pending or may have been
terminated, he must state the status thereof; and (d) if he should
thereafter learn that a similar action or proceeding has been filed or is
pending before the Supreme Court, the Court of Appeals, or any other
tribunal or agency, he undertakes to report that fact within five (5) days
therefrom to the court or agency wherein the original pleading and sworn
certification contemplated herein have been filed.

The complaint and other initiatory pleadings referred to and subject of

this Circular are the original civil complaint, counterclaim, cross-claim,
third (fourth, etc.) — party complaint, or complaint-in-intervention,
petition, or application wherein a party asserts his claim for relief.

2. Any violation of this Circular shall be a cause for the dismissal of the
complaint, petition, application or other initiatory pleading, upon motion
and after hearing. However, any clearly wilful and deliberate forum
 shopping by any party and his counsel through the filing of multiple
complaints or other initiatory pleadings to obtain favorable action shall be
a ground for summary dismissal thereof and shall constitute direct
contempt of court. Furthermore, the submission of a false certification or
non-compliance with the undertakings therein, as provided in Paragraph
1 hereof, shall constitute indirect contempt of court, without prejudice to
disciplinary proceedings against the counsel and the filing of a criminal
action against the guilty party.

In Loyola vs. Court of Appeals, et al.,10 we categorically ruled that the Circular

is mandatory as indicated by the clear language of its paragraph 2. Nevertheless,
substantial compliance thereof is sufficient. Thus:

Substantial compliance with the Circular is sufficient. This Circular

expanded or broadened the applicability of Circular No. 28-91 of this
Court. In Gabionza vs. Court of Appeals [G.R. No. 112547, Resolution of
18 July 1994. 234 SCRA 192] this Court held that substantial compliance
therewith is sufficient for:

It is scarcely necessary to add that Circular No. 28-91 must

be so interpreted and applied as to achieve the purposes
projected by the Supreme Court when it promulgated that
Circular. Circular No. 28-91 was designed to serve as an
instrument to promote and facilitate an orderly administration
of justice and should not be interpreted with such absolute
literalness as to subvert its 
own ultimate and legitimate objective or the goal of all rules
of procedure — which is to achieve substantial justice as
expeditiously as possible.

xxx xxx xxx

The fact that the Circular requires that it be strictly complied with merely
underscores its mandatory nature in that it cannot be dispensed with or
its requirements altogether disregarded, but it does not thereby interdict
substantial compliance with its provisions under justifiable circumstances.

In his opposition to the motion to dismiss, private respondent neither offered any
explanation why he failed to comply with the Circular nor invoked any justifiable
circumstance which would relieve him of the adverse effect of non-compliance. If this
Court is to be unbending in its demand for at least a substantial compliance of the
said Circular, the challenged order must have to be set aside. However, in his motion
to dismiss the instant petition,11private respondent pointed out that the filing of the
required certification was done with dispatch by his counsel upon "realization of the
existence of said circular." He thereby admits his unawareness or ignorance of the
Circular at the time he filed his complaint. We are not unmindful of the fact that
Administrative Circular No. 04-94 took effect only on 1 April 1994 and the complaint
in Civil Case No. 
Q-94-20532 was filed on 11 May 1994. The proximity then of the filing of the
complaint to the date of the effectivity of the Circular may be pleaded as a justifiable
circumstance, and the belated filing of the certification required thereunder may be
deemed a substantial compliance therewith. We thus rule  pro hac vice, but not
without a whit of reluctance, that this special circumstance in this case could sustain
the action of the respondent Judge. This should not be taken, however, as a
precedent. Elsewise stated, the mere submission of a certification under
Administrative Circular No. 04-94 after the filing of a motion to dismiss on the
ground of non-compliance thereof does not ipso facto operate as a substantial
compliance; otherwise the Circular would lose its value or efficacy.
WHEREFORE, the instant petition is DISMISSED. Petitioner is DIRECTED to file his
responsive pleading in Civil Case No. Q-94-20532 within a period of ten (10) days
from notice of this resolution. Costs against petitioner. SO ORDERED.

[G.R. No. 129718. August 17, 1998]

SANTO TOMAS UNIVERSITY HOSPITAL, petitioner vs. CESAR ANTONIO Y.

SURLA and EVANGELINE SURLA, respondents.

DECISION
VITUG, J.:

Can a compulsory counterclaim pleaded in an Answer be dismissed on the ground

of a failure to accompany it with a certificate of non-forum shopping? This question is
the core issue presented for resolution in the instant petition.
First, a factual background.
On 26 December 1995, respondent spouses filed a complaint for damages against
petitioner Santo Tomas University Hospital with the Regional Trial Court of Quezon
City predicated on an allegation by the spouses that their son, Emmanuel Cesar
Surla, while confined at the said hospital for having been born prematurely, had
accidentally fallen from his incubator on 16 April 1995 possibly causing serious harm
on the child. The case was raffled and assigned to Branch 226 of the Regional Trial
Court of Quezon City, presided over by the Hon. Leah S. Domingo-Regala, and there
docketed Civil Case No. Q-95-25977.
On 28 February 1996, petitioner hospital filed its Answer with Compulsory
Counterclaim asserting that respondents still owed to it the amount of P82,632.10
representing hospital bills for Emmanuels confinement at the hospital and making a
claim for moral and exemplary damages, plus attorneys fees, by reason of the
supposed unfounded and malicious suit filed against it.
On 21 March 1996, petitioner received a copy of respondents Reply to
Counterclaim, dated 12 March 1996, that sought, inter alia, the dismissal of
petitioners counterclaim for its non-compliance with Supreme Court Administrative
Circular No. 04-94 requiring that a complaint and other initiatory pleadings, such as
a counterclaim, cross-claim, third (fourt, etc.) party complaint, be accompanied with
a certificate of non-forum shopping.
 In its Rejoinder to respondents Reply to Counterclaim, petitioner contended that
the subject circular should be held to refer only to a permissive counterclaim, an
initiatory pleading not arising out of, nor necessarily connected with, the subject
matter of the plaintiffs claim but not to a compulsory counterclaim spawned by the
filing of a complaint and so intertwined therewith and logically related thereto that it
verily could not stand for independent adjudication. Petitioner concluded that, since
its counterclaim was compulsory in nature, the subject circular did not perforce apply
to it.[1]
In its Order of 22 March 1996, the trial court dismissed petitioners counterclaim,it
held:

Administrative Circular No. 04-94 provides; among others:

The complaint and other initiatory pleadings referred to and subject of this Circular
are the original civil complaint, counterclaim, cross-claim, third (fourth, etc) party
complaint, or complaint-in-intervention, petition or application wherein a party
asserts his claim on (sic) relief.

It will be noted that the counterclaim does not distinguish whether the same should
be permissive or compulsory, hence this Court finds that the counterclaim referred to
in said Circular covers both kinds.

WHEREFORE, the counterclaim of defendant is hereby DISMISSED. Let the pre-trial

of this case be set on May 14, 1996 at 2:00 oclock in the afternoon xxx [2]

On 16 April 1996, petitioner filed before the same court an Omnibus Motion
seeking a clarification of the courts Order of 14 March 1996 denying respondents
Reply to Counterclaim and reconsideration of the 22 nd March 1996 Order dismissing
the compulsory counterclaim.[3] On 22 April 1996, petitioner received a copy of the
courts Order, dated 16 April 1996, which pertinently read:

WHEREFORE, the Order dated March 14, 1996 is hereby clarified as follows:

x x x x x x x x x

The Reply to counterclaim filed by counsel for plaintiffs is hereby NOTED.

SO ORDERED.

"The Motion for Reconsideration of this Courts Order dated March 22, 1996 is hereby
DENIED. The pre-trial conference set on May 14, 1996 will go on as scheduled. [4]

Petitioner forthwith elevated the matter to the Court of Appeals by way of a special
civil action for certiorari under Rule 65, Revised Rules of Court, asseverating grave
abuse of discretion by public respondent in dismissing the compulsory counterclaim
and in espousing the view that Administrative Circular No. 04-94 should apply even
to compulsory counterclaims.
The Court of Appeals, in its Decision promulgated on 12 March 1997, dismissed
the petition for certiorari; it opined:

x x x the Supreme Court circular aforequoted requires without equivocation that to

the original civil complaint, counterclaim, cross-claim, third (fourth,etc.) party
complainant, or complaint-in-intervention, petition, or application wherein a party
asserts his claim for relief to be filed in all courts and agencies other than the
Supreme Court and the Court of Appeals must be annexed and simultaneously filed
therewith the required certification under oath to avoid forum shopping or multiple
filing of petitions and complaints. Non-compliance therewith is a cause for the
dismissal of the complainant, petition, application or other initiatory
pleading. Included in such initiatory pleading is the defendants counterclaim,
permissive or compulsory.

A counterclaim partakes of the nature of a complaint and/or a cause of action against

the plaintiff in a case x x x, only this time it is the original defendant who becomes
the plaintiff. It stands on the same footing and is tested by the same rules as if it
were an independent action.[5]

In its present recourse, petitioner contends that

The Court of Appeals (has) committed serious, evident and palpable error in ruling
that:

5.1 THE SPECIAL CIVIL ACTION OF CERTIORARI UNDER RULE 65 OF THE REVISED

RULES OF COURT IS UNAVAILING. THE DISMISSAL OF THE COMPULSORY
COUNTERCLAIM BEING A FINAL ORDER, THE PETITIONER SHOULD HAVE TAKEN AN
APPEAL THEREFROM; AND

5.2 ADMINISTRATIVE CIRCULAR NO. 04-94 OF THIS HONORABLE COURT

LIKEWISE APPLIES TO BOTH KINDS OF COUNTERCLAIMS, PERMISSIVE AND
COMPULSORY.[6]

The petition is partly meritorious.

The appellate court ruled that the dismissal of the counterclaim, being a final
order, petitioners remedy was to appeal therefrom and, such appeal being then
available, the special civil action for certiorari had been improperly filed.
The concept of a final judgment or order, distinguished form an interlocutory
issuance, is that the former decisively puts to a close, or disposes of a case or a
disputed issue leaving nothing else to be done by the court in respect thereto. Once
that judgment or order is rendered, the adjudicative task of the court is likewise
ended on the particular matter involved. [7] An order is interlocutory, upon the other
hand, if its effects would only be provisional in character and would still leave
substantial proceedings to be further had by the issuing court in order to put the
controversy to rest.[8]
The order of the trial court dismissing petitioners counterclaim was a final order
since the dismissal, although based on a technicality, would require nothing else to
be done by the court with respect to the specific subject except only to await the
possible filing during the reglementary period of a motion for reconsideration or the
taking of an appeal therefrom.
As a rule, errors of judgment, as well as of procedure, neither relating to the
jurisdiction of the court nor involving grave abuse of discretion, are not reviewable
by the extraordinary remedy of certiorari.[9] As long as a court acts within its
jurisdiction and does not gravely abuse its discretion in the exercise thereof, any
supposed error committed by it will amount to nothing more than an error of
judgment reviewable by a timely appeal and not assailable by a special civil action
for certiorari.[10] This rule however, is not a rigid and inflexible technicality. This
Court has not too infrequently given due course to a petition for certiorari, even
when the proper remedy would have been an appeal, where valid and compelling
considerations could warrant such a recourse. [11] Certiorari has been deemed to be
justified, for instance, in order to prevent irreparable damage and injury to a party
where the trial judge has capriciously and whimsically exercised his judgment, or
where an ordinary appeal would simply be inadequate to relieve a party from the
injurious effects of the judgment complained of.[12]
In the case at bar, an appeal from the dismissal of the counterclaim, although not
totally unavailable, could have well been ineffective, if not futile, as far as petitioner
is concerned since no single piece of evidence has yet been presented by it, the
opportunity having been foreclosed by the trial court, on the dismissed counterclaim
which could form part of the records to be reviewed by the appellate court. The
object of procedural law is not to cause an undue protraction of the litigation, but to
facilitate the adjudication of conflicting claims and to serve, rather than to defeat,
the ends of justice.[13]
 
The opinion of this Court on the next issue persuades it to accept, tested by the
foregoing disquisition, the instant petition for its consideration.
The pertinent provisions of Administrative Circular No. 04-94 provide:

1 The plaintiff, petitioner, applicant or principal party seeking relief in the complaint,
petition, application or other initiatory pleading shall certify under oath in such
original pleading, or in a sworn certification annexed thereto and simultaneously filed
therewith, to the truth of the following facts and undertakings: (a) he has not
theretofore commenced any other action or proceeding involving the same issues in
the Supreme Court, the Court of Appeals, or any other tribunal or agency; (b) to the
best of his knowledge, no such action or proceeding is pending in the Supreme
Court, the Court of Appeals, or any other tribunal or agency; (c) if there is any such
action or proceeding which is either pending or may have been terminated, he must
state the status thereof; and (d) if he should thereafter learn that a similar action or
proceeding has been filed or is pending before the Supreme Court, the Court of
Appeals or any other tribunal or agency, he undertakes to report that fact within five
(5) days therefrom to the court or agency wherein the original pleading and sworn
certification contemplated here have been filed.

The complaint and other initiatory pleadings referred to and subject of this Circular
are the original civil complaint, counterclaim, cross-claim third (fourth, etc.)
party complaint or complaint-in-intervention, petition, or application
wherein a party asserts his claim for relief. (Emphasis supplied)

It bears stressing, once again, that the real office of Administrative Circular No.
04-94, made effective on 01 April 1994, is to curb the malpractice commonly
referred to also as forum-shopping. It is an act of a party against whom an adverse
judgment has been rendered in one forum of seeking and possibly getting a
favorable opinion in another forum, other than by appeal or the special civil action
of certiorari, or the institution of two or more actions or proceedings grounded on the
same cause on the supposition tha tone or the other court would make a favorable
disposition.[14] The language of the circular distinctly suggests that it is primarily
intended to cover an initiatory pleading or an incipient application of a party
asserting a claim for relief.[15]
It should not be too difficult, the foregoing rationale of the circular aptly taken, to
sustain the view that the circular in question has not, in fact, been contemplated to
include a kind of claim which, by its very nature as being auxiliary to the proceedings
in the suit and as deriving its substantive and jurisdictional support therefrom, can
only be appropriately pleaded in the answer and not remain outstanding for
independent resolution except by the court where the main case pends. Prescinding
from the foregoing, the provisio in the second paragraph of Section 5, Rule 8 of the
1997 Rules on Civil Procedure, i.e., that the violation of the anti-forum shopping rule
shall not be curable by mere amendment x x x but shall be cause for the dismissal of
the case without prejudice, being predicated on the applicability of the need for a
certification against forum shopping, obviously does not include a claim which cannot
be independently set up.
Petitioner, nevertheless, is entitled to a mere partial relief. The so called
counterclaim of petitioner really consists of two segregative parts: (1) for unpaid
hospital bills of respondents son, Emmanuel Surla, in the total amount
of P82,632.10; and (2) for damages, moral and exemplary, plus attorneys fees by
reason of the alleged malicious and unfounded suit filed against it. [16] It is the
second, not the first, claim that the Court here refers to as not being initiatory in
character and thereby not covered by the provisions of Administrative Circular No.
04-94.
WHEREFORE, the appealed decision is hereby modified in that the claim for
moral, exemplary damages and attorneys fees in Civil Case No. Q-95-25977 of
petitioner is ordered reinstated. The temporary restraining order priorly issued by
this Court is lifted. No costs. SO ORDERED.

G.R. No. 174356               January 20, 2010

EVELINA G. CHAVEZ and AIDA CHAVEZ-DELES, Petitioners, 

vs.
COURT OF APPEALS and ATTY. FIDELA Y. VARGAS, Respondents.

DECISION

ABAD, J.:

This case is about the propriety of the Court of Appeals (CA), which hears the case
on appeal, placing the property in dispute under receivership upon a claim that the
defendant has been remiss in making an accounting to the plaintiff of the fruits of
such property.

The Facts and the Case

Respondent Fidela Y. Vargas owned a five-hectare mixed coconut land and rice fields
in Sorsogon. Petitioner Evelina G. Chavez had been staying in a remote portion of
the land with her family, planting coconut seedlings on the land and supervising the
harvest of coconut and palay. Fidela and Evelina agreed to divide the gross sales of
all products from the land between themselves. Since Fidela was busy with her law
practice, Evelina undertook to hold in trust for Fidela her half of the profits.

But Fidela claimed that Evelina had failed to remit her share of the profits and,
despite demand to turn over the administration of the property to Fidela, had refused
to do so. Consequently, Fidela filed a complaint against Evelina and her daughter,
Aida C. Deles, who was assisting her mother, for recovery of possession, rent, and
damages with prayer for the immediate appointment of a receiver before the
Regional Trial Court (RTC) of Bulan, Sorsogon.1 In their answer, Evelina and Aida
claimed that the RTC did not have jurisdiction over the subject matter of the case
since it actually involved an agrarian dispute.
After hearing, the RTC dismissed the complaint for lack of jurisdiction based on
Fidela’s admission that Evelina and Aida were tenants who helped plant coconut
seedlings on the land and supervised the harvest of coconut and palay. As tenants,
the defendants also shared in the gross sales of the harvest. The court threw out
Fidela’s claim that, since Evelina and her family received the land already planted
with fruit-bearing trees, they could not be regarded as tenants. Cultivation, said the
court, included the tending and caring of the trees. The court also regarded as
relevant Fidela’s pending application for a five-hectare retention and Evelina’s
pending protest relative to her three-hectare beneficiary share. 2

Dissatisfied, Fidela appealed to the CA. She also filed with that court a motion for the
appointment of a receiver. On April 12, 2006 the CA granted the motion and
ordained receivership of the land, noting that there appeared to be a need to
preserve the property and its fruits in light of Fidela’s allegation that Evelina and Aida
failed to account for her share of such fruits. 3

Parenthetically, Fidela also filed three estafa cases with the RTC of Olongapo City and
a complaint for dispossession with the Department of Agrarian Reform Adjudication
Board (DARAB) against Evelina and Aida. In all these cases, Fidela asked for the
immediate appointment of a receiver for the property.

The Issues Presented

Petitioners present the following issues:

1. Whether or not respondent Fidela is guilty of forum shopping considering

that she had earlier filed identical applications for receivership over the subject
properties in the criminal cases she filed with the RTC of Olongapo City against
petitioners Evelina and Aida and in the administrative case that she filed
against them before the DARAB; and

2. Whether or not the CA erred in granting respondent Fidela’s application for

receivership.

The Court’s Ruling

One. By forum shopping, a party initiates two or more actions in separate tribunals,
grounded on the same cause, trusting that one or the other tribunal would favorably
dispose of the matter.4 The elements of forum shopping are the same as
in litis pendentia where the final judgment in one case will amount to res judicata in
the other. The elements of forum shopping are: (1) identity of parties, or at least
such parties as would represent the same interest in both actions; (2) identity of
rights asserted and relief prayed for, the relief being founded on the same facts; and
(3) identity of the two preceding particulars such that any judgment rendered in the
other action will, regardless of which party is successful, amount to res judicata in
the action under consideration.5

Here, however, the various suits Fidela initiated against Evelina and Aida involved
different causes of action and sought different reliefs. The present civil action that
she filed with the RTC sought to recover possession of the property based on Evelina
and Aida’s failure to account for its fruits. The estafa cases she filed with the RTC
accused the two of misappropriating and converting her share in the harvests for
their own benefit. Her complaint for dispossession under Republic Act 8048 with the
DARAB sought to dispossess the two for allegedly cutting coconut trees without the
prior authority of Fidela or of the Philippine Coconut Authority.

The above cases are similar only in that they involved the same parties and Fidela
sought the placing of the properties under receivership in all of them. But
receivership is not an action. It is but an auxiliary remedy, a mere incident of the
suit to help achieve its purpose. Consequently, it cannot be said that the grant of
receivership in one case will amount to res judicata on the merits of the other cases.
The grant or denial of this provisional remedy will still depend on the need for it in
the particular action.

Two. In any event, we hold that the CA erred in granting receivership over the
property in dispute in this case. For one thing, a petition for receivership under
Section 1(b), Rule 59 of the Rules of Civil Procedure requires that the property or
fund subject of the action is in danger of being lost, removed, or materially injured,
necessitating its protection or preservation. Its object is the prevention of imminent
danger to the property. If the action does not require such protection or
preservation, the remedy is not receivership.6

Here Fidela’s main gripe is that Evelina and Aida deprived her of her share of the
land’s produce. She does not claim that the land or its productive capacity would
disappear or be wasted if not entrusted to a receiver. Nor does Fidela claim that the
land has been materially injured, necessitating its protection and preservation.
Because receivership is a harsh remedy that can be granted only in extreme
situations,7 Fidela must prove a clear right to its issuance. But she has not. Indeed,
in none of the other cases she filed against Evelina and Aida has that remedy been
granted her.8

Besides, the RTC dismissed Fidela’s action for lack of jurisdiction over the case,
holding that the issues it raised properly belong to the DARAB. The case before the
CA is but an offshoot of that RTC case. Given that the RTC has found that it had no
jurisdiction over the case, it would seem more prudent for the CA to first
provisionally determine that the RTC had jurisdiction before granting receivership
which is but an incident of the main action.1 a vv p h i 1

WHEREFORE, the Court GRANTS the petition. The Resolutions dated April 12, 2006
and July 7, 2006 of the Court of Appeals in CA-G.R. CV 85552,
are REVERSED and SET ASIDE.

The receivership is LIFTED and the Court of Appeals is directed to resolve CA-G.R.

CV 85552 with utmost dispatch. SO ORDERED.
G.R. No. L-23136 August 26, 1974

ISMAEL MATHAY, JOSEFINA MATHAY, DIOGRACIAS T. REYES and S. ADOR

DIONISIO, plaintiffs-appellants, 
vs.
THE CONSOLIDATED BANK AND TRUST COMPANY, JOSE MARINO OLONDRIZ,
WILFRIDO C. TECSON, SIMON R. PATERNO, FERMIN Z. CARAM, JR.,
ANTONIO P. MADRIGAL, JOSE P. MADRIGAL, CLAUDIO TEEHANKEE, and
ALFONSO JUAN OLONDRIZ, defendants-appellees. CIPRIANO AZADA, MARIA
CRISTINA OLONDRIZ PERTIERRA jointly with her husband ARTURO
PERTIERRA, and MARIA DEL PUY OLONDRIZ DE STEVENS, movants-
intervenors-appellants.

Deogracias T. Reyes & Associates for appellants.

Tañada, Teehankee & Carreon for appellees.

Paterno Pedrena for appellee Fermin Z. Caram, Jr.

ZALDIVAR, J.:p

In this appeal, appellants-plaintiffs and movants-intervenors seek the reversal of the

order dated March 21, 1964 of the Court of First Instance of Manila dismissing the
complaint together with all other pending incidents in Civil Case No. 55810.

The complaint in this case, filed on December 24, 1963 as a class suit, under Section
12, Rule 3, of the Rules of Court, contained six causes of action. Under the first
cause of action, plaintiffs-appellants alleged that they were, on or before March 28,
1962, stockholders in the Consolidated Mines, Inc. (hereinafter referred to as CMI), a
corporation duly organized and existing under Philippine laws; that the stockholders
of the CMI, including the plaintiffs-appellants, passed, at a regular stockholders'
meeting, a Resolution providing: (a) that the Consolidated Bank & Trust Co.
(hereinafter referred to as Bank) be organized with an authorized capital of
P20,000,000.00; (b) that the organization be undertaken by a Board of Organizers
composed of the President and Members of the Board of Directors of the CMI; (c)
that all stockholders of the CMI, who were legally qualified to become stockholders,
would be entitled to subscribe to the capital stock of the proposed Bank "at par value
to the same extent and in the same amount as said stockholders' respective share
holdings in the CMI," as shown in its stock books on a date to be fixed by the Board
of Directors [which date was subsequently fixed as January 15, 1963], provided that
the right to subscribe should be exercised within thirty days from the date so fixed,
and "that if such right to subscription be not so exercised then the stockholders
concerned shall be deemed to have thereby waived and released ipso factotheir right
to such subscription in favor of the Interim Board of Organizers of the Defendant
Bank or their assignees;" and (d) that the Board of Directors of the CMI be
authorized to declare a "special dividend" in an amount it would fix, which the
subscribing stockholders might authorize to be paid directly to the treasurer of the
proposed Bank in payment of the subscriptions; that the President and members of
the Board of Directors of the CMI, who are the individuals-defendants-appellees in
the instant case, constituted themselves as the Interim Board of Organizers; that
said Board sent out, on or about November 20, 1962, to the CMI stockholders,
including the plaintiffs-appellants, circular letters with "Pre-Incorporation Agreement
to Subscribe" forms that provided that the payment of the subscription should be
made in cash from time to time or by the application of the special dividend declared
by the CMI, and that the subscription must be made within the period from
December 4, 1962 to January 15, 1963, "otherwise such subscription right shall be
deemed to have been thereby ipso facto waived and released in favor of the Board of
Organizers of the Defendant Bank and their assignees"; that the plaintiffs-appellants
accomplished and filed their respective "Pre-Incorporation Agreement to Subscribe"
and paid in full their subscriptions; that plaintiffs-appellants and the other CMI
subscribing stockholders in whose behalf the action was brought also subscribed to a
very substantial amount of shares; that on June 25, 1963, the Board of Organizers
caused the execution of the Articles or Incorporation of the proposed Bank indicating
an original subscription of 50,000 shares worth P5,000,000 subscribed and paid only
by six of the individuals-defendants-appellees, namely, Antonio P. Madrigal, Jose P.
Madrigal Simon R. Paterno, Fermin Z. Caram, Jr., Claudio Teehankee, and Wilfredo
C. Tecson, thereby excluding the plaintiffs-appellants and the other CMI subscribing
stockholders who had already subscribed; that the execution of said Articles of
Incorporation was "in violation of law and in breach of trust and contractual
agreement as a means to gain control of Defendant Bank by Defendant Individuals
and persons or entities chosen by them and for their personal profit or gain in
disregard of the rights of Plaintiffs and other CMI Subscribing Stockholders;" that the
paid-in capital stock was raised, as required by the Monetary Board, to
P8,000,000.00, and individuals-defendants-appellees caused to be issued from the
unissued shares 30,000 shares amounting to P3,000,000.00, all of which were again
subscribed and paid for entirely by individuals-defendants-appellees or entities
chosen by them "to the exclusion of Plaintiffs and other CMI subscribing
stockholders" "in violation of law and breach of trust and of the contractual
agreement embodied in the contractual agreement of March 28, 1962"; that the
Articles were filed with the Securities and Exchange Commission which issued the
Certificate of Incorporation on June 25, 1963; that as of the date of the Complaint,
the plaintiffs-appellants and other CMI subscribing stockholders had been denied,
through the unlawful acts and manipulation of the defendant Bank and Individuals-
defendants-appellees, the right to subscribe at par value, in proportion to their
equities established under their respective "Pre-Incorporation Agreements to
Subscribe" to the capital stock, i.e., (a) to the original issue of 50,000 shares and/or
(b) to the additional issue of 30,000 shares, and/or (c) in that portion of said original
or additional issue which was unsubscribed; that the individuals-defendants-
appellees and the persons chosen by them had unlawfully acquired stockholdings in
the defendant-appellee Bank in excess of what they were lawfully entitled and held
such shares "in trust" for the plaintiffs-appellants and the other CMI stockholders;
that it would have been vain and futile to resort to intra corporate remedies under
the facts and circumstances alleged above. As relief on the first cause of action,
plaintiffs-appellants prayed that the subscriptions and share holdings acquired by the
individuals-defendants- appellees and the persons chosen by them, to the extent
that plaintiffs-appellants and the other CMI stockholders had been deprived of their
right to subscribe, be annulled and transferred to plaintiffs-appellants and other CMI
subscribing stockholders.

Besides reproducing all the above allegations in the other causes of action, plaintiffs-
appellants further alleged under the second cause of action that on or about August
28, 1963, defendants-appellees Antonio P. Madrigal, Jose P. Madrigal: Fermin Z.
Caram, Jr., and Wilfredo C. Tecson "falsely certified to the calling of a special
stockholders' meeting allegedly pursuant to due notice and call of Defendant Bank"
although plaintiffs-appellants and other CMI stockholders were not notified thereof,
and amended the Articles of Incorporation increasing the number of Directors from 6
to 7, and had the illegally created Position of Director filled up by defendant-appellee
Alfonso Juan Olondriz, who was not competent or qualified to hold such position. In
the third cause of action, plaintiffs-appellants claimed actual damages in an amount
equivalent to the difference between the par value of the shares they were entitled,
but failed, to acquire and the higher market value of the same shares. In the fourth
cause of action, Plaintiffs-appellants claimed moral damages; in the fifth, exemplary
damages; and in the sixth, attorney's fees.

In his manifestation to the court on January 4, 1964, Francisco Sevilla, who was one
of the original plaintiffs, withdrew. On January 15, 1964 Cipriano Azada, Maria
Cristina Olondriz Pertierra, Maria del Puy Olondriz de Stevens (who later withdrew as
intervenors-appellants) and Carmen Sievert de Amoyo, filed a motion to intervene,
and to join the plaintiffs-appellants on record, to which motion defendants-appellees,
except Fermin Z. Caram, Jr., filed, on January 17, 1964 their opposition.

On February 7, 1964 defendants-appellees, except Fermin Z. Caram, Jr., filed a

motion to dismiss on the grounds that (a) plaintiffs-appellants had no legal standing
or capacity to institute the alleged class suit; (b) that the complaint did not state a
sufficient and valid cause of action; and (c) that plaintiffs-appellants' complaint
against the increase of the number of directors did not likewise state a cause of
action. Plaintiffs-appellants filed their opposition thereto on February 21, 1964.

On March 4, 1964 appellants, plaintiffs and intervenors, filed a verified petition for a
writ of preliminary injunction to enjoin defendants-appellees from considering or
ratifying by resolution, at the meeting of the stockholders of defendant-appellee
Bank to be held the following day, the unlawful apportionment of the shares of the
defendant-appellee Bank and the illegal amendment to its Articles of Incorporation
increasing the number of Directors, The Court, after hearing, granted the writ, but
subsequently set it aside upon the appellees' filing a counter bond.

Some subscribers to the capital stock of the Bank like Concepcion Zuluaga, et al.,
and Carlos Moran Sison, et al., filed separate manifestations that they were opposing
and disauthorizing the suit of plaintiffs-appellants.

On March 7, 1964 defendants-appellees, except Fermin Z. Caram, Jr., filed a

supplemental ground for their motion to dismiss, to wit, that the stockholders,
except Fermin Z. Caram, Jr., who abstained, had unanimously, at their regular
annual meeting held on March 5, 1964, ratified and confirmed all the actuations of
the organizers-directors in the incorporation, organization and establishment of the
Bank.

In its order, dated March 21, 1964, the trial court granted the motion to dismiss,
holding, among other things, that the class suit could not be maintained because of
the absence of a showing in the complaint that the plaintiffs-appellants were
sufficiently numerous and representative, and that the complaint failed to state a
cause of action. From said order, appellants, plaintiffs and intervenors, interposed
this appeal to this Court on questions of law and fact, contending that the lower
court erred as follows:

1. In holding that plaintiffs-appellants could not maintain the present

class suit because of the absence of a showing in the complaint that they
were sufficiently numerous and representative;

II. In holding that the instant action could not be maintained as a class
suit because plaintiffs-appellants did not have a common legal interest in
the subject matter of the suit;

III. In dismissing the present class suit on the ground that it did not meet
the requirements of Rule 3, section 12 of the Rules of Court;

IV. In holding that the complaint was fatally defective in that it failed to
state with particularity that plaintiffs-appellants had resorted to, and
exhausted, intra-corporate remedies;

V. In resolving defendants-appellees' motion on the basis of facts not

alleged in the complaint;

VI. In holding that plaintiffs-appellants' complaint stated no valid cause of

action against defendants-appellees;

VII. In not holding that a trust relationship existed between the Interim
Board of Organizers of defendant-appellee Bank and the CMI subscribing
stockholders and in not holding that the waiver was in favor of the Board
of Trustees for the CMI subscribing stockholders;

VIII. In holding that the failure of plaintiffs-appellants to allege that they

had paid or had offered to pay for the shares allegedly pertaining to them
constituted another ground for dismissal;

XI. In holding that the allegations under the second cause of action
stated no valid cause of action due to a fatal omission to allege that
plaintiffs-appellants were stockholders of record at the time of the holding
of the special stockholders' meeting;

X. In holding that plaintiffs-appellants' complaint stated no cause of

action against defendant-appellee Bank; and

XI. In considering the resolution of ratification and confirmation and in

holding that the resolution rendered the issues in this case moot.

The assigned error revolve around two questions namely: (1) whether the instant
action could be maintained as a class suit, and (2) whether the complaint stated a
cause of action. These issues alone will be discussed.

1. Appellants contended in the first three assigned errors that the trial court erred in
holding that the present suit could not be maintained as a class suit, and in support
thereof argued that the propriety of a class suit should be determined by the
common interest in the subject matter of the controversy; that in the instant case
there existed such common interest which consisted not only in the recovery of the
shares of which the appellants were unlawfully deprived, but also in divesting the
individuals-defendants-appellees and the person or entities chosen by them of
control of the appellee Bank.1 ; that the complaint showed that besides the four
plaintiff-appellants of record, and the four movant-intervenors-appellants there were
in the appellee Bank many other stockholders who, tough similarly situated as the
appellants, did not formally include themselves as parties on record in view of the
representative character of the suit; that the test, in order to determine the legal
standing of a party to institute a class suit, was not one, of number, but whether or
not the interest of said party was representative of the persons in whose behalf the
class suit was instituted; that granting arguendo, that the plaintiffs-appellants were
not sufficiently numerous and representative, the court should not have dismissed
the action, for insufficiency of number in a class suit was not a ground for a motion
to dismiss, and the court should have treated the suit as an action under Rule 3,
section 6, of the Rules of Court which permits a joinder of parties.

Defendants-appellees, on the contrary, stressed that the instant suit was instituted
as a class suit and the plaintiffs-appellants did not sue in their individual capacities
for the protection of their individual interests; that the plaintiffs appellants of record
could not be considered numerous and representative, as said plaintiffs-appellants
were only four out of 1,500 stockholders, and owned only 8 shares out of the 80,000
shares of stock of the appellee Bank; that even if to the four plaintiffs-appellants
were added the four movants-intervenors-appellants the situation would be the same
as two of the intervenors, to wit, Ma. Cristina Olondriz Pertierra and Ma. del Puy
Olondriz de Stevens, could not sue as they did not have their husbands' consent;
that it was necessary that in a class suit the complaint itself should allege facts
showing that the plaintiffs were sufficiently numerous and representative, and this
did not obtain in the instant case, as the complaint did not. even allege how many
other CMI stockholders were "similarly situated"; that the withdrawal of one plaintiff,
Francisco Sevilla, the subsequent disclaimers of any interest in the suit made in two
separate pleadings by other CMI stockholders and the disauthorization of their being
represented by plaintiffs-appellants by the 986 (out of 1,663) stockholders who
attended the annual meeting of bank stockholders on March 5, 1964, completely
negated plaintiffs-appellants' pretension that they were sufficiently numerous and
representative or that there were many other stockholders similarly situated whom
the plaintiffs-appellants allegedly represented; that plaintiffs-appellants did not have
that common or general interest required by the Rules of Court in the subject matter
of the suit.2

In their Reply Brief, appellants insisted that non-compliance with Section 12, Rule 3,
not being one enumerated in Rules 16 and 17, was not a ground for dismissal; that
the requirements for a class had been complied with; that the required common
interest existed even if the interests were several for there was a common question
of law or fact and a common relief was sought; that the common or general interest
could be in the object of the action, in the result of the proceedings, or in the
question involved in the action, as long as there was a common right based on the
same essential facts; that plaintiffs-appellants adequately represented the aggrieved
group of bank stockholders, inasmuch as appellants' interests were not antagonistic
to those of the latter, and appellants were in the same position as the group in
whose behalf the complaint was filed.

The governing statutory provision for the maintenance of a class suit is Section 12 of
Rule 3 of the Rules of Court, which reads as follows:

Sec. 12. Class suit — When the subject matter of the controversy is one
of common or general interest to many persons, and the parties are so
numerous that it is impracticable to bring them all before the court, one
or more may sue or defend for the benefit of -ill. But in such case the
court shall make sure that the parties actually before it are sufficiently
numerous and representative so that all interests concerned are fully
protected. Any party in interest shall have a right to intervene in
protection of his individual interest.
The necessary elements for the maintenance of a class suit are accordingly: (1) that
the subject matter of the controversy be one of common or general interest to many
persons, and (2) that such persons be so numerous as to make it impracticable to
bring them all to the court. An action does not become a class suit merely because it
is designated as such in the pleadings. Whether the suit is or is not a class quit
depends upon the attending facts, and the complaint, or other pleading initiating the
class action should allege the existence of the necessary facts, to wit, the existence
of a subject matter of common interest, and the existence of a class and the number
of persons in the alleged class, 3 in order that the court might be enabled to
determine whether the members of the class are so numerous as to make it
impracticable to bring them all before the court, to contrast the number appearing
on the record with the number in the class and to determine whether claimants on
record adequately represent the class and the subject matter of general or common
interest.4

The complaint in the instant case explicitly declared that the plaintiffs- appellants
instituted the "present class suit under Section 12, Rule 3, of the Rules of Court in.
behalf of CMI subscribing stockholders"5 but did not state the number of said CMI
subscribing stockholders so that the trial court could not infer, much less make
sure  as explicitly required by the sufficiently numerous and representative in order
that all statutory provision, that the parties actually before it were interests
concerned might be fully protected, and that it was impracticable to bring such a
large number of parties before the court.

The statute also requires, as a prerequisite to a class suit, that the subject-matter of
the controversy be of common or general interest to numerous persons. Although it
has been remarked that the "innocent 'common or general interest' requirement is
not very helpful in determining whether or not the suit is proper", 6 the decided cases
in our jurisdiction have more incisively certified the matter when there is such
common or general interest in the subject matter of the controversy. By the phrase
"subject matter of the action" is meant "the physical facts, the things real or
personal, the money, lands, chattels, and the like, in relation to which the suit is
prosecuted, and not the delict or wrong committed by the defendant." 7

This Court has ruled that a class suit did not lie in an action for recovery of real
property where separate portions of the same parcel were occupied and claimed
individually by different parties to the exclusion of each other, such that the different
parties had determinable, though undivided interests, in the property in question. 8 It
his likewise held that a class suit would not lie against 319 defendants individually
occupying different portions of a big parcel of land, where each defendant had an
interest only in the particular portion he was occupying, which portion was
completely different from the other portions individually occupied by other
defendants, for the applicable section 118 of the Code of Civil Procedure relates to a
common and general interest in single specific things and not to distinct ones. 9In an
action for the recovery of amounts that represented surcharges allegedly collected
by the city from some 30,000 customers of four movie houses, it was held that a
class suit did not lie, as no one plaintiff had any right to, or any share in the amounts
individually claimed by the others, as each of them was entitled, if at all, only to the
return of what he had personally paid. 10

The interest, subject matter of the class suits in the above cited cases, is analogous
to the interest claimed by appellants in the instant case. The interest that appellants,
plaintiffs and intervenors, and the CMI stockholders had in the subject matter of this
suit — the portion of stocks offering of the Bank left unsubscribed by CMI
stockholders who failed to exercise their right to subscribe on or before January 15,
1963 — was several, not common or general in the sense required by the statute.
Each one of the appellants and the CMI stockholders had determinable interest; each
one had a right, if any, only to his respective portion of the stocks. No one of them
had any right to, or any interest in, the stock to which another was entitled. Anent
this point, the trial court correctly remarked:

It appears to be the theory of the plaintiffs borne out by the prayer, that
each subscribing CMI stockholder is entitled to further subscribe to a
certain Proportion depending upon his stockholding in the CMI, of the P8
million capital stock of the defendant bank open to subscription (out of
the 20 million authorized capital stock) as well as the unsubscribed
portion of the P8 million stock offering which were left unsubscribed by
those CMI stockholders who for one reason or another had failed to
exercise their subscription rights on or before January 15, 1963. Under
the plaintiffs' theory therefore, each subscribing CMI stockholder was
entitled to subscribe to a definite number of shares both in the original
offering of P8 million and in that part thereof not subscribed on or before
the deadline mentioned, so that one subscribing CMI stockholder may be
entitled to subscribe to one share, another to 3 shares and a third to
11 shares, and so on, depending upon the amount and extent of CMI
stockholding. But except for the fact that a question of law — the proper
interpretation of the waiver provisions of the CMI stockholders' resolution
of March 28, 1962 — is common to all, each CMI subscribing stock holder
has a legal interest in, and a claim to, only his respective proportion of
shares in the defendant bank, and none with regard to any of the shares
to which another stockholder is entitled. Thus plaintiff Ismael Mathay has
no legal interest in, or claim to, any share claimed by any or all of his co-
plaintiffs from the defendant individuals. Hence, no CMI subscribing
stockholder or, for that matter, not any number of CMI stockholders can
maintain a class suit in behalf of others,... 11

Even if it be assumed, for the sake of argument, that the appellants and the CMI
stockholders suffered wrongs that had been committed by similar means and even
pursuant to a single plan of the Interim Board of Organizers of the Bank, the wrong
suffered by each of them would constitute a wrong separate from those suffered by
the other stockholders, and those wrongs alone would not create that common or
general interest in the subject matter of the controversy as would entitle any one of
them to bring a class suit on behalf of the others. Anent this point it has been said
that:

Separate wrongs to separate persons, although committed by similar

means and even pursuant to a single plan, do not alone create a
'common' or 'general' interest in those who are wronged so as to entitle
them to maintain a representative action. 12

Appellants, however, insisted, citing American authorities, 13 that a class suit might

be brought even if the interests of plaintiffs-appellants might be several as long as
there was a common question of law or fact affecting them and a common relief was
sought. We have no conflict with the authorities cited; those were rulings under the
Federal Rules of Civil Procedure, pursuant to Rule 23 of which, there were three
types of class suits, namely: the true, the hybrid, and the spurious, and these three
had only one feature in common, that is, in each the persons constituting the class
must be so numerous as to make it impracticable to bring them all before the court.
The authorities cited by plaintiffs-appellants refer to the spurious class action (Rule
23 (a) (3) which involves a right sought to be enforced, which is several, and there is
a common question of law or fact affecting the several rights and a common relief is
sought. 14 The spurious class action is merely a permissive joinder device; between
the members of the class there is no jural relationship, and the right or liability of
each is distinct, the class being formed solely by the presence of a common question
of law or fact. 15 This permissive joinder is provided in Section 6 of Rule 3, of our
Rules of Court. Such joinder is not and cannot be regarded as a class suit, which this
action purported and was intended to be as per averment of the complaint.
It may be granted that the claims of all the appellants involved the same question of
law. But this alone, as said above, did not constitute the common interest over the
subject matter indispensable in a class suit. The right to purchase or subscribe to the
shares of the proposed Bank, claimed by appellants herein, is analogous to the right
of preemption that stockholders have when their corporation increases its capital.
The right to preemption, it has been said, is personal to each stockholder, 16 and
while a stockholder may maintain a suit to compel the issuance of his proportionate
share of stock, it has been ruled, nevertheless, that he may not maintain a
representative action on behalf of other stockholders who are similarly situated. 17 By
analogy, the right of each of the appellants to subscribe to the waived stocks was
personal, and no one of them could maintain on behalf of others similarly situated a
representative suit.

Straining to make it appear that appellants and the CMI subscribing stockholders had
a common or general interest in the subject matter of the suit, appellants stressed in
their brief that one of the reliefs sought in the instant action was "to divest
defendant individuality and the persons or entities chosen by them of control of the
defendant bank." 18 This relief allegedly sought by appellants did not, however,
appear either in the text or in the prayer of the complaint.

Appellants, furthermore, insisted that insufficiency of number in a class suit was not
a ground for dismissal of one action. This Court has, however, said that where it
appeared that no sufficient representative parties had been joined, the dismissal by
the trial court of the action, despite the contention by plaintiffs that it was a class
suit, was correct. 19 Moreover, insofar as the instant case is concerned, even if it be
granted for the sake of argument, that the suit could not be dismissed on that
ground, it could have been dismissed, nevertheless, on the ground of lack of cause of
action which will be presently discussed. .

2. Appellants supported their assigned error that the court erred in holding that the
complaint stated no valid cause of action, by claiming that paragraph 15 together
with the other allegations of the complaint to the effect that defendants-appellees
had unlawfully acquired stockholdings in the capital stock of defendant-appellee Bank
in excess of what they were lawfully entitled to, in violation of law and in breach of
trust and the contractual agreement, constituted a valid and sufficient cause of
action; 20 and that only the allegations in the complaint should have been considered
by the trial court in determining whether the complaint stated a cause of action or
not.

Defendants-appellees, on the contrary, maintained that the allegations of the

complaint should not be the only ones to be considered in determining whether there
is a cause of action; that even if the ultimate facts alleged in the first cause of action
of the complaint be the only ones considered the complaint would still fail to state a
valid cause of action on the following grounds: first, there was no allegation
regarding appellants' qualification to subscribe to the capital stock of the appellee
Bank, for under the CMI stockholders' resolution of March 28, 1962, only those
qualified under the law were entitled to subscribe, and under the regulations of the
Monetary Board, only natural-born Filipino citizens could be stockholders of a
banking corporation organized under the laws of the Philippines, and nowhere did the
complaint alleged that plaintiffs-appellants were natural born Filipino
21
citizens.   Second, appellants' averment in paragraph 8 that they "subscribed," and
their averment in paragraph 15 that they were "denied the right to subscribe ... to
the capital stock of the defendant Bank", were inconsistent, and hence neutralized
each other, thereby leaving in shambles the first cause of action. Third, there was no
allegation that appellants had not yet received or had not been issued the
corresponding certificates of stock covering the shares they had subscribed and paid
for. Fourth, the allegations failed to show the existence of the supposed trust; and
fifth, the complaint failed to allege that plaintiffs-appellants had paid or offered to
pay for the shares allegedly pertaining to them. 22
Let us premise the legal principles governing the motion to dismiss on the ground of
lack of cause of action.

Section 1, Rule 16 of the Rules of Court providing in part that: .

Within the time for pleading a motion to dismiss may be made on any of
the following grounds: ....

(g) That the complaint states no cause of action. ..1.

explicitly requires that the sufficiency of the complaint must be tested exclusively on
the basis of the complaint itself and no other should be considered when the ground
for motion to dismiss is that the complaint states no cause of action. Pursuant
thereto this Court has ruled that:

As a rule the sufficiency of the complaint, when Challenged in a motion to dismiss,

must be determined exclusively on the basis of the facts alleged therein. 23

It has been likewise held that a motion to dismiss based on lack of cause of action
hypothetically admits the truth of the allegations of fact made in the complaint. 24 It
is to be noted that only the facts well pleaded in the complaint, and likewise, any
inferences fairly deducible therefrom, are deemed admitted by a motion to dismiss.
Neither allegations of conclusions 25 nor allegations of facts the falsity of which the
court may take judicial notice are deemed admitted. 26 The question, therefore,
submitted to the Court in a motion to dismiss based on lack of cause of action is not
whether the facts alleged in the complaint are true, for these are hypothetically
admitted, but whether the facts alleged are sufficient to constitute a cause of action
such that the court may render a valid judgment upon the facts alleged therein.

A cause of action is an act or omission of one party in violation of the legal right of
the other. Its essential elements are, namely: (1) the existence of a legal right in the
plaintiff, (2) a correlative legal duty in the defendant, and (3) an act or omission of
the defendant in violation of plaintiff's right with consequential injury or damage to
the plaintiff for which he may maintain an action for the recovery of damages or
other appropriate relief. 27 On the other hand, Section 3 of Rule 6 of the Rules of
Court provides that the complaint must state the ultimate facts constituting the
plaintiff's cause of action. Hence, where the complaint states ultimate facts that
constitute the three essential elements of a cause of action, the complaint states a
cause of action; 28 otherwise, the complaint must succumb to a motion to dismiss on
that ground.

The legal principles having been premised, let us now analyze and discuss appellant's
various causes of action.

Appellants' first cause of action, pursuant to what has been premised above, should
have consisted of: (1) the right of appellants as well as of the other CMI stockholders
to subscribe, in proportion to their equities established under their respective "Pre-
Incorporation Agreements to Subscribe", to that portion of the capital stock which
was unsubscribed because of failure of the CMI stockholders to exercise their right to
subscribe thereto; (2) the legal duty of the appellant to have said portion of the
capital stock to be subscribed by appellants and other CMI stockholders; and (3) the
violation or breach of said right of appellants and other CMI stockholders by the
appellees.

Did the complaint state the important and substantial facts directly forming the basis
of the primary right claimed by plaintiffs? Before proceeding to elucidate this
question, it should be noted that a bare allegation that one is entitled to something is
an allegation of a conclusion. Such allegations adds nothing to the pleading, it being
necessary to plead specifically the facts upon which such conclusion is
founded. 29 The complaint alleged that appellants were stockholders of the CMI; that
as such stockholders, they were entitled; by virtue of the resolution of March 28,
1962, to subscribe to the capital stock of the proposed Consolidated Bank and Trust
Co., at par value to the same extent and in the same amount as said stockholders'
respective share holdings in the CMI as shown in the latter's stock book as of
January 15, 1963, the right to subscribe to be exercised until January 15, 1963,
provided said stockholders of the CMI were qualified under the law to become
stockholders of the proposed Bank; 30 that appellants accomplished and filed their
respective "Pre-Incorporation Agreements to Subscribe" and fully paid the
subscription. 31

These alleged specific facts did not even show that appellants were entitled to
subscribe to the capital stock of the proposed Bank, for said right depended on a
condition precedent, which was, that they were qualified under the law to become
stockholders of the Bank, and there was no direct averment in the complaint of the
facts that qualified them to become stockholders of the Bank. The allegation of the
fact that they subscribed to the stock did not, by necessary implication, show that
they were possessed of the necessary qualifications to become stockholders of the
proposed Bank.

Assuming arguendo  that appellants were qualified to become stockholders of the

Bank, they could subscribe, pursuant to the explicit terms of the resolution of March
28, 1962, "to the same extent and in the same amount as said stockholders'
respective stockholdings in the CMI" as of January 15, 1963. 32 This was the measure
of the right they could claim to subscribe to waived stocks. Appellants did not even
aver that the stocks waived to the subscription of which they claimed the right to
subscribe, were comprised in "the extent and amount" of their respective share
holdings in the CMI. It is not surprising that they did not make such an averment for
they did not even allege the amount of shares of stock to which they claimed they
were entitled to subscribe. The failure of the complaint to plead specifically the above
facts rendered it impossible for the court to conclude by natural reasoning that the
appellants and other CMI stockholders had a right to subscribe to the waived shares
of stock, and made any allegation to that effect a conclusion of the pleader, not an
ultimate fact, in accordance with the test suggested by the California Supreme Court,
to wit:

If from the facts in evidence, the result can be reached by that process of
natural reasoning adopted in the investigation of truth, it becomes an
ultimate fact, to be found as such. If, on the other hand, resort must be
had to the artificial processes of the law, in order to reach a final
determination, the result is a conclusion of law. 33

Let us now pass to the second and third elements that would have constituted the
first cause of action. Did the complaint allege as ultimate facts the legal duty of
defendants-appellees to have a portion of the capital stock subscribed to by
appellants? Did the complaint allege as ultimate facts that defendants appellees had
violated appellants' right?

Even if it be assumed arguendo that defendants-appellees had the duty to have the

waived stocks subscribed to by the CMI stockholders, this duty was not owed to all
the CMI stockholders, but only to such CMI stockholders as were qualified to become
stockholders of the proposed Bank. Inasmuch as it has been shown that the
complaint did not contain ultimate facts to show that plaintiffs-appellants were
qualified to become stockholders of the Bank, it follows that the complaint did not
show that defendants-appellees were under duty to have plaintiffs-appellants
subscribe to the stocks of the proposed Bank. It inevitably follows also that the
complaint did not contain ultimate facts to show that the right of the plaintiffs-
appellants to subscribe to the shares of the proposed Bank had been violated by
defendants-appellees. How could a non-existent right be violated?
Let us continue the discussion further. The complaint alleged that by virtue of the
resolution of March 28, 1962, the President and Members of the Board of Directors of
the CMI would be constituted as a Board of Organizers to undertake and carry out
the organization of the Bank; 34 that the Board of Organizers was constituted and
proceeded with the establishment of the Bank, 35 that the persons composing the
Board of Organizers were the individuals-defendants-appellees; 36 that the Board of
Organizers sent our circular letters with "Pre-Incorporation Agreement to Subscribe"
forms 37 which specified, among others, "such subscription right shall be
deemed ipso facto waived and released in favor of the Board of Organizers of the
defendant Bank and their assignees"; 38 that in the Articles of Incorporation prepared
by the Board of Organizers, the individuals-defendants-appellees alone appeared to
have subscribe to the 50, shares; 39 and that individuals-defendants-appellees again
subscribe to all the additional 30,000 shares. 40 From these facts, appellants
concluded that they were denied their right to subscribe in proportion to their
equities; 41 that the individuals-defendants-appellees unlawfully acquired
stockholdings far in excess of what they were lawfully entitled in violation of law and
in breach of trust and of contractual agreement; 42and that, because of matters
already alleged, the individuals-defendants-appellees "hold their shares in the
defendant bank in trust for plaintiffs." 43

The allegation in the complaint that the individuals-defendants-appellees held their

shares "in trust" for plaintiffs-appellants without averment of the facts from which
the court could conclude the existence of the alleged trust, was not deemed admitted
by the motion to dismiss for that was a conclusion of law. Express averments "that a
party was the beneficial owner of certain property; ... that property or money was
received or held in trust, or for the use of another; that particular funds were trust
funds; that a particular transaction created an irrevocable trust; that a person held
Property as constructive trustee; that on the transfer of certain property a trust
resulted" have been considered as mere conclusions of law. 44 The facts alleged in
the complaint did not, by logical reasoning, necessarily lead to the conclusion that
defendants-appellees were trustees in favor of appellants of the shares of stock
waived by the CMI stockholders who failed to exercise their right to subscribe. In this
connection, it has been likewise said that:

"The general rule is that an allegation of duty in terms unaccompanied by a

statement of the facts showing the existence of the duty, is a mere conclusion of
law, unless there is a relation set forth from which the law raises the duty." 45  

In like manner, the allegation that individuals-defendants-appellees held said shares

in trust was no more than an interpretation by appellants of the effect of the waiver
clause of the Resolution and as such it was again a mere conclusion of law. It has
been said that:

The following are also conclusions of law: ... an allegation characterizing

an instrument or purporting to interpret it and state its effects, ... 46

Allegations in petition in the nature of conclusions about the meaning of contract,

inconsistent with stated terms of the contract, cannot be considered. 47

The allegation that the defendants-appellee acquired stockholdings far in excess of

what they were lawfully entitled, in violation of law and in breach of trust and of
contractual agreement, is also mere conclusion of law.

Of course, the allegation that there was a violation of trust duty was plainly a
conclusion of law, for "a mere allegation that it was the duty of a party to do this or
that, or that he was guilty of a breach of duty, is a statement of a conclusion not of
fact." 48
 An averment ... that an act was 'unlawful' or 'wrongful' is a mere legal
conclusion or opinion of the pleader. 49

Moreover, plaintiffs-appellants did not state in the complaint the amount of

subscription the individual defendant-appellee were entitled to; hence there was no
basis for the court to determine what amount subscribed to by them was excessive.

From what has been said, it is clear that the ultimate facts stated under the first
cause of action are not sufficient to constitute a cause of action.

The further allegations in the second cause of action that the calling of a special
meeting was "falsely certified", that the seventh position of Director was "illegally
created" and that defendant Alfonso Juan Olondriz was "not competent or qualified"
to be a director are mere conclusions of law, the same not being necessarily
inferable from the ultimate facts stated in the first and second causes of action. It
has been held in this connection that:

An averment that ... an act was 'unlawful' or 'wrongful' is a mere legal

conclusion or opinion of the pleader. The same is true of allegations that
an instrument was 'illegally' certified or ... that an act was arbitrarily
done ..." 50

A pleader states a mere conclusion when he makes any of the following

allegations: that a party was incapacitated to enter into a contract or
convey 
property ... 51

The third, fourth, fifth and sixth causes of action depended on the first cause of
action, which, as has been shown, did not state ultimate facts sufficient to constitute
a cause of action. It stands to reason, therefore, that said causes of action would
also be fatally defective. It having been shown that the complaint failed to state
ultimate facts to constitute a cause of action, it becomes unnecessary to discuss the
other assignments of errors. WHEREFORE, the instant appeal is dismissed, and the
order dated March 21, 1964 of the Court of First Instance of Manila dismissing the
complaint in Civil Case No. 55810 is affirmed, with costs in this instance against
appellants. It is so ordered.

G.R. No. 147724             June 8, 2004

LORENZO SHIPPING CORP., petitioner, 

vs.
CHUBB and SONS, Inc., GEARBULK, Ltd. and PHILIPPINE TRANSMARINE
CARRIERS, INC., respondents.

DECISION

PUNO, J.:

On appeal is the Court of Appeals’ August 14, 2000 Decision 1 in CA-G.R. CV No.
61334 and March 28, 2001 Resolution 2 affirming the March 19, 1998 Decision3 of the
Regional Trial Court of Manila which found petitioner liable to pay respondent Chubb
and Sons, Inc. attorney's fees and costs of suit.

Petitioner Lorenzo Shipping Corporation (Lorenzo Shipping, for short), a domestic

corporation engaged in coastwise shipping, was the carrier of 581 bundles of black
steel pipes, the subject shipment, from Manila to Davao City. From Davao City,
respondent Gearbulk, Ltd., a foreign corporation licensed as a common carrier under
the laws of Norway and doing business in the Philippines through its agent,
respondent Philippine Transmarine Carriers, Inc. (Transmarine Carriers, for short), a
domestic corporation, carried the goods on board its vessel M/V San Mateo Victory to
the United States, for the account of Sumitomo Corporation. The latter, the
consignee, is a foreign corporation organized under the laws of the United States of
America. It insured the shipment with respondent Chubb and Sons, Inc., a foreign
corporation organized and licensed to engage in insurance business under the laws of
the United States of America.

The facts are as follows:

On November 21, 1987, Mayer Steel Pipe Corporation of Binondo, Manila,

loaded 581 bundles of ERW black steel pipes worth US$137,912.84 4 on board
the vessel M/V Lorcon IV, owned by petitioner Lorenzo Shipping, for shipment
to Davao City. Petitioner Lorenzo Shipping issued a clean bill of lading
designated as Bill of Lading No. T-35 for the account of the consignee,
Sumitomo Corporation of San Francisco, California, USA, which in turn, insured
the goods with respondent Chubb and Sons, Inc.6

The M/V Lorcon IV arrived at the Sasa Wharf in Davao City on December 2, 1987.
Respondent Transmarine Carriers received the subject shipment which was
discharged on December 4, 1987, evidenced by Delivery Cargo Receipt No.
115090.7 It discovered seawater in the hatch of M/V Lorcon IV, and found the steel
pipes submerged in it. The consignee Sumitomo then hired the services of R.J. Del
Pan Surveyors to inspect the shipment prior to and subsequent to discharge. Del
Pan’s Survey Report8 dated December 4, 1987 showed that the subject shipment
was no longer in good condition, as in fact, the pipes were found with rust formation
on top and/or at the sides. Moreover, the surveyor noted that the cargo hold of the
M/V Lorcon IV was flooded with seawater, and the tank top was "rusty, thinning, and
with several holes at different places." The rusty condition of the cargo was noted on
the mate’s receipts and the checker of M/V Lorcon IV signed his conforme thereon.9

After the survey, respondent Gearbulk loaded the shipment on board its vessel M/V
San Mateo Victory, for carriage to the United States. It issued Bills of Lading Nos.
DAV/OAK 1 to 7,10 covering 364 bundles of steel pipes to be discharged at Oakland,
U.S.A., and Bills of Lading Nos. DAV/SEA 1 to 6, 11 covering 217 bundles of steel
pipes to be discharged at Vancouver, Washington, U.S.A. All bills of lading were
marked "ALL UNITS HEAVILY RUSTED."

While the cargo was in transit from Davao City to the U.S.A., consignee Sumitomo
sent a letter12 of intent dated December 7, 1987, to petitioner Lorenzo Shipping,
which the latter received on December 9, 1987. Sumitomo informed petitioner
Lorenzo Shipping that it will be filing a claim based on the damaged cargo once such
damage had been ascertained. The letter reads:

Please be advised that the merchandise herein below noted has been landed in
bad order ex-Manila voyage No. 87-19 under B/L No. T-3 which arrived at the
port of Davao City on December 2, 1987.

The extent of the loss and/or damage has not yet been determined but apparently all
bundles are corroded. We reserve the right to claim as soon as the amount of claim
is determined and the necessary supporting documents are available.

Please find herewith a copy of the survey report which we had arranged for after
unloading of our cargo from your vessel in Davao.

We trust that you shall make everything in order.

On January 17, 1988, M/V San Mateo Victory arrived at Oakland, California, U.S.A.,
where it unloaded 364 bundles of the subject steel pipes. It then sailed to
Vancouver, Washington on January 23, 1988 where it unloaded the remaining 217
bundles. Toplis and Harding, Inc. of San Franciso, California, surveyed the steel
pipes, and also discovered the latter heavily rusted. When the steel pipes were
tested with a silver nitrate solution, Toplis and Harding found that they had come in
contact with salt water. The survey report,13 dated January 28, 1988 states:

xxx

We entered the hold for a close examination of the pipe, which revealed
moderate to heavy amounts of patchy and streaked dark red/orange rust on all
lifts which were visible. Samples of the shipment were tested with a solution of
silver nitrate revealing both positive and occasional negative chloride reactions,
indicating pipe had come in contact with salt water. In addition, all tension
applied metal straps were very heavily rusted, and also exhibited chloride
reactions on testing with silver nitrate.

xxx

It should be noted that subject bills of lading bore the following remarks as to
conditions of goods: "ALL UNITS HEAVILY RUSTED." Attached herein is a copy
of a survey report issued by Del Pan Surveyors of Davao City, Philippines
dated, December 4, 1987 at Davao City, Philippines, which describes conditions
of the cargo as sighted aboard the vessel "LORCON IV," prior to and
subsequent to discharge at Davao City. Evidently, the aforementioned rust
damages were apparently sustained while the shipment was in the custody of
the vessel "LORCON IV," prior to being laden on board the vessel "SAN MATEO
VICTORY" in Davao.

Due to its heavily rusted condition, the consignee Sumitomo rejected the
damaged steel pipes and declared them unfit for the purpose they were
intended.14 It then filed a marine insurance claim with respondent Chubb and
Sons, Inc. which the latter settled in the amount of US$104,151.00. 15

On December 2, 1988, respondent Chubb and Sons, Inc. filed a complaint 16 for
collection of a sum of money, docketed as Civil Case No. 88-47096, against
respondents Lorenzo Shipping, Gearbulk, and Transmarine. Respondent Chubb and
Sons, Inc. alleged that it is not doing business in the Philippines, and that it is suing
under an isolated transaction.

On February 21, 1989, respondents Gearbulk and Transmarine filed their

answer17 with counterclaim and cross-claim against petitioner Lorenzo Shipping
denying liability on the following grounds: (a) respondent Chubb and Sons, Inc. has
no capacity to sue before Philippine courts; (b) the action should be dismissed on the
ground of forum non conveniens; (c) damage to the steel pipes was due to the
inherent nature of the goods or to the insufficiency of packing thereof; (d) damage
to the steel pipes was not due to their fault or negligence; and, (e) the law of the
country of destination, U.S.A., governs the contract of carriage.

Petitioner Lorenzo Shipping filed its answer with counterclaim on February 28, 1989,
and amended it on May 24, 1989. It denied liability, alleging, among others: (a) that
rust easily forms on steel by mere exposure to air, moisture and other marine
elements; (b) that it made a disclaimer in the bill of lading; (c) that the goods were
improperly packed; and, (d) prescription, laches, and extinguishment of obligations
and actions had set in.

The Regional Trial Court ruled in favor of the respondent Chubb and Sons, Inc.,
finding that: (1) respondent Chubb and Sons, Inc. has the right to institute this
action; and, (2) petitioner Lorenzo Shipping was negligent in the performance of its
obligations as a carrier. The dispositive portion of its Decision states:
 WHEREFORE, the judgment is hereby rendered ordering Defendant Lorenzo
Shipping Corporation to pay the plaintiff the sum of US$104,151.00 or its
equivalent in Philippine peso at the current rate of exchange with interest
thereon at the legal rate from the date of the institution of this case until fully
paid, the attorney’s fees in the sum of ₱50,000.00, plus the costs of the suit,
and dismissing the plaintiff’s complaint against defendants Gearbulk, Ltd. and
Philippine Transmarine Carriers, Inc., for lack of merit, and the two defendants’
counterclaim, there being no showing that the plaintiff had filed this case
against said defendants in bad faith, as well as the two defendants’ cross-claim
against Defendant Lorenzo Shipping Corporation, for lack of factual basis. 18

Petitioner Lorenzo Shipping appealed to the Court of Appeals insisting that: (a)
respondent Chubb and Sons does not have capacity to sue before Philippine courts;
and, (b) petitioner Lorenzo Shipping was not negligent in the performance of its
obligations as carrier of the goods. The appellate court denied the petition and
affirmed the decision of the trial court.

The Court of Appeals likewise denied petitioner Lorenzo Shipping’s Motion for
Reconsideration19 dated September 3, 2000, in a Resolution 20 promulgated on March
28, 2001.

Hence, this petition. Petitioner Lorenzo Shipping submits the following issues for
resolution:

(1) Whether or not the prohibition provided under Art. 133 of the Corporation
Code applies to respondent Chubb, it being a mere subrogee or assignee of the
rights of Sumitomo Corporation, likewise a foreign corporation admittedly doing
business in the Philippines without a license;

(2) Whether or not Sumitomo, Chubb’s predecessor-in-interest, validly made a

claim for damages against Lorenzo Shipping within the period prescribed by the
Code of Commerce;

(3) Whether or not a delivery cargo receipt without a notation on it of damages

or defects in the shipment, which created a prima facie presumption that the
carrier received the shipment in good condition, has been overcome by
convincing evidence;

(4) Assuming that Lorenzo Shipping was guilty of some lapses in transporting
the steel pipes, whether or not Gearbulk and Transmarine, as common carriers,
are to share liability for their separate negligence in handling the cargo. 21

In brief, we resolve the following issues:

(1) whether respondent Chubb and Sons has capacity to sue before the
Philippine courts; and,

(2) whether petitioner Lorenzo Shipping is negligent in carrying the subject

cargo.

Petitioner argues that respondent Chubb and Sons is a foreign corporation not
licensed to do business in the Philippines, and is not suing on an isolated transaction.
It contends that because the respondent Chubb and Sons is an insurance company,
it was merely subrogated to the rights of its insured, the consignee Sumitomo, after
paying the latter’s policy claim. Sumitomo, however, is a foreign corporation doing
business in the Philippines without a license and does not have capacity to sue
before Philippine courts. Since Sumitomo does not have capacity to sue, petitioner
then concludes that, neither the subrogee-respondent Chubb and Sons could sue
before Philippine courts.
We disagree with petitioner.

In the first place, petitioner failed to raise the defense that Sumitomo is a foreign
corporation doing business in the Philippines without a license. It is therefore
estopped from litigating the issue on appeal especially because it involves a question
of fact which this Court cannot resolve. Secondly, assuming arguendo  that Sumitomo
cannot sue in the Philippines, it does not follow that respondent, as subrogee, has
also no capacity to sue in our jurisdiction.

Subrogation is the substitution of one person in the place of another with reference
to a lawful claim or right, so that he who is substituted succeeds to the rights of the
other in relation to a debt or claim, including its remedies or securities. 22 The
principle covers the situation under which an insurer that has paid a loss under an
insurance policy is entitled to all the rights and remedies belonging to the insured
against a third party with respect to any loss covered by the policy. 23 It contemplates
full substitution such that it places the party subrogated in the shoes of the creditor,
and he may use all means which the creditor could employ to enforce payment. 24

The rights to which the subrogee succeeds are the same as, but not greater than,
those of the person for whom he is substituted – he cannot acquire any claim,
security, or remedy the subrogor did not have. 25 In other words, a subrogee cannot
succeed to a right not possessed by the subrogor. 26 A subrogee in effect steps into
the shoes of the insured and can recover only if insured likewise could have
recovered.

However, when the insurer succeeds to the rights of the insured, he does so only in
relation to the debt. The person substituted (the insurer) will succeed to all the rights
of the creditor (the insured), having reference to the debt due the latter. 27 In the
instant case, the rights inherited by the insurer, respondent Chubb and Sons, pertain
only to the payment it made to the insured Sumitomo as stipulated in the insurance
contract between them, and which amount it now seeks to recover from petitioner
Lorenzo Shipping which caused the loss sustained by the insured Sumitomo. The
capacity to sue of respondent Chubb and Sons could not perchance belong to the
group of rights, remedies or securities pertaining to the payment respondent insurer
made for the loss which was sustained by the insured Sumitomo and covered by the
contract of insurance. Capacity to sue is a right personal to its holder. It is conferred
by law and not by the parties. Lack of legal capacity to sue means that the plaintiff is
not in the exercise of his civil rights, or does not have the necessary qualification to
appear in the case, or does not have the character or representation he claims. It
refers to a plaintiff’s general disability to sue, such as on account of minority,
insanity, incompetence, lack of juridical personality, or any other disqualifications of
a party.28 Respondent Chubb and Sons who was plaintiff in the trial court does not
possess any of these disabilities. On the contrary, respondent Chubb and Sons has
satisfactorily proven its capacity to sue, after having shown that it is not doing
business in the Philippines, but is suing only under an isolated transaction, i.e.,
under the one (1) marine insurance policy issued in favor of the consignee Sumitomo
covering the damaged steel pipes.

The law on corporations is clear in depriving foreign corporations which are doing
business in the Philippines without a license from bringing or maintaining actions
before, or intervening in Philippine courts. Art. 133 of the Corporation Code states:

Doing business without a license. – No foreign corporation transacting business

in the Philippines without a license, or its successors or assigns, shall be
permitted to maintain or intervene in any action, suit or proceeding in any
court or administrative agency of the Philippines; but such corporation may be
sued or proceeded against before Philippine courts or administrative tribunals
on any valid cause of action recognized under Philippine laws.
The law does not prohibit foreign corporations from performing single acts of
business. A foreign corporation needs no license to sue before Philippine courts on an
isolated transaction.29 As held by this Court in the case of Marshall-Wells Company
vs. Elser & Company:30

The object of the statute (Secs. 68 and 69, Corporation Law) was not to
prevent the foreign corporation from performing single acts, but to prevent it
from acquiring a domicile for the purpose of business without taking the steps
necessary to render it amenable to suit in the local courts . . . the implication
of the law (being) that it was never the purpose of the legislature to exclude a
foreign corporation which happens to obtain an isolated order for business for
the Philippines, from seeking redress in the Philippine courts.

Likewise, this Court ruled in Universal Shipping Lines, Inc. vs. Intermediate
Appellate Court31 that:

. . . The private respondent may sue in the Philippine courts upon the marine
insurance policies issued by it abroad to cover international-bound cargoes
shipped by a Philippine carrier, even if it has no license to do business in this
country, for it is not the lack of the prescribed license (to do business in the
Philippines) but doing business without such license, which bars a foreign
corporation from access to our courts.

We reject the claim of petitioner Lorenzo Shipping that respondent Chubb and Sons
is not suing under an isolated transaction because the steel pipes, subject of this
case, are covered by two (2) bills of lading; hence, two transactions. The stubborn
fact remains that these two (2) bills of lading spawned from the single marine
insurance policy that respondent Chubb and Sons issued in favor of the consignee
Sumitomo, covering the damaged steel pipes. The execution of the policy is a single
act, an isolated transaction. This Court has not construed the term "isolated
transaction" to literally mean "one" or a mere single act. In Eriks Pte. Ltd. vs.
Court of Appeals, this Court held that:32

. . . What is determinative of "doing business" is not really the number or the

quantity of the transactions, but more importantly, the intention of an entity to
continue the body of its business in the country. The number and quantity are
merely evidence of such intention. The phrase "isolated transaction" has a
definite and fixed meaning, i.e. a transaction or series of transactions set apart
from the common business of a foreign enterprise in the sense that there is no
intention to engage in a progressive pursuit of the purpose and object of the
business organization. Whether a foreign corporation is "doing business" does
not necessarily depend upon the frequency of its transactions, but more upon
the nature and character of the transactions. [Emphasis supplied.]

In the case of Gonzales vs. Raquiza, et al.,33 three contracts, hence three

transactions were challenged as void on the ground that the three American
corporations which are parties to the contracts are not licensed to do business in the
Philippines. This Court held that "one single or isolated business transaction does not
constitute doing businesswithin the meaning of the law. Transactions which are
occasional, incidental, and casual — not of a character to indicate a purpose to
engage in business — do not constitute the doing or engaging in business as
contemplated by law. Where the three transactions indicate no intent by the foreign
corporation to engage in a continuity of transactions, they do not constitute doing
business in the Philippines."

Furthermore, respondent insurer Chubb and Sons, by virtue of the right of

subrogation provided for in the policy of insurance, 34 is the real party in interest in
the action for damages before the court a quo against the carrier Lorenzo Shipping
to recover for the loss sustained by its insured. Rule 3, Section 2 of the 1997 Rules
of Civil Procedure defines a real party in interest as one who is entitled to the avails
of any judgment rendered in a suit, or who stands to be benefited or injured by it.
Where an insurance company as subrogee pays the insured of the entire loss it
suffered, the insurer-subrogee is the only real party in interest and must sue in its
own name35 to enforce its right of subrogation against the third party which caused
the loss. This is because the insurer in such case having fully compensated its
insured, which payment covers the loss in full, is subrogated to the insured’s claims
arising from such loss. The subrogated insurer becomes the owner of the claim and,
thus entitled to the entire fruits of the action. 36 It then, thus possesses the right to
enforce the claim and the significant interest in the litigation. 37 In the case at bar, it
is clear that respondent insurer was suing on its own behalf in order to enforce its
right of subrogation.

On the second issue, we affirm the findings of the lower courts that petitioner
Lorenzo Shipping was negligent in its care and custody of the consignee’s goods.

The steel pipes, subject of this case, were in good condition when they were loaded
at the port of origin (Manila) on board petitioner Lorenzo Shipping’s M/V Lorcon IV
en route to Davao City. Petitioner Lorenzo Shipping issued clean bills of lading
covering the subject shipment. A bill of lading, aside from being a contract 38 and a
receipt,39 is also a symbol40 of the goods covered by it. A bill of lading which has no
notation of any defect or damage in the goods is called a "clean bill of lading." 41 A
clean bill of lading constitutes prima facie evidence of the receipt by the carrier of the
goods as therein described.42

The case law teaches us that mere proof of delivery of goods in good order to a
carrier and the subsequent arrival in damaged condition at the place of destination
raises a prima facie case against the carrier. 43 In the case at bar, M/V Lorcon IV of
petitioner Lorenzo Shipping received the steel pipes in good order and condition,
evidenced by the clean bills of lading it issued. When the cargo was unloaded from
petitioner Lorenzo Shipping’s vessel at the Sasa Wharf in Davao City, the steel pipes
were rusted all over. M/V San Mateo Victory of respondent Gearbulk, Ltd, which
received the cargo, issued Bills of Lading Nos. DAV/OAK 1 to 7 and Nos. DAV/SEA 1
to 6 covering the entire shipment, all of which were marked "ALL UNITS HEAVILY
RUSTED." R.J. Del Pan Surveyors found that the cargo hold of the M/V Lorcon IV was
flooded with seawater, and the tank top was rusty, thinning and perforated, thereby
exposing the cargo to sea water. There can be no other conclusion than that the
cargo was damaged while on board the vessel of petitioner Lorenzo Shipping, and
that the damage was due to the latter’s negligence. In the case at bar, not only did
the legal presumption of negligence attach to petitioner Lorenzo Shipping upon the
occurrence of damage to the cargo.44 More so, the negligence of petitioner was
sufficiently established. Petitioner Lorenzo Shipping failed to keep its vessel in
seaworthy condition. R.J. Del Pan Surveyors found the tank top of M/V Lorcon IV to
be "rusty, thinning, and with several holes at different places." Witness Captain Pablo
Fernan, Operations Manager of respondent Transmarine Carriers, likewise observed
the presence of holes at the deck of M/V Lorcon IV. 45 The unpatched holes allowed
seawater, reaching up to three (3) inches deep, to enter the flooring of the hatch of
the vessel where the steel pipes were stowed, submerging the latter in sea
water.46 The contact with sea water caused the steel pipes to rust. The silver nitrate
test, which Toplis and Harding employed, further verified this
47
conclusion.  Significantly, petitioner Lorenzo Shipping did not even attempt to
present any contrary evidence. Neither did it offer any proof to establish any of the
causes that would exempt it from liability for such damage. 48 It merely alleged that
the: (1) packaging of the goods was defective; and (2) claim for damages has
prescribed.

To be sure, there is evidence that the goods were packed in a superior condition.
John M. Graff, marine surveyor of Toplis and Harding, examined the condition of the
cargo on board the vessel San Mateo Victory. He testified that the shipment had
superior packing "because the ends were covered with plastic, woven plastic.
Whereas typically they would not go to that bother ... Typically, they come in with no
plastic on the ends. They might just be banded, no plastic on the ends ..." 49

On the issue of prescription of respondent Chubb and Sons’ claim for damages, we
rule that it has not yet prescribed at the time it was made.

Art. 366 of the Code of Commerce states:

Within the twenty-four hours following the receipt of the merchandise, the
claim against the carrier for damage or average, which may be found therein
upon the opening of the packages, may be made, provided that the indications
of the damage or average which gives rise to the claim cannot be ascertained
from the outside part of such package, in which case the claim shall be
admitted only at the time of the receipt.

After the periods mentioned have elapsed, or transportation charges have been
paid, no claim shall be admitted against the carrier with regard to the condition
in which the goods transported were delivered.

A somewhat similar provision is embodied in the Bill of Lading No. T-3 which reads: 50

NOTE: No claim for damage or loss shall be honored twenty-four (24) hours
after delivery.

(Ref. Art. 366 C Com.)

The twenty-four-hour period prescribed by Art. 366 of the Code of Commerce within
which claims must be presented does not begin to run until the consignee has
received such possession of the merchandise that he may exercise over it the
ordinary control pertinent to ownership.51 In other words, there must be delivery of
the cargo by the carrier to the consignee at the place of destination. 52 In the case at
bar, consignee Sumitomo has not received possession of the cargo, and has not
physically inspected the same at the time the shipment was discharged from M/V
Lorcon IV in Davao City. Petitioner Lorenzo Shipping failed to establish that an
authorized agent of the consignee Sumitomo received the cargo at Sasa Wharf in
Davao City. Respondent Transmarine Carriers as agent of respondent Gearbulk, Ltd.,
which carried the goods from Davao City to the United States, and the principal,
respondent Gearbulk, Ltd. itself, are not the authorized agents as contemplated by
law. What is clear from the evidence is that the consignee received and took
possession of the entire shipment only when the latter reached the United States’
shore. Only then was delivery made and completed. And only then did the 24-hour
prescriptive period start to run.

Finally, we find no merit to the contention of respondents Gearbulk and Transmarine

that American law governs the contract of carriage because the U.S.A. is the country
of destination. Petitioner Lorenzo Shipping, through its M/V Lorcon IV, carried the
goods from Manila to Davao City. Thus, as against petitioner Lorenzo Shipping, the
place of destination is Davao City. Hence, Philippine law applies.

IN VIEW THEREOF, the petition is DENIED. The Decision of the Court of Appeals in

CA-G.R. CV No. 61334 dated August 14, 2000 and its Resolution dated March 28,
2001 are hereby AFFIRMED. Costs against petitioner. SO ORDERED.
G.R. No. L-19548      December 22, 1966

NICEFORO S. AGATON, petitioner-appellant, 
vs.
HON. PATRICIO PEREZ, CARLOS S. MARTINEZ, and FELIZA B. MARTINEZ,
respondents-appellees.

N. S. Agaton for petitioner and appellant.

Bernardo C. Ronquillo for respondents and appellees.

MAKALINTAL, J.:

On June 15, 1960 respondent Feliza B. Martinez and her husband, co-respondent
Carlos S. Martinez, entered into a contract of lease with petitioner Niceforo S.
Agaton, covering the second floor of respondents' house at Camp 8, Kennon Road,
Baguio City. The term of the lease was up to June 15, 1961, at a monthly rental of
P100.00. On May 8, 1961 respondents filed a complaint in the municipal court of
Baguio for the collection of (1) rents unpaid since December 18, 1960; (2) the value
of certain city services which petitioner was supposed to pay but did not, thus
compelling respondents to pay them; and (3) another indebtedness in the sum of
P200, together with attorney's fees of P150.

Petitioner filed a written answer to the complaint, containing denials as well as a

number of allegations under the headings of "first special affirmative defense and/or
counterclaim" and "second special affirmative defense and/or counterclaim." The first
consists of a long narration of evidentiary facts and conclusions which, reduced to
their essence, merely tend to support petitioner's allegation that respondents had
misled him into renting their house by making him believe that there was regular
transportation which he could avail of in going to and from the city proper when
actually there was none. The second affirmative defense and/or counterclaim also
consists of a detailed narration of how respondent Feliza Martinez, on March 14,
1961, went to see petitioner's employer, the Superintendent of the Baguio Military
Institute where he was teaching, to inquire whether he was getting his salary on
time — an act which, petitioner alleged, was done maliciously and with the obvious
intention to "embarrass, humiliate, degrade, belittle and vex the defendant and thus
undermine (his) position of dignity and authority." Compensatory damages (for taxi
fare spent by petitioner) were the subject of the first counterclaim; moral damages
were the subject of the second.

When the case was called for hearing respondents were furnished copy of petitioner's
answer to the complaint, whereupon they manifested to the Court that they "are
denying specially each and every allegation of all the counterclaims, the truth being
that this claim was filed in good faith." The trial then proceeded as to respondents'
case, after which petitioner made a verbal motion for judgment on the pleadings with
respect to his counterclaim, alleging that respondents' verbal answer thereto
constituted a mere general denial and therefore tendered no triable issue. The
motion was denied, as was also a subsequent motion for reconsideration. Petitioner
thereupon filed a petition for certiorari with the Court of First Instance of Baguio,
alleging grave abuse of discretion. That court, in its decision of January 10, 1962,
ruled that there was no such abuse and hence dismissed the petition, with costs.

Petitioner interposed the present appeal and now insists that since respondents'
answer to his counterclaim was a mere general denial and therefore tendered no
issue, it was mandatory for the court a quo to render judgment on the pleadings.
There is no merit in the argument. In the first place, petitioner's answer, particularly
in those portions thereof denominated by him as special affirmative defenses and/or
counterclaims, contains so many unnecessary allegations of evidentiary matters that
a specific denial of each and every one of them was not only uncalled for but even
impractical, especially considering that the old Rules of Court did not require an
answer (in this case to the counterclaim) in the municipal court to be in writing (Rule
4, Sec. 6). In the second place, the allegations in both the special affirmative
defenses and in the counterclaim are so inseparable and indeed have been lumped
by petitioner himself under common headings that, following the rule as to new
matters affirmed in the answer (Rule 11, Section 1, old Rules of Court), they may be
deemed controverted even if not specifically challenged by respondents in a reply.
Finally, the basic allegations which make up the counterclaims, namely,
misrepresentation and malice attributed to respondents were specifically traversed
by them by their allegation of good faith in the verbal answer interposed by them to
the said counterclaims.

Far from committing a grave abuse of discretion, the court a quo acted correctly and
with proper judicial circumspection in denying petitioner's motion for judgment on
the pleading.
The decision appealed from is affirmed, with costs against petitioner-appellant.

G.R. No. 134602           August 6, 1999

RAMONA T. LOGRONIO, CONSUELO T. LEDUNA, PRESENTACION T. TORRES,

EDITH MONTENEGRO, LITA S. TIÑA, and SEVERINO
DUHAYLUNGSOD, petitioners, 
vs.
ROBERTO TALESEO,1 LUCIO TALESEO JR., JOVITA TALESEO, CONCEPCION
TALESEO, TEODORO TALESEO, RAMON GUINTUGAO, NILDA GUINTAGAO,
JOSE GUINTUGAO, DOLORES GUINTUGAO, PERLA GUINTUGAO, ERNESTO
TALESEO and RODORO T. PINANUNANG, respondents.

PANGANIBAN, J.:
As a general rule, courts can take cognizance only of the issues pleaded by the
parties. As an exception, matters not raised may also be considered when they are
closely related to the issues identified or are necessary and indispensable to their
resolution.

The Case

Before us is a Petition for Review on Certiorari assailing the January 25, 1998

Decision2 of the Court of Appeals (CA),3 which disposed as follows:4

WHEREFORE, the appealed Decision is MODIFIED in that [herein respondents]

are declared the owners and possessors of Parcel No. 1 which is covered by TD
No. 85-19-1119. Cost against the [herein petitioners].

On the other hand, the trial court 5 Decision,6 which was modified by the CA, had
ruled as follows:7

WHEREFORE, judgment is hereby rendered:

1. Declaring [herein petitioners] the true and lawful owner[s] of the parcels of
land described and covered by Tax Declaration No. 85-19-115 (Exhibit "8-e") in
the name of Manuel Tiña and that parcel of land under Tax Declaration No. 926
in the name of Lucio Taliseo.

2. Ordering [herein respondents] to vacate . . . the two (2) parcels of land as

enumerated in paragraph. one (1) of the dispositive portion of this decision and
prohibit[ing] [herein respondents] or their agent from molesting, interfering
and preventing [herein petitioners] from their useful occupation, cultivation
and enjoyment of the said parcels of land which are hereto adjudicated to
them.

3. Ordering the [herein respondents] to pay [herein petitioners] P2,000.00

attorney's fees; P10,000.00 moral damages and costs of the proceedings.

Also assailed is the CA Resolution denying reconsideration. 8

The Facts

As found by the Court of Appeals, the facts of this case are as follows: 9

Lucio Taliseo was the owner of two parcels of land situated in Maninihan,
Bayawan, Negros Oriental herein referred to as Parcel No. 1 and Parcel No. 2.
Parcel No. 1 has an area of 44,672 square meters and was tax declared in his
name in 1919 under TD No. 2088 (Exhibit A). Now, it is covered by TD 85-19-
1919 (Exhibit 8-E) in the names of Manuel Tiña, et al. Parcel No. 2 has an area
of 48,813 square meters now covered by TD 926 and OCT No. PV-19372 in the
name of the heirs of Eugenia Tugbu. On May 3, 1922, Lucio Taliseo executed
an untitled document in the Spanish language (Exhibit 7) by virtue of which,
for P200.00, he sold Parcel No. 1 to Basilio Tiña with a right of repurchase
within a period of four (4) years from the execution of said deed. For unclear
reasons, Basilio Tiña took possession not only of Parcel No. 1 but also of Parcel
No. 2 and farmed them.

Lucio Taliseo failed to repurchase Parcel No. 1 within the stipulated period
which expired on May 3, 1926. Subsequently, this land was tax declared in the
name of Basilio Tiña in TD 9351 (Exhibit 8) on August 28, 1936. This was
cancelled successively by TD 888 (Exhibit 8-A) in 1949, TD 9928 (Exhibit 8-B)
in 1967, and in TD-00521 (Exhibit 8-C) in 1974 all in his name. Upon the death
of Basilio Tiña in 1957, his heirs Manuel Tiña, et al. caused the cancellation of
 the last tax declaration in the name of their father and a new one was issued in
their names. This was TD 6211 (Exhibit 8-D) issued in 1980 which was
cancelled by TD-85-19-1119 (Exhibit 8-E) still in their names. Taxes over this
land from 1967 to 1986 were paid by Basilio Tiña and after his death, by his
heirs per Certification (Exhibits 9 and 9-a) of the Municipal Treasurer's Office in
Bayawan.1âwphi1.nêt

On January 12, 1957, Lucio Taliseo and his children entered upon and
dispossessed the heirs of Basilio Tiña of Parcels Nos. 1 and 2, [the] reason for
which [was that], on February 1, 1957, after the death of Basilio Tiña, his
widow, Leoncia Tiña filed a Complaint for Forcible Entry (Exhibit 1) against the
former. On March 15, 1960, the Justice of the Peace Court of Bayawan
rendered a Decision (Exhibit 2) ejecting the Taliseos from the two parcels of
land. . . . While th[e] appeal was pending, the following significant
developments took place: a) principal plaintiff Leoncia de Tiña and principal
defendant Lucio Taliseo died and were substituted in the suit by their
respective heirs; b) . . . Josefa Taliseo applied for Free Patent over Lot 183,
PLS-764-D with an area of 39,959 square meters which corresponds to Parcel
No. 2. This was approved and OCT No. PV-19372 was issued in the name of the
heirs of Eugenia Tugbu, the first wife of Lucio Taliseo. On March 26, 1979, the
lower court issued an Order (Exhibit 3) dismissing the appeal. On the same
day, of a Writ of Execution was issued to enforce the affirmed judgment. The
writ however was never enforced.

While holding on to the said properties, the Taliseos took the offensive by filing
on January 18, 1985 Civil Case No. 8575 for quieting of title with damages
against the heirs of Basilio Tiña. The Complaint was amended twice. In the
Second Amended Complaint, Parcel No. 2 was deleted. In their Answer to
Second Amended Complaint, however, the [herein petitioners] counterclaimed
that they [were] the owners of Parcel No. 2; and that the title over said land in
the name of the heirs of Eugenia Tugbu, the first wife of Lucio Taliseo, was
secured fraudulently. They prayed that they be declared the owners of Parcel
Nos. 1 and 2; that the Decision in Civil Case No. 597 be revived and a writ of
execution to enforce it be issued; and the [herein respondents] be ordered to
pay them the damages and attorney's fee in the amount therein mentioned.
Resultantly, Parcel No. 1 was the only subject of the Complaint while Parcel No.
2, of the Counterclaim.

In its August 2, 1991 Decision, the regional trial court (RTC) ruled in favor of herein
petitioners, declaring them owners of the two parcels of land. Respondents, in the
"Assignment of Errors" in their Appellants' Brief, disputed the RTC ruling regarding
Parcel No. 1 only, although their arguments also tackled their ownership of Parcel
No. 2. The CA modified the RTC Decision and awarded ownership of Parcel No. 1 to
herein respondents. In effect, it sustained the RTC ruling that petitioners were the
owners of Parcel No. 2.

Hence, petitioners filed this recourse to this Court. 10 Respondents, on the other hand,
did not question the CA Decision.

Ruling of the Court of Appeals

The Court of Appeals ruled that herein petitioners, through their inaction for 39
years, were barred by laches from asserting ownership and possession of the
property in dispute:

First of all, the only subject of this appeal is Parcel No. 1. The lone assignment
of error as well as the prayer in plaintiff-appellants' brief pertains only to Parcel
No. 1. Henceforth, this land shall be referred to as the land in question. The
adjudication of the lower court regarding Parcel No. 2, is therefore,
undisturbed.

The fact that stands out in this case is the continuous, public and adverse
possession of the plaintiff-appellants over the land in question from 1957 up to
the present, a period of 41 years.

Note that after the finality of the Decision in the 1957 Forcible Entry Case, the
defendant-appellees folded their arms and lifted no finger nor raised a voice to
get back the land. True, in the Amended Answer in Civil Case No. 8575, they
counterclaimed for the recovery of a parcel of land and the nullification of a
title but this referred to Parcel No. 2 and not the land in question herein.
"Currit tempus contra decides et sui juris contemptores." (Time runs against
the slothful and those who neglect their rights).

It may be conceded that the possession by the plaintiff-appellants is in bad

faith considering that there was a final judgment ejecting them from said land.
The fact remains however that they stood their ground and no one molested
their possession through all of those years. The law on extraordinary
acquisitive prescription states:

Art. 1137. Ownership and other real rights over immovables also
prescribe through uninterrupted adverse possession thereof for thirty
years, without need of title or of good faith.

Defendant-appellees have really slept on their rights. Why did they not pursue
the execution of the decision in Civil Case No. 597 (Forcible Entry) after the
dismissal of the appeal? After the lapse of 5 years but before 10 years from the
finality of said Decision, why did defendant-appellees not file an action to
revive said judgment and enforce it? After the lapse of said period, why did the
defendant-appellees not file suit for revindication or accion publiciana to
recover said land from the plaintiff-appellants? In short, laches has already set
in to bar defendant-appellees from asserting ownership and right of possession
over said property.

When a person slept [o]n his rights for 28 years from the time of the
transaction, before the filing the action amounts to laches which cannot
be excused even by ignorance resulting from inexcusable negligence.
(Garbin vs. Court of Appeals, 253 SCRA 187)

Laches has been defined as the failure or neglect, for an unreasonable

and unexplained length of time, to do that which by exercising due
negligence could [or] should have been done earlier, it is negligence or
omission to assert a right within a reasonable time, warranting a
presumption that the party entitled to assert it either has abandoned it or
declined to assert it. (Republic vs. Sandiganbayan, 255 SCRA 438)

So much discussion in the appealed decision and [i]n the briefs of the parties
was devoted [to] the nature of the untitled deed in Spanish (Exhibit 7) and [to]
whether the loan was paid or the lands were repurchased. All of these incidents
were so much water under the bridge and the efforts to unravel their nature
and to determine compliance therewith were so much wasted disputations.
These incidents, alas, have been mooted by the unalterable fact that plaintiff-
appellants have been in continuous, open, adverse and peaceful possession of
the land in question for 41 years. Whatever dominical or possessory rights, the
[petitioners] may have acquired in consequence of their possession anterior to
1957 went up in smoke during their long slumber.
 Not even their tax declarations [or] their tax receipts over the land in question
can carry the day for the defendant-appellees. Without possession of the
property, these evidences . . . give them [neither] ownership nor right to the
possession of the land which they have long abandoned. (Heirs of Placido
Miranda v. Court of Appeals, 255 SCRA 368)

All told, this Court finds the lower court to have missed a very vital point — the
appreciation of the 41 continuous years of possession of the plaintiff-appellants
which have ripened into ownership. To that extent, it has erred.

The Issue

Petitioners impute to the Court of Appeals the following error: 11

The Honorable Court of Appeals gravely erred in holding that the Tiñas lost or
relinquished their right in and over the lot covered by TD No. 85-19-1119 in
favor of the Taleseos by laches.

Specifically, they raise the following questions:12

1 — Question of law — May the Court of Appeals on its own apply the principle
of laches to transfer ownership of land from one party to another even if not
one of the parties invoked the same during [the] trial or on appeal? . . .

2 — Misapprehension of facts — On the assumption that the Court of Appeals

can apply the principle of laches even if it is not pleaded, raised or invoked, the
fact still remains that the said Court's appreciation and conclusion that the
Tiñas are guilty of laches because they slept on their rights for 41 years is
based on a misapprehension of facts.

The Court's Ruling

The appeal is devoid of merit.

First Issue:

Although Laches Was Not Pleaded by the Parties, May the CA Consider It?

Citing Section 1, Rule 9 of the Rules of Court, which states that defenses not pleaded
are deemed waived, petitioners contend that the Court of Appeals erred in relying on
laches. This principle, they allege, was not raised in respondents' Complaint before
the trial court or in their appeal to the CA. They further contend that the exception to
the aforesaid rule is misapplied. In the cases cited by respondents — Catholic Bishop
of Balanga v.  Court of Appeals  13 and Dando v. Fraser14 — the appellate court
considered a matter not assigned, either because (1) it was closely related to an
assigned error, or (2) it was raised in the trial court. In the present case, petitioners
maintain that laches was not raised at any stage of the proceedings. Neither is it
closely related to the errors invoked. Thus, they conclude that the CA should not
have considered laches in disposing of this case.

We disagree. It is well-settled that appellate courts have ample authority to rule on

matters not assigned as errors in an appeal, if these are indispensable or necessary
to the just resolution of the pleaded issues. 15 In Hernandez v.Andal,16 this Court
held:

. . . [W]hile an assignment of error which is required by law or rule of court has

been held essential to appellate review, and only those assigned will be
considered, there are a number of cases which appear to accord to the
appellate court a broad discretionary power to waive the lack of proper
 assignment of errors and consider errors not assigned. And an unassigned
error closely related to an error properly assigned, or upon which the
determination of the question raised by the error properly assigned is
dependent, will be considered by the appellate court notwithstanding the failure
to assign it as error.

In this case, the single contention of respondents before the Court of Appeals was
that "the lower court erred in holding that [herein petitioners] are the owners of
[Parcel No. 1]."17 In the resolution of this issue, laches is obviously necessary and
indispensable. Indeed, it would be patent and glaring negligence on the part of the
appellate court magistrates to close their eyes to the existence of laches. Once a
court acquires jurisdiction over a case, it has wide discretion to look upon matters
which, although not raised as an issue, would give life and meaning to the law.
Ignoring laches in this case is an abdication of the judiciary's primordial objective:
the just resolution of disputes.

Citing Navera v. Court of Appeals,18 petitioners also allege that laches, like

prescription, "must be expressly relied upon in the pleadings and cannot be availed
of, unless pleaded in the appropriate pleading. It must be proved or established with
the same degree of certainty as any other essential allegation in the action. One who
asserts ownership by adverse possession must prove the presence of the essential
elements of acquisitive prescription."19

Navera, however, is inapplicable because it involved prescription, not laches.

Nowhere in that case did this Court rule that laches and prescription were the same.
In Nielson & Co., Inc. v. Lepanto Consolidated Mining Co.,20 the Court differentiated
the two in this wise:

[T]he defense of laches applies independently of prescription. Laches is

different from the statute of limitations. Prescription is concerned with the fact
of delay, whereas laches is concerned with the effect of delay. Prescription is a
matter of time; laches is principally a question of [the] inequity of permitting a
claim to be enforced, this inequity being founded on some change in the
condition of the property or the relation of the parties. Prescription is statutory;
laches is not. Laches applies in equity; whereas prescription applies [in] law.
Prescription is based on fixed time, laches is not.

Being a defense in equity, laches need not be specifically pleaded. On its initiative, a
court may consider it in order to prevent inequity.

Second Issue

Did the CA Misappreciate the Facts?

Petitioners contend that the Court of Appeals misappreciated the facts in ruling that
they had slept on their rights for more than forty-one years. Again, we disagree. The
facts established from the records are summarized below:

1. On May 3, 1992, respondent's predecessor Lucio Taleseo executed a

document denominated as "Sale with Right of Repurchase" (Exh. "7")
conveying the lots in litigation to petitioners' predecessor Basilio Tiña, subject
to the right of Lucio Taleseo to repurchase within four (4) years or up to year
1926. (p. 6, Decision of the RTC, Annex "C" hereof).

2. As soon as said document was executed, Basilio Tiña took over possession of
the lots and used them to cultivate rice.
 3. Lucio Taleseo failed to repurchase the property in 1926 and so Basilio Tiña
continued to possess the property, had the same declared in his name (Exhs.
"8-a" to "8-3"), and paid the taxes thereon (Exhs. "9" to "9-a").

4. In 1957, for the first time since [the] 1922 (execution of the pacto de retro),
the children of Lucio Taleseo (herein referred to as the Taleseos) laid claim on,
and forcibly entered, the property and drove away the tenants of Leoncia Tiña,
wife of Basilio Tiña (RTC Decision, Annex "C", p. 6).

5. The Tiñas filed a replevin and forcible entry case (Civil Case No. 597) in the
Municipal Court of Bayawan against the Talaseos. (Exh. "2").

6. The Municipal Court of Bayawan decided in favor of the Tiñas on March 15,
1960 and ordered the Taleseos to vacate the property. (Exh. "2").

7. The Taleseos appealed to the RTC of Negros Oriental, but said Court
dismissed the appeal for failure to prosecute on March 26, 1979 (Exh. "3").

8. The decree of ejectment was never executed. Neither was an action for
execution of judgment ever filed.

9. The Taleseos filed the present case for quieting of title on January 15, 1985.

From the foregoing, it is clear that petitioners have made no move to enforce the
March 15, 1960 Decision of the inferior court ejecting the Taleseos from the property
in dispute. In fact, the present case was commenced by she respondents in order to
have their title to said lot quitted. In this light, the CA did not err in holding that the
rights of petitioners were barred by laches.

Laches has been defined as the failure or neglect for an unreasonable and
unexplained length of time, to do that which by exercising due diligence could
or should have been done earlier; it is negligence or omission to assert a right
within a reasonable time, warranting a presumption that the party entitled to
assert it either has abandoned it or declined to assert it.21

Clearly, the thirty-nine-year inaction of the Tiñas to enforce the 1960 Decision
amounts to laches. Indeed, from the time the said Decision was handed down until
respondents filed a case for the quieting of title, petitioners did not do anything to
implement the judgment. They did not file a motion to enforce the Decision within
the prescribed period of 5 years from notice of entry of judgment; neither did they
institute a complaint to revive the said ruling within 10 years.22

For having slept on their rights for thirty-nine years, petitioners, through laches,
have lost their right to lay claim on the land.

WHEREFORE, the petition is DENIED. Cost against petitioners. SO ORDERED.

G.R. No. 143721. August 31, 2005

TERESITA E. VILLALUZ, Petitioners, 
vs.
ROLANDO R. LIGON, Respondent.

DECISION

AUSTRIA-MARTINEZ, J.:
Before us is a petition for review seeking the reversal of the Decision 1 of the Court of
Appeals (CA) promulgated on October 1, 1999 and the Resolution 2 dated June 6,
2000 which denied petitioner’s motion for reconsideration.

The facts are as follows:

Petitioner Teresita E. Villaluz (Villaluz) and respondent Rolando R. Ligon (Ligon) were
engaged in several businesses. Sometime in 1987, Villaluz borrowed sums of money
from Ligon secured by postdated checks amounting to ₱1,543,586.00 which later
bounced for the reasons "Drawn Against Insufficient Funds/Account Closed."
Demands were made on Villaluz but she failed to pay her debt prompting Ligon to
institute criminal proceedings for violation of Batas Pambansa Blg. 22 before the
Regional Trial Court (RTC) of Manila. During the hearing of said cases, Villaluz asked
for the settlement of their controversy 3 and Ligon, as the First Party, and Villaluz, as
the Second Party, executed a Memorandum of Agreement with the following terms:

WHEREAS, the SECOND PARTY is indebted to the FIRST PARTY in the amount of
THREE MILLION FOUR HUNDRED EIGHTY NINE THOUSAND AND TWO HUNDRED
FIFTY TWO PESOS (₱3,489,252.00) inclusive of interests, which indebtedness is now
the subject of criminal cases now pending with the Regional Trial Court of Manila,
Branch 40, and docketed as Criminal Cases Nos. 89-73195 to 213 for Violation of
Batas Pambansa Blg. 22;

WHEREAS, out of the aforesaid obligation the SECOND PARTY has made a total
payment of ONE HUNDRED SIXTY FIVE THOUSAND PESOS (₱165,000.00) thereby
leaving a balance of THREE MILLION THREE HUNDRED TWENTY FOUR THOUSAND
AND TWO HUNDRED FIFTY TWO PESOS (₱3,324,252.00);

WHEREAS, on account of the desire of the parties to settle the aforementioned cases
amicably, the FIRST PARTY, by way of liberality, has agreed to condone the amount
of ONE MILLION TWO HUNDRED TWENTY FOUR THOUSAND TWO HUNDRED FIFTY
TWO PESOS (₱1,324,252.00) (sic) thereby reducing the indebtedness of the SECOND
PARTY to the FIRST PARTY in the amount of TWO MILLION PESOS (₱2,000,000.00);

WHEREAS, the SECOND PARTY has on the date of this instrument, paid the amount
of ONE HUNDRED THOUSAND PESOS (₱100,000.00) thereby further reducing the
SECOND PARTY’S obligation to ONE MILLION NINE HUNDRED THOUSAND PESOS
(₱1,900,000.00);

WHEREAS, the SECOND PARTY has acknowledged her aforesaid total outstanding
obligation of ONE MILLION NINE HUNDRED THOUSAND PESOS (₱1,900,000.00) in
favor of the FIRST PARTY and has committed to pay the same on or before 31
December 1990;

WHEREAS, on account of the aforesaid settlement agreement, the FIRST PARTY has
agreed to effect or cause the dismissal of the aforementioned criminal cases against
the SECOND PARTY;

NOW, THEREFORE, for and in consideration of the foregoing premises and the mutual
covenants hereinafter set forth, the parties hereto hereby agree as follows:

1. The FIRST PARTY hereby condones the amount of ₱1,324,252.00 from the total
obligation of the SECOND PARTY;

2. The SECOND PARTY hereby promises to pay her total outstanding obligation of
₱1,900,000.00 to the FIRST PARTY on or before 31 December 1990;

3. In the event the SECOND PARTY is unable to pay her aforesaid obligation to the
FIRST PARTY on or before the date above stipulated, then the amount as condoned
in paragraph one (1) hereof shall be added back to the said obligation as stipulated
in paragraph two (2) hereof, and the FIRST PARTY shall have the right to enforce
collection of the entire amounts due and owing from the SECOND PARTY without
need of further demand;

4. The FIRST PARTY shall effect or cause the dismissal of the afore-mentioned
criminal cases against the SECOND PARTY as soon as practicable, preferably on or
before the next scheduled hearing of said cases. 4

In accordance with said agreement, Villaluz issued a check dated December 31, 1990
in the amount of ₱1,900,000.00 which again bounced upon presentment for the
reason that it was drawn against a closed account. Ligon made several demands on
Villaluz but to no avail. Thus, Ligon, through his lawyer, sent Villaluz demand letters
dated March 5, 1991 and July 1, 1991 which were allegedly duly received by her. 5

Since no payment was made, Ligon instituted on April 2, 1992 a complaint against
Villaluz with the RTC of Makati, Branch 134, for the recovery of ₱3,224,252.00 6 plus
legal interest and attorney’s fees.7

Upon failure of Villaluz and her counsel to appear at the pre-trial conference, the RTC
declared Villaluz as in default and received Ligon’s evidence ex-parte. The RTC
rendered a decision on October 16, 1992, ordering Villaluz to pay the amount prayed
for plus interest, ₱30,000.00 as attorney’s fees, plus costs. 8 On November 23, 1992,
Villaluz through counsel, filed a Motion for New Trial and a Motion to Admit Answer
which were both granted by the court.9

Villaluz in her Answer alleged that: she is an illiterate and could not engage in any
business alone; on several occasions Ligon offered imported goods in exchange for
postdated checks to be encashed upon delivery; there were occasions when the
imported goods were not delivered and yet her checks were not returned; she
requested for an accounting but none was made; the B.P. Blg. 22 cases filed against
her involving the total amount of ₱1,543,586.00 were provisionally dismissed
because there was a need for accounting; efforts were then made to settle the case
amicably until November 1990, when Ligon’s lawyer succeeded in persuading her to
sign a Memorandum of Agreement and to issue a check in the amount of
₱1,900,000.00; said Memorandum of Agreement does not express the true intent
and agreement of the parties and the check for ₱1.9 M is null and void; she did not
receive any demand for the enforcement of the Memorandum of Agreement nor for
the payment of the check, thus the instant action is premature and plaintiff has no
cause of action. Villaluz prayed that the complaint be dismissed and the
Memorandum of Agreement and the check be declared null and void. 10

Ligon presented evidence to support his complaint and, on March 9, 1994, filed a
Motion for Issuance of Writ of Preliminary Attachment which Villaluz opposed. On
May 5, 1994, Villaluz filed a Motion to Dismiss Case on the Ground of Forum
Shopping and a Motion to Cite Atty. Paulino E. Cases, Jr. in Contempt of Court. The
trial court denied the said motions.11

On May 25, 1995, Villaluz filed before the RTC a Motion to Cancel Hearings pending
the resolution of this Court of the issue in G.R. No. L-119865 entitled "Teresita
Villaluz vs. Court of Appeals" where Villaluz questioned the validity of the
reinstatement of the criminal cases against her which were provisionally dismissed.
The trial court denied the motion to cancel hearings as well as her motion for
reconsideration of the same.12

After the trial court ruled on Ligon’s offer of exhibits, the case was set for hearing on
August 29 and 31, 1995 which were reset to September 25 and 28, 1995 upon
Villaluz’s request. The September 25, 1995 hearing was also reset in view of the
manifestation of the parties that they will settle the case amicably. On September
28, 1995, the parties agreed to reset the hearing to October 11 and 24, 1995. On
October 11, 1995 the hearing was cancelled anew upon agreement of the parties. On
October 24, 1995, the hearing was cancelled and reset to November 16, 23 and
December 14, 1995 in view of the absence of Villaluz and her counsel. On November
10, 1995, Villaluz’s counsel asked for the cancellation of the November and
December settings and prayed that they be moved to January 1996. The hearings
were reset to January 9 and 11, 1996, but Villaluz failed to appear on said dates. The
husband of Villaluz asked for a resetting and the case was set anew to March 11, 14
and 19, 1996. Petitioner Villaluz and her counsel failed to appear on March 11, 1996
which prompted plaintiff Ligon’s counsel to move that Villaluz be considered to have
waived the presentation of her evidence and that the case be deemed submitted for
decision. The motion was granted and on March 11, 1996, the trial court issued an
order submitting the case for decision which order was received by counsel for
Villaluz on March 15, 1996.13

On May 7, 1996, the RTC of Makati, Branch 134, rendered its decision, the
dispositive portion of which reads:

WHEREFORE, in the light of the foregoing, judgment is hereby rendered in favor of

the plaintiff and against the defendant, ordering the latter to pay to the former the
sum of ₱3,224,252.00 (sic) plus legal interest at the rate of 12% per annum from
April 2, 1992 (date of filing of the complaint) until the full amount is paid; the sum of
₱50,000.00 as attorney’s fees, and the costs of suit.14

Villaluz filed a motion for reconsideration dated May 23, 1996, stating that given the
opportunity to testify, she will re-affirm the contents of her affidavit that was
submitted in support of her Motion for New Trial, or in the alternative, she will
formally offer the same.15 This was denied by the RTC in its Order dated July 22,
1996.16

Villaluz went to the CA and claimed that the trial court erred: in not dismissing the
case on the ground of forum shopping; in not granting the defendant the opportunity
to present evidence in her behalf thereby depriving her of her fundamental right to
due process; and in not considering the evidence already on record showing that the
subject checks had no valid consideration. 17

The CA denied the petition in its Decision dated October 1, 1999, ruling that the
motion to dismiss on the ground of forum shopping should have been filed within the
time for but before filing of an answer to the complaint or pleading asserting a claim,
pursuant to Section 1(e), Rule 16 of the Rules of Court; that Supreme Court
Administrative Circular No. 04-94 on Anti-Forum Shopping Rule was not yet existing
at the time the instant case was filed; that Villaluz cannot claim denial of due process
as she and her counsel failed to appear in the scheduled hearings and the fact that
Villaluz failed to file a motion for reconsideration when the RTC considered the case
submitted for decision is an indication that she slept on her right; and that the
"Sinumpaang Salaysay" which she submitted in support of her motion for new trial
cannot be taken into consideration as the same was not formally offered in evidence
during trial.18 The dispositive portion of the decision reads:

WHEREFORE, premises considered, the appealed decision (dated May 7, 1996) of the
Regional Trial Court (Branch 134) in Makati City in Civil Case No. 92-914 is hereby
AFFIRMED, with costs against the appellant.

SO ORDERED.19

Villaluz filed a motion for reconsideration which was denied by the appellate court in
its Resolution dated June 6, 2000.20

Hence, the present petition raising the following issues:

I. WHETHER OR NOT HEREIN RESPONDENT COMMITTED FORUM SHOPPING IN THIS
CASE;

II. IN THE ALTERNATIVE, ASSUMING THAT THERE WAS NO FORUM SHOPPING,

WHETHER OR NOT PETITIONER WAS DEPRIVED OF HER FUNDAMENTAL RIGHT TO
DUE PROCESS;

III. IN THE FURTHER ALTERNATIVE, ASSUMING THAT THERE WAS NO FORUM

SHOPPING AND THAT PETITIONER WAS NOT DEPRIVED OF DUE PROCESS,
WHETHER OR NOT AN ERROR WAS COMMITTED IN NOT CONSIDERING THE
EVIDENCE ALREADY ON RECORD SHOWING THAT THE SUBJECT MEMORANDUM OF
AGREEMENT AND THE CHECKS HAD NO VALID CONSIDERATION AND ARE,
THEREFORE, NULL AND VOID.21

As to the first issue raised, petitioner argues that: the respondent and the CA were
not correct in stating that there is no forum shopping in this case since the
prohibition against forum shopping only started with the issuance of Circular No. 28-
91 as modified by Admin. Circular No. 04-94; forum shopping has already been
prohibited in Buan vs. Lopez, 145 SCRA 34, which was promulgated on October 13,
1986 and in Limpin vs. Intermediate Appellate Court, 161 SCRA 83, promulgated on
May 5, 1988;22 petitioner did not immediately raise the defense of forum shopping
since it was a matter of trial strategy; the defense of forum shopping may also be
raised at any time because it is a matter of judicial policy intended to unclog the
court dockets and to prevent litigants from abusing the court’s processes; all the
elements of litis pendentia which are also the elements of forum shopping, are
present herein, i.e., the parties, the subject matter and the reliefs sought are the
same; and the considerations for the execution of the Memorandum of Agreement
were the same checks subject matter of the criminal cases; without said checks the
Memorandum of Agreement would be null and void for want of consideration. 23

Respondent in his Comment contends that: there is no forum shopping in the case at
bar since the present case was filed with the trial court on April 2, 1992, before
Revised Circular No. 28-91 and Admin. Circular No. 04-94 took effect; the instant
case is a collection of sum of money which sprung from the violation of the
Memorandum of Agreement between the petitioner and respondent, while Criminal
Case Nos. 98-73195-213 entitled People vs. Teresita Villaluz pertain to violation of
B.P. Blg. 22 which is a penal law; the said cases have different nature; there is also
no identity of causes of action since the first case involves a personal civil action for
collection of a sum of money whereas the second case is a criminal action wherein
the State has interest.24

As to the second issue, petitioner claims that the CA should have been more lenient
in allowing petitioner the opportunity to present her evidence especially considering
that the delay in petitioner’s presentation of evidence in court was due to the need
for accounting and the efforts of the parties in trying to reach a settlement of the
controversy.25

Respondent argues that: there were numerous postponements made by petitioner

and her counsel and respondent did not object thereto to accommodate herein
petitioner; it was only on March 11, 1996 that the counsel for the respondent moved
that the petitioner be considered to have waived the presentation of her evidence
which the trial court granted; despite receipt of the Order on March 15, 1996,
granting respondent’s motion, petitioner did not move to remedy said Order until it
became final and executory; the failure of petitioner to file a Motion for
Reconsideration of the Order dated March 11, 1996 closed the door for a possible
reconsideration in her favor; and petitioner ultimately waived her right to present
evidence on her behalf. 26
As to the third issue, petitioner claims that the CA erred in rejecting petitioner’s plea
to have her "Sinumpaang Salaysay" admitted which was favorably considered by the
trial court and given evidentiary weight when petitioner’s motion for new trial was
granted; respondent never disputed the contents of the statement which is already
part of the records of the case; and since the trial court considered some portions of
the record, there is no valid reason not to appreciate the entire records including the
statement since it would absolve her from any liability in this case. 27

On the other hand, respondent contends that: the trial court did not commit any
mistake in not taking into consideration said "Sinumpaang Salaysay" on the ground
that said affidavit was only in support of the Motion for New Trial; and said affidavit
cannot be considered by the trial court since the trial court may only consider what
was formally offered to it.28

Ruling of the Court

Anent the first issue: Whether there is forum shopping in this case.

We agree with petitioner that the CA and respondent were mistaken in stating that
there could be no forum shopping in this case since the case was filed prior to the
effectivity of Admin. Circular No. 04-94 which required a certification of non-forum
shopping.

Ligon filed the complaint for sum of money on April 2, 1992. While it is true that
Admin. Circular No. 04-94, entitled, "Additional Requisites for Civil Complaints,
Petitions and Other Initiatory Pleadings Filed in All Courts and Agencies, Other Than
The Supreme Court and the Court of Appeals, to Prevent Forum Shopping on Multiple
Filing of Such Pleadings," took effect on April 1, 1994, or about two years after the
complaint of Ligon was filed with the RTC, Makati, the Court has condemned forum
shopping even before the issuance of said Admin. Circular No. 04-94. The splitting of
causes of action was proscribed29 in the Limpin case cited by petitioner which was
promulgated in 1988.

While petitioner is correct in stating that the rule against forum shopping existed
even prior to the issuance of Admin. Circular No. 04-94, we find that, in the present
case, respondent did not commit forum shopping.

There is forum shopping when, as a result of an adverse opinion in one forum, a

party seeks a favorable opinion, other than by appeal or certiorari in another.30 There
can also be forum shopping when a party institutes two or more suits in different
courts, either simultaneously or successively, in order to ask the courts to rule on
the same or related causes and/or to grant the same or substantially the same
reliefs on the supposition that one or the other court would make a favorable
disposition or increase a party’s chances of obtaining a favorable decision or
action.31It is an act of malpractice because it trifles with the courts, abuses their
processes, degrades the administration of justice and adds to the already congested
court dockets.32

To determine whether a party violated the rule against forum shopping, the most
important question to ask is whether the elements of litis pendentia are present or
whether a final judgment in one case will result to res judicatain another.33 Otherwise
stated, to determine forum shopping, the test is to see whether in the two or more
cases pending, there is identity of parties, rights or causes of action, and reliefs
sought.34

Here, the two cases involved are the instant civil case for collection of sum of money
where petitioner is the defendant,  and the B.P. Blg. 22 cases where petitioner is the
accused. Clearly, there is no identity of parties for in the criminal case, the plaintiff is
the State with Ligon only as a complaining witness. In the case at bar, Ligon himself
is the plaintiff.

There is also a difference in the causes of action. In the instant case, the cause of
action is petitioner’s breach of contract as embodied in the Memorandum of
Agreement, while in the criminal case, it is the violation of B.P. Blg. 22.

There is also a difference in reliefs sought because in the civil case, what is sought is
the enforcement of the terms in their Memorandum of Agreement, while in the
criminal case, it is the punishment of the offense committed against a public law.

As we explained in Go vs. Dimagiba35 civil liability differs from criminal liability. What
is punished in the latter is not the failure to pay an obligation but the issuance of
checks that subsequently bounced or were dishonored for insufficiency or lack of
funds. The issuance of worthless checks is prohibited because of its deleterious
effects on public interest and its effects transcend the private interest of the parties
directly involved in the transaction and touches the interest of the community at
large.36 In the present civil case, no such transcendental public interest exists.

Finally, petitioner’s argument on forum shopping must fail since she did not raise it
at the first opportunity in the trial court. As noted by the respondent, petitioner only
raised the issue of forum shopping two years after the institution of the civil case. If
only for her failure to invoke such ground at the first opportunity in her motion to
dismiss in the trial court, her appeal should have been given short shrift and denied
outright.37 Petitioner’s claim that her failure to raise it in her motion to dismiss was a
matter of trial strategy has no persuasive effect for it is well ensconced that
"defenses and objections not pleaded in a motion to dismiss or in an answer are
deemed waived" except the failure to state a cause of action or that the court has no
jurisdiction.38 Herein case does not fall within said exceptions.

Anent the second issue: Whether petitioner was denied due process by the trial
court.

We have held that due process is satisfied as long as the party is accorded an
opportunity to be heard.39 The essence of due process is that a party is given a
reasonable opportunity to be heard and submit any evidence one may have in
support of one’s defense.40 Where the opportunity to be heard, either through verbal
arguments or pleadings, is accorded and the party can present its side or defend its
interest in due course, there is no denial of due process. 41 Indeed, where a party was
afforded an opportunity to participate in the proceedings but failed to do so, he
cannot complain of deprivation of due process. 42 If said opportunity is not availed of,
it is deemed waived or forfeited without violating the constitutional guarantee. 43

It cannot be said that petitioner Villaluz was not given her day in court. A judgment
on default was set aside and her motion for new trial and motion to admit answer
were granted by the trial court. After respondent Ligon’s presentation of evidence,
the case was set for the presentation of petitioner Villaluz’s evidence. On three
occasions, petitioner asked for the postponement of the hearings and was allowed by
the court.44 The hearings for October 24, 1995, January 9 and 11, 1996 were reset
because of the absence of Villaluz and her counsel. It was only on March 11, 1996,
after several postponements, that the trial court, upon motion of Ligon, finally
resolved to submit the case for decision. While the Court notes that the hearing was
also set for March 14 and 19, 1996, the fact that despite receipt by Villaluz on March
15, 1996 of the Order of the RTC dated March 11, 1996, submitting the case for
decision, she did not file any motion for reconsideration thereof, such that the RTC
issued its judgment against her on May 7, 1996. Thus, based on all the foregoing,
petitioner is barred from claiming that she was denied due process of law.
Anent the third issue: Whether the trial court erred in not considering the affidavit of
petitioner earlier submitted in the motion for new trial.

Petitioner submitted a "Sinumpaang Salaysay" stating that she is an illiterate and

that sometime in 1990, Ligon’s lawyer deceived her into signing a Memorandum of
Agreement and in issuing a check for ₱1.9 M. 45 Petitioner argues that the
"Sinumpaang Salaysay" which she submitted as an affidavit of merit in support of
her motion for new trial should be considered as part of the records of the case even
without formal offer of the same.

We do not agree. There is a need to formally offer affidavits before the courts to
afford the opposing party the opportunity to ascertain or refute the veracity of the
contents of such statements. Courts will only consider as evidence that which has not
been formally offered. If an affidavit was never formally offered, it cannot be
considered as evidence. If petitioner neglected to offer her affidavit in evidence,
however vital it may be, she only has herself to blame. 46

The rule is that a document, or any article for that matter, is not evidence when it is
simply marked for identification; it must be formally offered and the opposing
counsel given an opportunity to object to it or cross-examine the witness called upon
to prove or identify it. It is necessary that a formal offer is made since judges are
required to base their findings of fact and judgment only, and strictly, upon the
evidence offered by the parties at the trial. To allow a party to attach any document
to his pleading and expect the court to consider it as evidence may draw
unwarranted consequences. The opposing party will be deprived of a chance to
examine the document and object to its admissibility. The appellate court will also
have difficulty reviewing the documents not previously scrutinized by the court
below. Indeed, the pertinent provisions of the Revised Rules of Court on the inclusion
on appeal of documentary evidence or exhibits in the records cannot be stretched as
to include such pleadings or documents not offered at the hearing of the case. 47

In this case, while the motion for new trial was granted, it cannot be said that the
contents of the affidavit attached thereto should be treated by the trial court as
evidence for the petitioner as it was not formally offered during the trial on the
merits.

We now come to the determination of the amount of money that is due respondent.

The trial court in its decision, as affirmed by the CA, explained that:

From the evidence adduced, there can be no doubt that the plaintiff has established
the material allegations of the complaint by clear, convincing and competent
evidence.

The terms and conditions of the "Memorandum of Agreement" are clear and
unmistakable. The parties agreed that in case defendant failed to pay the
sum of ₱1,900,000.00 on or before December 31, 1990, then the amount of
₱1,324,252.00 would be added to the principal account (₱1,900,000.00) and
the plaintiff "shall have the right to enforce collection of the entire amounts
due and owing from the SECOND PARTY (defendant) without need of further
demand."… (Emphasis supplied)

The "Memorandum of Agreement" has the force of law between the parties. From the
moment the contract is perfected, the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all consequences which according to
their nature, may be in keeping with good faith, usage and law…

Defendant’s claim that she was merely persuaded to sign the "Memorandum of
Agreement" and to issue the check in the amount of ₱1,900,000.00 is unavailing. It
is presumed that a party, who signs a contract, had acted with due care and have
signed the said contract with full knowledge of the import and the obligation she was
assuming thereby. This presumption may not be overcome by the mere testimony of
the obligor. To permit a party, when sued upon a contract, to admit that she signed
it but to deny it expresses the agreement she had made, or to allow her to admit
that she signed it solely on the verbal assurance that she would not be liable
thereon, would destroy the value of all contracts. Indeed, it would be disastrous to
give more weight and reliability to the self-serving testimony of a party bound by the
contract than to the contents thereof.48 (citations omitted)

Harsh as its effects may be on petitioner, we cannot but agree with the findings of
the trial court and the CA.

The Memorandum of Agreement between petitioner and respondent, while termed as

such, is actually a compromise agreement which is defined as an agreement whereby
the parties, by making reciprocal concessions, avoid a litigation or put an end to one
already commenced.49

As in any other contract, it is perfected by mere consent, the latter being manifested
by the meeting of the offer and the acceptance upon the thing and the cause which
constitutes the contract.50 It is perfected upon the meeting of the minds and does not
need a judicial approval for its perfection. 51

Here, petitioner claims that the Memorandum of Agreement is void since she is an
illiterate who was taken advantage of by respondent’s counsel.

Indeed, there exists a presumption of mistake or error to those who have not had
the benefit of a good education under Art. 1332 of the Civil Code. 52 However, one
who alleges such mistake or fraud must show that her personal circumstances
warrant the application thereof. 53 Apart from claiming in her affidavit that she is
illiterate, petitioner did not make any effort to prove in court the truthfulness of such
claim, despite the many opportunities given her to do so. We therefore cannot give
credence to her allegation. WHEREFORE, the petition is DENIED for lack of merit.
SO ORDERED.
G.R. No. 143286             April 14, 2004

PROCOPIO VILLANUEVA, NICOLAS RETUYA and PACITA

VILLANUEVA, petitioners, 
vs.
COURT OF APPEALS and THE HEIRS OF EUSEBIA NAPISA
RETUYA, respondents.

DECISION

CARPIO, J.:

This petition for review on certiorari1 seeks the reversal of the Court of Appeals’
Decision dated 31 January 2000 as well as its Resolution dated 25 April 2000 in CA-
G.R. No. CV-46716. The assailed Decision dismissed petitioners’ appeal of the
Decision of the Regional Trial Court, Branch 55, Mandaue City ("trial court").

On 13 October 1988, Eusebia Napisa Retuya ("Eusebia") filed a complaint before the
trial court against her husband Nicolas Retuya ("Nicolas"), Pacita Villanueva
("Pacita"), and Nicolas’ son with Pacita, Procopio Villanueva ("Procopio"). Eusebia
sought the reconveyance from Nicolas and Pacita of several properties listed in
paragraph 2 of the complaint ("subject properties"), claiming the subject properties
are her conjugal properties with Nicolas. Eusebia also prayed for accounting,
damages and the delivery of rent and other income from the subject properties.

Antecedent Facts

The facts as found by the trial court are as follows:

Plaintiff Eusebia Napisa Retuya, is the legal wife of defendant Nicolas Retuya,
having been married to the latter on October 7, 1926. Out of the lawful
wedlock, they begot five (5) children, namely, Natividad, Angela, Napoleon,
Salome, and Roberta. Spouses Retuya resided at Tipolo, Mandaue City. During
their marriage they acquired real properties and all improvements situated in
Mandaue City, and Consolacion, Cebu, more particularly described as follows:

‘1. A parcel of land located at Pulpugan, Consolacion, Cebu under tax dec.
No. 24951;

2. A parcel of land located at Pulpugan, Consolacion, Cebu under tax dec.

No. 24952;

3. A parcel of land located at Pulpugan, Consolacion, Cebu under tax dec.

No. 24953;

4. A parcel of land located at Pulpugan, Consolacion, Cebu under tax dec.

No. 24954;

5. A parcel of land located at Pulpugan, Consolacion, Cebu under tax dec.

No. 24956;

6. A parcel of land located at Pulpugan, Consolacion, Cebu under tax dec.

No. 24957;

7. A parcel of land located at Pulpugan, Consolacion, Cebu under tax dec.

No. 24958;
 8. A parcel of land located at Tipolo, Mandaue City, covered by tax dec.
No. 01042;

9. A parcel of land located at Tipolo, Mandaue City, covered by tax dec.

No. 01043;

10. A parcel of land located at Tipolo, Mandaue City, covered by tax dec.
No. 01046;

11. A parcel of land located at Tipolo, Mandaue City, covered by tax dec.
No. 01041;

12. A parcel of land located at Nawanao-Subangdaku, Mandaue City

covered by tax dec. No. 01488;

13. A parcel of land located at Baklid, Mandaue City, covered by tax dec.
No. 00492;

14. A parcel of land located at Tipolo, Mandaue City covered by tax dec.
No. 01044;

15. A residential house located at Tipolo, Mandaue City covered by tax

dec. No. 01050;

16. A parcel of land located at Tipolo, Mandaue City covered by tax dec.
No. 01048;

17. A parcel of land located at Tipolo, Mandaue City covered by tax dec.
No. 01051;

18. A parcel of land located at Tipolo, Mandaue City covered by tax dec.
No. 01047;

19. A parcel of land located at Banilad, Mandaue City covered by tax dec.
No. 02381;

20. A parcel of land located at Tipolo, Mandaue City covered by tax dec.
No. 01049;

21. A parcel of land located at Tipolo, Mandaue City covered by tax dec.
No. 01045;

22. A parcel of land located at Tipolo, Mandaue City covered by tax dec.
No. 01450 (in the name of Pacita Villanueva).’

Also, defendant, Nicolas Retuya, is co-owner of a parcel of land situated in

Mandaue City which he inherited from his parents Esteban Retuya and Balbina
Solon as well as the purchasers of hereditary shares of approximately eight (8)
parcels of land in Mandaue City.

Some of these properties above-mentioned earn income from coconuts and the
other lands/houses are leased to the following:

a) Mandaue Food Products Company – for Lot 121-F, Lot 121-G and Lot
121-H under TCT No. 11300 at an annual rental of ₱10,800.00;

b) Barben Wood Industries, Inc. – for Lot 148 covered by TCT No. l731
for an annual rental of ₱21,600.00;
 c) Metaphil, Inc. – parcel of land consisting of 2,790.51 sq. meters at the
rate of ₱2,700.00 annually for the first five (5) years, and ₱3,240.00 for
the second years;

d) Benedicto Development Corp. – for a portion of Lot 148 covered by

TCT No. 1731 for a period of 20 years at an annual rate of ₱3,500.00
renewable for another 20 years after April 1, 1995 at an annual rate of
₱4,000.00;

e) Benedicto Development Corporation – for a portion of Lot No. 148

covered by Certificate of Title No. 1731 over an area of 6,000 sq. meters
for an annual rental of ₱9,500.00 for a period of 2 years from June 1,
1982;

f) Visayan Timber and Machinery Corp. – over a parcel of land at

Nawanaw, Mandaue City, for a period of 2 years from June 1, 1987 and
renewable for another 12 years at an annual income of ₱4,000.00;

g) House lessees listed in Exhibit "13" with total monthly rentals of

₱1,975.00 a month for the 24 lessees or ₱24,700.00 annually. (Exhs. "7"
to "13")

In 1945, defendant Nicolas Retuya no longer lived with his legitimate family
and cohabited with defendant, Pacita Villanueva, wherein defendant, Procopio
Villanueva, is their illegitimate son. Nicolas, then, was the only person who
received the income of the above-mentioned properties.

Defendant, Pacita Villanueva, from the time she started living in concubinage
with Nicolas, has no occupation, she had no properties of her own from which
she could derive income.

In 1985, Nicolas suffered a stroke and cannot talk anymore, cannot walk
anymore and they have to raise him up in order to walk. Natividad Retuya
knew of the physical condition of her father because they visited him at the
hospital. From the time defendant Nicolas Retuya suffered a stroke on January
27, 1985 and until the present, it is defendant Procopio Villanueva, one of
Nicolas’ illegitimate children who has been receiving the income of these
properties. Witness Natividad Retuya went to Procopio to negotiate because at
this time their father Nicolas was already senile and has a childlike mind. She
told defendant, Procopio that their father was already incapacitated and they
had to talk things over and the latter replied that it was not yet the time to talk
about the matter.

Plaintiff, then, complained to the Barangay Captain for reconciliation/mediation

but no settlement was reached, hence, the said official issued a certification to
file action. Written demands were made by plaintiff, through her counsel, to
the defendants, including the illegitimate family asking for settlement but no
settlement was reached by the parties.

Further, plaintiff’s witness, Natividad Retuya, testified that the parcel of land
covered by tax declaration marked Exhibit "T" was the property bought by her
father from Adriano Marababol for at the time of purchase of the property,
defendant Pacita Villanueva had no means of livelihood (TSN, p. 6).

The trial court rendered its Decision on 16 February 1994 in favor of Eusebia. The
dispositive portion of the Decision states:
 WHEREFORE, in view of the foregoing considerations, judgment is rendered in
favor of the plaintiff Eusebia Napisa Retuya and against defendants Procopio
Villanueva, Nicolas Retuya and Pacita Villanueva:

1. Declaring the properties listed in paragraph 2 of the amended

complaint as conjugal properties of the spouses plaintiff Eusebia Retuya
and the defendant Nicolas Retuya;

2. Ordering the transfer of the sole administration of conjugal properties

of the spouses Eusebia Retuya and Nicolas Retuya in accordance with Art.
124 of the Family Code to the plaintiff Eusebia Napisa Retuya;

3. Ordering defendant Procopio Villanueva to account and turnover all

proceeds or rentals or income of the conjugal properties from January 27,
1985 when he took over as ‘administrator’ thereof and until he shall have
ceased administering the same in accordance with the judgment of this
Court;

4. Ordering defendants jointly and severally to reconvey the parcel of

land situated at Tipolo, Mandaue City now in the name of defendant
Pacita Villanueva under tax dec. No. 01450 and transfer the same into
the names of the conjugal partners Eusebia N. Retuya and Nicolas
Retuya;

5. Ordering the City Assessor’s Office of Mandaue City to cancel tax

declaration No. 01450 in the name of Pacita Villanueva and direct the
issuance of a new title and tax declaration in the names of Eusebia
Napisa Retuya and Nicolas Retuya;

6. Ordering defendants jointly and severally to reconvey that certain

building of strong materials located at Tipolo, Mandaue City under tax
dec. No. 01450 into the names of Eusebia Retuya and Nicolas Retuya;

7. Ordering defendants jointly and severally to pay plaintiff the sum of

₱50,000.00 by way of attorney’s fees and expenses of litigation in the
sum of ₱5,000.00 plus the costs.

SO ORDERED.

Petitioners appealed the trial court’s decision to the Court of Appeals. Eusebia died
on 23 November 1996. Thereafter, Eusebia’s heirs substituted her pursuant to the
resolution of the Court of Appeals dated 7 April 1997. The Court of Appeals
eventually upheld the Decision of the trial court but deleted the award of attorney’s
fees, ruling in this wise:

WHEREFORE, the decision dated February 16, 1994 is AFFIRMED with the
modification that the award of attorney’s fees of ₱50,000.00 is deleted.

SO ORDERED.

Petitioners filed a Motion for Reconsideration on 23 February 2000 which the Court of
Appeals denied in a Resolution dated 11 May 2000.

Hence, this petition.

The Trial Court’s Ruling

The trial court applied Article 116 of the Family Code, which reads:
 Art. 116. All property acquired during the marriage, whether the acquisition
appears to have been made, contracted or registered in the name of one or
both spouses, is presumed conjugal unless the contrary is proved.

The trial court ruled that the documents and other evidence Eusebia presented
constitute "solid evidence" which proved that the subject properties were acquired
during her marriage with Nicolas. This made the presumption in Article 116
applicable to the subject properties. Thus, the trial court ruled that Eusebia had
proved that the subject properties are conjugal in nature. On the other hand, the
trial court found that petitioners failed to meet the standard of proof required to
maintain their claim that the subject properties are paraphernal properties of Nicolas.
The trial court added that Pacita presented no "factual solidity" to support her claim
that she bought Lot No. 1522 exclusively with her own money.

The Court of Appeals’ Ruling

The Court of Appeals concurred with the findings of the trial court. The appellate
court found that Pacita failed to rebut the presumption under Article 116 of the
Family Code that the subject properties are conjugal. The appellate court dismissed
Pacita’s defense of prescription and laches since she failed to have the issue included
in the pre-trial order after raising it in her answer with her co-petitioners.

The Issues

Petitioners Nicolas, Pacita and Procopio contend that both the trial and appellate
courts erred in ruling in favor of Eusebia. They seek a reversal and raise the
following issues for resolution:

1. WHETHER THE COURT OF APPEALS ERRED IN SUSTAINING THE

DECLARATION OF THE TRIAL COURT THAT THE PROPERTIES LISTED IN
PARAGRAPH 2 OF THE COMPLAINT ARE CONJUGAL PROPERTIES OF NICOLAS
RETUYA AND EUSEBIA RETUYA ALTHOUGH THIS WAS NOT ONE OF THE
CAUSES OF ACTION IN EUSEBIA’S COMPLAINT.

2. WHETHER THE COURT OF APPEALS ERRED IN APPLYING THE PRESUMPTION

THAT PROPERTIES ACQUIRED DURING THE EXISTENCE OF THE MARRIAGE OF
NICOLAS RETUYA AND EUSEBIA RETUYA ARE CONJUGAL.

3. WHETHER THE COURT OF APPEALS ERRED IN NOT APPLYING INSTEAD THE

PRESUMPTION UNDER ARTICLE 148 OF THE FAMILY CODE IN FAVOR OF CO-
OWNERSHIP BETWEEN NICOLAS RETUYA AND PACITA VILLANUEVA.

4. WHETHER THE COURT OF APPEALS ERRED IN NOT DECLARING THAT THE

ACTION FOR RECONVEYANCE OVER LOT NO. 152 IS ALREADY BARRED BY
PRESCRIPTION OR LACHES.3

The Ruling of the Court

The petition lacks merit.

First Issue: On the Alleged Failure To Claim that the Properties are Conjugal

Petitioners’ contention that Eusebia’s complaint failed to state that the subject
properties are conjugal is absolutely without basis. A cursory reading of the
complaint readily shows that the complaint maintains that the subject properties are
conjugal.4 The first sentence of the second paragraph of the complaint states:

2. The plaintiff Eusebia Retuya and defendant Nicolas Retuya are husband and
wife and conjugal owners of real properties and all improvements thereon
 situated in Mandaue City and Consolacion, Cebu more particularly described as
follows: (Emphasis added)

The same claim is restated and repleaded throughout the complaint. Petitioners
should know better than to clutter their appeal with useless arguments such as this.

The other issues petitioners raise contest in essence the finding that the subject
properties are conjugal in nature. Apart from this, the only other issue raised is
whether prescription or laches bars Eusebia’s complaint. We shall resolve first the
issue of prescription and laches.

Second Issue: Prescription and Laches

We agree with the Court of Appeals’ observation that while petitioners did raise the
issue of prescription and laches in their Answer, 5 they failed to have the same
included in the pre-trial order for consideration during the trial. Now, petitioners wish
to raise the issue on appeal by relying on Section 1, Rule 9 of the Rules of Court,
which provides:

Section 1. Defenses and objections not pleaded. – Defenses and objections not
pleaded either in a motion to dismiss or in the answer are deemed waived.
However, when it appears from the pleadings or the evidence on record that
the court has no jurisdiction over the subject matter, that there is another
action pending between the same parties for the same cause, or that the action
is barred by a prior judgment or by statute of limitations, the court shall
dismiss the claim.

Petitioners are mistaken.

The determination of issues during the pre-trial conference bars the consideration of
other questions, whether during trial or on appeal. 6 Section 1 of Rule 9 covers
situations where a defense or objection is not raised in a motion to dismiss or an
answer. What we have before us is the exact opposite. Here, petitioners in fact
raised in their answer the defense of prescription and laches. However, despite
raising the defense of prescription and laches in their answer, petitioners failed to
include this defense among the issues for consideration during the trial. The non-
inclusion of this defense in the pre-trial order barred its consideration during the
trial. Clearly, Section 1 of Rule 9 does not apply to the present case.

Pre-trial is primarily intended to insure that the parties properly raise all issues
necessary to dispose of a case. 7 The parties must disclose during pre-trial all issues
they intend to raise during the trial, except those involving privileged or impeaching
matters.8 Although a pre-trial order is not meant to catalogue each issue that the
parties may take up during the trial, issues not included in the pre-trial order may be
considered only if they are impliedly included in the issues raised or inferable from
the issues raised by necessary implication. 9 The basis of the rule is simple.
Petitioners are bound by the delimitation of the issues during the pre-trial because
they themselves agreed to the same.10

Petitioners argue that in past instances we have reviewed matters raised for the first
time during appeal. True, but we have done so only by way of exception involving
clearly meritorious situations.11 This case does not fall under any of those exceptions.
The fact that the case proceeded to trial, with the petitioners actively participating
without raising the necessary objection, all the more requires that they be bound by
the stipulations they made at the pre-trial. 12 Petitioners were well aware that they
raised the defense of prescription and laches since they included it in their answer.
However, for reasons of their own, they did not include this defense in the pre-trial.
Able counsels represented both parties. We see no claim that either counsel erred or
was negligent. This could only mean that petitioners’ counsel chose to waive, or did
not consider important, the defense of prescription and laches. Petitioners are bound
by their counsel’s choice. Other than arguing that it is allowable to raise the issue for
the first time on appeal, we have no explanation from petitioners why they suddenly
decided to change their mind. Parties are not allowed to flip-flop. Courts have neither
the time nor the resources to accommodate parties who choose to go to trial
haphazardly. Moreover, it would be grossly unfair to allow petitioners the luxury of
changing their mind to the detriment of private respondents at this late stage. To put
it simply, since petitioners did not raise the defense of prescription and laches during
the trial, they cannot now raise this defense for the first time on appeal. 13

Third Issue: Whether the Subject Properties Are Conjugal

We proceed to the crux of this petition.

We reiterate the basic rule that a petition for review should only cover questions of
law.14 Questions of fact are not reviewable. The exceptions apply only in the
presence of extremely meritorious circumstances. 15 None exists in this case. We note
with disfavor that most of the issues raised in this petition are factual. We caution
the petitioners that this practice of deluging the Court with factual issues in defiance
of well-settled rule, in the hope of having them reviewed, is unacceptable.

The only issue proper for resolution is the question of whether the subject properties
are conjugal. Petitioners claim that the subject properties 16 are exclusive properties
of Nicolas except for Lot No. 152, which they claim is Pacita’s exclusive property.
This issue is easily resolved. The Family Code provisions on conjugal partnerships
govern the property relations between Nicolas and Eusebia even if they were married
before the effectivity of Family Code.17Article 10518 of the Family Code explicitly
mandates that the Family Code shall apply to conjugal partnerships established
before the Family Code without prejudice to vested rights already acquired under the
Civil Code or other laws. Thus, under the Family Code, if the properties are acquired
during the marriage, the presumption is that they are conjugal. 19 The burden of proof
is on the party claiming that they are not conjugal.20 This is counter-balanced by the
requirement that the properties must first be proven to have been acquired during
the marriage before they are presumed conjugal. 21 Petitioners argue that Eusebia
failed to prove this pre-requisite. We disagree.

The question of whether the subject properties were acquired during the marriage of
Nicolas and Eusebia is a factual issue. Both the trial and appellate courts agreed that
the subject properties were in fact acquired during the marriage of Nicolas and
Eusebia.22 The tax declarations23 covering the subject properties, along with the
unrebutted testimony of Eusebia’s witnesses, establish this fact. We give due
deference to factual findings of trial courts, 24 especially when affirmed by the
appellate court. A reversal of this finding can only occur if petitioners show sufficient
reason for us to doubt its correctness. Petitioners in the present case have not.

Moreover, on whether Lot No. 152 is conjugal or not, the answer came from
petitioners themselves. Nicolas and Eusebia were married on 7 October 1926. Nicolas
and Pacita started cohabiting in 1936. Eusebia died on 23 November 1996. Pacita
and Nicolas were married on 16 December 1996. Petitioners themselves admit that
Lot No. 152 was purchased on 4 October 1957. 25 The date of acquisition of Lot No.
152 is clearly during the marriage of Nicolas and Eusebia.

Since the subject properties, including Lot No. 152, were acquired during the
marriage of Nicolas and Eusebia, the presumption under Article 116 of the Family
Code is that all these are conjugal properties of Nicolas and Eusebia. The burden is
on petitioners to prove that the subject properties are not conjugal. The presumption
in Article 116, which subsists "unless the contrary is proved," stands as an obstacle
to any claim the petitioners may have. The burden of proving that a property is
exclusive property of a spouse rests on the party asserting it and the evidence
required must be clear and convincing.26 Petitioners failed to meet this standard.

Petitioners point out that the deed of sale, the transfer certificate of title and the tax
declaration of Lot No. 152 are all in the name of Pacita. Petitioners maintain that this
can only mean that Pacita is the real owner of Lot No. 152. We disagree. The totality
of the evidence reveals that this was merely just one of the several schemes Nicolas
employed to deprive Eusebia of their conjugal property. Ironically, petitioners
themselves submitted in evidence a decision rendered by the Regional Trial Court of
Cebu, Branch IV, in Civil Case No. R-9602 27 involving the acquisition of Lot No. 152.

The decision in Civil Case No. R-9602 stated that Tranquiliana Marababol Remulta
testified that the one who offered to buy the lot from her was none other than
Nicolas Retuya.28 Tranquiliana narrated that at first she refused to sign the deed of
sale because the buyer placed in the deed was Pacita and not Nicolas, her
understanding being that the buyer was Nicolas. We find that the trial court in the
present case correctly took into consideration the decision in Civil Case No. R-
9602.29 Considering that the decision in Civil Case No. R-9602 has become final and
executory, its findings of fact involving the sale of Lot No. 152 to Nicolas and Pacita
are conclusive and binding on petitioners who introduced in evidence the decision.

Petitioners also point out that all the other tax declarations presented before the trial
court are in the name of Nicolas alone. Petitioners argue that this serves as proof of
Nicolas’ exclusive ownership of these properties. Petitioners are mistaken. The tax
declarations are not sufficient proof to overcome the presumption under Article 116
of the Family Code. All property acquired by the spouses during the marriage,
regardless in whose name the property is registered, is presumed conjugal unless
proved otherwise.30 The presumption is not rebutted by the mere fact that the
certificate of title of the property or the tax declaration is in the name of one of the
spouses only.31Article 116 of the Family Code expressly provides that the
presumption remains even if the property is "registered in the name of one or both
of the spouses."

In some of the documents that petitioners presented, Nicolas misrepresented his civil
status by claiming that he was single. Petitioners point to this as proof of Nicolas’
desire to exclude Eusebia from the properties covered by the
32
documents.  Petitioners further claim that this supports their stand that the subject
properties are not conjugal. This argument is baseless. Whether a property is
conjugal or not is determined by law and not by the will of one of the spouses. No
unilateral declaration by one spouse can change the character of conjugal property.
The clear intent of Nicolas in placing his status as single is to exclude Eusebia from
her lawful share in the conjugal property. The law does not allow this.

Petitioners point out that Pacita had the means to buy Lot No. 152. Even if Pacita
had the financial capacity, this does not prove that Pacita bought Lot No. 152 with
her own money. To rebut the presumption that Lot No. 152 is conjugal, petitioners
must prove that Pacita used her own money to pay for Lot No. 152. Petitioners failed
to prove this.

Petitioners further argue that since Nicolas and Pacita were already cohabiting when
Lot No. 152 was acquired, the lot cannot be deemed conjugal property of Nicolas and
Eusebia. Petitioners keep belaboring this point in their petition and memorandum.

Petitioners’ argument is flawed.

The cohabitation of a spouse with another person, even for a long period, does not
sever the tie of a subsisting previous marriage.33 Otherwise, the law would be giving
a stamp of approval to an act that is both illegal and immoral. What petitioners fail to
grasp is that Nicolas and Pacita’s cohabitation cannot work to the detriment of
Eusebia, the legal spouse. The marriage of Nicolas and Eusebia continued to exist
regardless of the fact that Nicolas was already living with Pacita. Hence, all property
acquired from 7 October 1926, the date of Nicolas and Eusebia’s marriage, until 23
November 1996, the date of Eusebia’s death, are still presumed conjugal. Petitioners
have neither claimed nor proved that any of the subject properties was acquired
outside or beyond this period.

Finally, petitioners’ reliance on Article 148 of the Family Code 34 is misplaced. A
reading of Article 148 readily shows that there must be proof of "actual joint
contribution" by both the live-in partners before the property becomes co-owned by
them in proportion to their contribution. The presumption of equality of contribution
arises only in the absence of proof of

their proportionate contributions, subject to the condition that actual joint

contribution is proven first. Simply put, proof of actual contribution by both
parties is required, otherwise there is no co-ownership and no presumption of equal
sharing. Petitioners failed to show proof of actual contribution by Pacita in the
acquisition of Lot No. 152. In short, petitioners failed to prove that Pacita bought Lot
No. 152 with her own money, or that she actually contributed her own money to
acquire it.

WHEREFORE, we DENY the petition. The Decision of the Court of Appeals dated 31

January 2000 in CA-G.R. CV No. 46716 is AFFIRMED. SO ORDERED.
G.R. No. 152496               July 30, 2009

SPOUSES GERMAN ANUNCIACION and ANA FERMA ANUNCIACION and

GAVINO G. CONEJOS, Petitioners, 
vs.
PERPETUA M. BOCANEGRA and GEORGE M. BOCANEGRA, Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

This is a petition for review on certiorari, assailing the Decision, 1 dated November 19,
2001, and the Resolution,2dated March 31, 2002 of the Court of Appeals (CA) in CA-
G.R. SP No. 65516. The CA decision affirmed the Orders dated February 19,
20013 and May 16, 20014 of the Regional Trial Court (RTC) of Manila, Branch 40 in
Civil Case No. 00-98813 which dismissed the complaint 5 for Quieting of Title and
Cancellation of TCT No. 122452 of petitioner spouses German Anunciacion and Ana
Ferma Anunciacion and their co-petitioner, Gavino G. Conejos.

The facts of the case are as follows:

On September 29, 2000, petitioners filed before the RTC, Manila, a complaint for
Quieting of Title and Cancellation of TCT No. 122452, docketed as Civil Case No. 00-
98813. The complaint averred that defendants (respondents) may be served with
summons and legal processes through Atty. Rogelio G. Pizarro, Jr., with office
address at 2830 Juan Luna St., Tondo, Manila. 6 The summons, together with the
copies of the complaint, were then served on Atty. Pizarro. The record shows that
before the filing of the said complaint, Atty. Pizarro wrote a demand letter 7 on behalf
of respondents and addressed to petitioner German Anunciacion, among others,
demanding that they vacate the land owned by his clients (respondents), who
needed the same for their own use. The said demand letter reads:

2830 Juan Luna St.Tondo, Manila

August 19, 2000

Mr. German Anunciacion, Mesdames

Liwayway Nava, Evangeline Pineda,
and Ana Ferma
2982 Rizal Ave. Ext.
Sta. Cruz, Manila

Dear Sir and Mesdames:

I write in behalf of my clients, MS. PERPETUA M. BOCANEGRA and MR. GEORGE M.

BOCANEGRA, the registered owners of the parcel of land known as Lot 1-B (LRC)
PSD-230517 located at 2982 Rizal Ave. Ext., Sta. Cruz, Manila, and duly covered by
Transfer Certificate of Title No. 122452, which you are presently occupying.

I would like to inform you that your occupation and possession of the said land is
based on mere tolerance of the owners, and without any payment on your part of
any rental. Now, the owners need the subject property for their own use.

In view thereof, I hereby demand that you vacate the said land within a period of
fifteen (15) days from receipt of this letter. Otherwise, much to our regret, I shall be
constrained to institute the proper criminal and/or civil action against you.

Trusting that you will give this matter your most serious and preferential attention.

Very truly yours,

ATTY. ROGELIO G. PIZARRO, JR.

On October 27, 2000, respondents, through their counsel, Atty. Norby C. Caparas,
Jr., filed a Motion to Dismiss 8 on the ground that the complaint stated no cause of
action. Petitioners filed their Comment on the Motion to Dismiss 9on November 6,
2000.

A Supplemental Motion to Dismiss and Reply to the Comment on the Motion to

Dismiss10 dated November 13, 2000 was filed by respondents, alleging an additional
ground that petitioners failed to pay the required filing fee. The petitioners filed, on
November 27, 2000, their Opposition to the Supplemental Motion to Dismiss and
Comment to the Reply to the Comment on the Motion to Dismiss. 11

Thereafter, respondents filed a Second Supplemental Motion to Dismiss and

Manifestation dated November 27, 2000,12 citing the following grounds:

1.) That the court has no jurisdiction over the person of the defending party.

2.) That the court has no jurisdiction over the subject matter of the claim.

3.) That the pleading asserting the claim states no cause of action.

Petitioners then filed their Additional Comment on the Motion to Dismiss,

Supplemental Motion to Dismiss and Comment on the Second Supplemental Motion
to Dismiss.13

In its order of February 19, 2001, the trial court sustained the respondents and
dismissed the complaint for lack of jurisdiction over the persons of respondents as
defendants.lavvph!l The trial court ruled as follows:

However, the Court finds for the defendants on the Second Supplemental Motion.

In point is Section 3, Rule 3 of the same Rules, which reads –

"Where the action is allowed to be prosecuted or defended by a representative or

someone acting in a fiduciary capacity, the beneficiary shall be included in the title of
the case and shall be deemed to be the real party in interest. A representative may
be a trustee of an express trust, a guardian, an executor or administrator, or a party
authorized by law or these Rules. x x x x"

In the case at bar Atty. Pizarro, Jr., has not been shown to be a trustee of an
express trust, a guardian, or any of the above for the action to be allowed to be
defended by a representative.
The fact that Atty. Pizarro, Jr., was the lawyer of the defendants in the demand
letters do not per se make him their representative for purposes of the present
action. To this effect, service on lawyer of defendant is an invalid service of
summons. (Cordova v. Provincial Sheriff of Iloilo, 89 SCRA 59)

Going to the other raised issue, Section 20, Rule 14 of the 1997 Rules of Civil
Procedure provides –

"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."

The presentation of all objections then available as was done by the movants
subserves the omnibus motion rule and the concomitant policy against multiplicity of
suits.1awphi1

WHEREFORE, premises considered, on the ground that the Court has no jurisdiction
over the persons of the defendants, the case is hereby DISMISSED.

The motion for reconsideration filed by the petitioners was denied for lack of merit.

Aggrieved, petitioners filed before the CA a Petition for Certiorari, seeking the
nullification of the RTC Orders dated February 19, 2001 and May 16, 2001, on the
ground that the said orders were issued with grave abuse of discretion.

On November 19, 2001, the CA dismissed the petition upon finding that there was no
waiver of the ground of lack of jurisdiction on the part of respondents in the form of
voluntary appearance. Applying Section 20, Rule 14 of the 1997 Rules of Civil
Procedure, the CA held that although the grounds alleged in the two (2) earlier
Motion to Dismiss and Supplemental Motion to Dismiss were lack of cause of action
and failure to pay the required filing fee, the filing of the said motions did not
constitute a waiver of the ground of lack of jurisdiction on their persons as
defendants. The CA then concluded that there was no voluntary appearance on the
part of respondents/defendants despite the filing of the aforesaid motions. The CA
also rejected petitioners’ contention that the service made to Atty. Rogelio Pizarro,
Jr. was deemed service upon respondents/defendants, thus:

First of all, Atty. Rogelio Pizarro cannot be considered as counsel of record wherein
We could apply the jurisprudential rule that notice to counsel is notice to client. Atty.
Pizarro cannot be deemed counsel on record since Defendants were not the one’s
(sic) who instituted the action, like plaintiffs who did the same thru counsel and
therefore, obviously the one who signed the pleadings is the counsel on record.
Sadly, the Motion to Dismiss filed by Private Respondents were signed not by Atty.
Pizarro but by someone else. How then could Petitioners claim that Atty. Pizarro
represents Private Respondents?

Secondly, the fact that Atty. Pizarro was the one who wrote and signed the August
19, 2000 letter, on behalf of Private Respondents, demanding that Petitioners vacate
the premises of the former’s land does not fall under the substituted service rule. To
be sure, Section 7 of Rule 14 of the 1997 Rules, provide thus:

Sec. 7. Substituted Services – If, for justifiable causes the defendant cannot be
served within a reasonable time as provided in the preceding section; service maybe
reflected (a) by leaving copies of the summons at the defendants’ residence with
some person of suitable age and discretion then residing therein or (b) by leaving
the copies at defendant (sic) office or regular place of business with some competent
person in charge thereof.
In the case at bench, service upon Atty. Pizarro did not fall under the aforequoted
rule and therefore cannot qualify as substituted service. Since the service made by
Petitioners was defective, the Public Respondent court never did acquire jurisdiction
over the persons of defendants and therefore correctly ordered the dismissal of the
complaint.14

Petitioners moved for a reconsideration of the decision but it, too, was denied by the
CA in its Resolution of March 31, 2002.

Hence, the instant petition which raises the following assignment of errors:

1. THAT THE HONORABLE COURT OF APPEALS ERRED ACTED WITH GRAVE ABUSE
OF DISCRETION AMOUNTING TO LACK OF JURISDICTION OR IN EXCESS OF
JURISDICTION WHEN IT DID NOT CONSIDER THAT THE FILING OF THE MOTION TO
DISMISS AND THE SUPPLEMENTAL MOTION TO DISMISS BY RESPONDENTS
AMOUNTS TO VOLUNTARY APPEARANCE BEFORE THE REGIONAL TRIAL COURT AND
THEREFORE CONFERS JURISDICTION OF THE REGIONAL TRIAL COURT ON THE
PERSON OF RESPONDENTS.

2. THAT THE HONORABLE COURT OF APPEALS ERRED AND ACTED WITH GRAVE
ABUSE OF DISCRETION WHEN IT DID NOT CONSIDER THAT THE SECOND
SUPPLEMENTAL MOTION ALLEGING THAT THE HONORABLE TRIAL COURT HAD NO
JURISDICTION OF THE PERSONS OF THE DEFENDANTS IS ALREADY LATE FOR THE
FIRST MOTIONS, NAMELY, THE "MOTION TO DISMISS" AND THE "SUPPLEMENTAL
MOTION TO DISMISS AND REPLY TO THE COMMENT TO THE MOTION TO DISMISS",
WHICH HAD BEEN OPPOSSED, ONE AFTER THE OTHER, BY PETITIONERS, HAD
ALREADY CONFERRED JURISDICTION OF THE HONORABLE TRIAL COURT ON THE
PERSONS OF DEFENDANTS.

3. THAT THE HONORABLE COURT OF APPEALS ERRED AND ACTED WITH GRAVE
ABUSE OF DISCRETION AMOUNTING TO LACK OF JURISDICTION WHEN IT
CONSIDERED THAT THESE 3 MOTIONS OF RESPONDENTS ARE BEING TREATED AS
OMNIBUS MOTION AND ARE COVERED BY SECTION 20 RULE 14 OF THE 1997 RULES
ON CIVIL PROCEDURE.

4. THAT THE HONORABLE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF

DISCRETION AMOUNTING TO LACK OF JURISDICTION WHEN IT DID NOT CONSIDER
ATTY. ROGELIO PIZARRO, JR., AS THE AUTHORIZED REPRESENTATIVE OF
RESPONDENT TO RECEIVE THE SUMMONS AND COMPLAINT.

In the Resolution dated July 14, 2003, the Court gave due course to the petition and
required the parties to submit their respective memoranda. In compliance, the
respondents filed their Memorandum on September 8, 2003, 15while the petitioners
filed their Memorandum on September 24, 2003.16

We find merit in the petition.

While it is a settled doctrine that findings of fact of the CA are binding and not to be
disturbed, they are subject to certain exceptions for very compelling reasons, such
as when: (1) the conclusion is a finding grounded entirely on speculation, surmise
and conjecture; (2) the inference made is manifestly mistaken; (3) there is grave
abuse of discretion; (4) the judgment is based on a misapprehension of facts; (5)
the findings of fact of the CA are contrary to those of the trial court; (6) said findings
of fact are conclusions without citation of specific evidence on which they are based;
and (7) the findings of fact of the CA are premised on the supposed absence of
evidence and contradicted by the evidence on record. 17 The Court finds here cogent
reason to take exception from the general rule.
Respondents, through counsel, filed a motion to dismiss dated October 25,
2000,18 with only one ground, i.e., that the pleading asserting the claim "states no
cause of action." Under this ground, respondents raised the issues quoted
hereunder:

I. Defendants19 anchored their complaint on a WRONG Decree of Registration;

II. The Government of the Republic of the Philippines has recognized the
authenticity of TCT No. 122452; and

III. Plaintiffs do NOT have the legal personality to ‘quiet the title’ of the subject
property.

Section 20, Rule 14 of the 1997 Rules of Civil Procedure (the Rules) 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. (Underscoring ours)

The filing of the above-mentioned Motion to Dismiss, without invoking the lack of
jurisdiction over the person of the respondents, is deemed a voluntary appearance
on the part of the respondents under the aforequoted provision of the Rules. The
same conclusion can be drawn from the filing of the Supplemental Motion to Dismiss
and Reply to the Comment on the Motion to Dismiss dated November 13, 2000 which
alleged, as an additional ground for the dismissal of petitioners’ complaint, the failure
of plaintiffs to pay the required filing fee again but failed to raise the alleged lack of
jurisdiction of the court over the person of the respondents.

It was only in respondents’ Second Supplemental Motion to Dismiss dated November

27, 2000 that respondents for the first time raised the court’s lack of jurisdiction
over their person as defendants on the ground that summons were allegedly not
properly served upon them. The filing of the said Second Supplemental Motion to
Dismiss did not divest the court of its jurisdiction over the person of the respondents
who had earlier voluntarily appeared before the trial court by filing their motion to
dismiss and the supplemental motion to dismiss.lavvph!l The dismissal of the
complaint on the ground of lack of jurisdiction over the person of the respondents
after they had voluntarily appeared before the trial court clearly constitutes grave
abuse of discretion amounting to lack of jurisdiction or in excess of jurisdiction on the
part of the RTC.

Quite apart from their voluntary appearance, respondents’ Supplemental Motion to

Dismiss and Second Supplemental Motion to Dismiss were clearly in violation of Rule
15, Section 8 in relation to Rule 9, Section 1 of the Rules.

Rule 15, Section 8 of the Rules provides:

Sec. 8. Omnibus motion. – Subject to the provisions of Section 1 of Rule 9, a motion

attacking a pleading, order, judgment, or proceeding shall include all objections then
available, and all objections not so included shall be deemed waived. (emphasis
ours)

Rule 9, Section 1, in turn, states:

Sec. 1. Defenses and objections not pleaded. – Defenses and objections not pleaded
either in a motion to dismiss or in the answer are deemed waived. However, when it
appears from the pleadings or the evidence on record that the court has no
jurisdiction over the subject matter, that there is another action pending between
the same parties for the same cause, or that the action is barred by prior judgment
or by statute of limitations, the court shall dismiss the claim. (emphasis ours)

Applying the foregoing rules, respondents’ failure to raise the alleged lack of
jurisdiction over their persons in their very first motion to dismiss was fatal to their
cause. They are already deemed to have waived that particular ground for dismissal
of the complaint. The trial court plainly abused its discretion when it dismissed the
complaint on the ground of lack of jurisdiction over the person of the defendants.
Under the Rules, the only grounds the court could take cognizance of, even if not
pleaded in the motion to dismiss or answer, are: (a) lack of jurisdiction over the
subject matter; (b) existence of another action pending between the same parties
for the same cause; and (c) bar by prior judgment or by statute of limitations.

We likewise cannot approve the trial court’s act of entertaining supplemental motions
to dismiss which raise grounds that are already deemed waived. To do so would
encourage lawyers and litigants to file piecemeal objections to a complaint in order
to delay or frustrate the prosecution of the plaintiff’s cause of action.

Although the CA correctly observed that Atty. Pizarro, as the lawyer of the
respondents in the demand letters, does not per se make him their representative
for purposes of the present action, a scrutiny of the record shows that the address of
Atty. Pizarro and Atty. Norby Caparas, Jr., (the counsel who eventually entered his
appearance for respondents) is the same. This circumstance leads us to believe that
respondents’ belated reliance on the purported improper service of summons is a
mere afterthought, if not a bad faith ploy to avoid answering the complaint.1avvphi1

At this point, we find it appropriate to cite Philippine American Life & General
Insurance Company v. Breva,20 where this Court held that:

The trial court did not commit grave abuse of discretion when it denied the motion to
dismiss filed by the petitioner due to lack of jurisdiction over its person. In denying
the motion to dismiss, the CA correctly relied on the ruling in Lingner & Fisher GMBH
vs. Intermediate Appellate Court, thus:

A case should not be dismissed simply because an original summons was wrongfully
served. It should be difficult to conceive, for example, that when a defendant
personally appears before a Court complaining that he had not been validly
summoned, that the case filed against him should be dismissed. An alias summons
can be actually served on said defendant

In the recent case of Teh vs. Court of Appeals, the petitioner therein also filed a
motion to dismiss before filing his answer as defendant in the trial court on the
ground of failure to serve the summons on him. In that case, the Court agreed with
the appellate court's ruling that there was no abuse of discretion on the part of the
trial court when the latter denied the petitioner's motion to dismiss the complaint
and ordered the issuance of an alias summons.

To be sure, a trial court should be cautious before dismissing complaints on the sole
ground of improper service of summons considering that it is well within its
discretion to order the issuance and service of alias summons on the correct person
in the interest of substantial justice.

Accordingly, the Court finds that the CA erred in dismissing the petition and affirming
the challenged orders of the RTC which dismissed the complaint on the ground of
lack of jurisdiction over the person of the respondents who were the defendants.

WHEREFORE, the petition is hereby GRANTED. The CA’s Decision dated November
19, 2001 and the Resolution dated March 31, 2002 in CA-G.R. SP No. 65516
affirming the Orders dated February 19, 2001 and May 16, 2001 of the RTC in Civil
Case No. 00-98813 are reversed and set aside. Consequently, Civil Case No. 00-
98813 is hereby ordered REINSTATED. Let the records of this case be remanded to
the court of origin for further proceedings. SO ORDERED.

G.R. No. 57127 August 5, 1992

RHODORA DEL CASTILLO, petitioner, 

vs.
HON. CANDIDO AGUINALDO, and SPOUSES ALBERTO OUANO and
CHRISTINA RETUYA-OUANO, respondents.

Escasinas, Partner & Associates for petitioner.

Pablo B. Badong & Associates for private respondents.

NOCON, J.:

This is a special civil action of certiorari, prohibition, mandamus and injunction with

an urgent prayer for the issuance of a restraining order filed by the petitioner which
seeks to annul the Order of respondent Court, 1 the dispositive portion of which
reads:

WHEREFORE, finding the application for the issuance ex-parte by this

Honorable Court of the writ of preliminary mandatory injunction to be
sufficient in form and substance and to be founded and meritorious, the
same is hereby GRANTED. Accordingly, upon the filing by plaintiffs of a
bond in the amount of Five Thousand (P5,000.00) Pesos to protect the
defendants from whatever damages they may sustain under the
circumstances heretofore described, the said bond to be approved by this
Honorable Court, let the corresponding WRIT OF PRELIMINARY
MANDATORY INJUNCTION issue forthwith ex-parte, commanding the
defendants, their collective helpers, laborers, privies, and others who
may come in aid of them to immediately vacate the commercial building
subject-matter of the above-entitled case and to turn over the physical
possession and control of said premises to the plaintiffs and for them not
to return thereto until further orders from this Honorable Court, and
ordering the sheriff concerned to see to the effective enforcement of the
said writ.

SO ORDERED. 2

The facts of the case are as follows:

Respondents are owners of a parcel of residential/commercial land consisting of One
Hundred Ninety-Two (192) square meters, described as three (3) story, three (3)
door building, strategically located along the national highway of Subangdaku,
Mandaue City, which would easily earn a monthly rental of a few thousand pesos.

Tan Ching Hai and spouses Domingo and Ester Tan happen to be close friends of
herein respondents, and were allowed to use the entire building on their pretense
that they do not have a place to stay and upon agreement that the same shall be
used for residential purposes only and would peacefully and willingly surrender the
premises to the respondents in case of need by the latter. Respondents did not
require any amount of rental for the use of the aforesaid building. However, the Tan
spouses, out of their conscience paid a meager amount of Two Hundred Forty
(P240.00) Pesos not as rental but as a token of gratitude.

Tan Hai Ching and spouses Tan have been using and in fact been doing business out
of the building since January, 1970 until sometime in 1977 when respondents asked
the former to vacate the aforesaid building. They now refuse to vacate said building.
Moreover, the spouses violated their undertakings to herein respondents consisting
of the fact that strangers, like herein petitioner Rhodora del Castillo, were made to
stay in the premises and portions of the building were converted to a factory, in
gross violation of their previous commitment. Conferences were had to resolve in a
peaceful manner the surrender of the premises. Petitioner del Castillo then agreed to
voluntarily vacate the premises in question peacefully and without further demand
on January 31, 1981. This, petitioner failed to do in spite of a grace period given to
her which expired on February 28, 1981. There being no intention by the petitioner
to vacate the premises, respondents were forced to file a civil case 3 for damages
amounting to Sixty Thousand (P60,000.00) Pesos and for the recovery of possession
of realty and or specific performance, with application for preliminary mandatory
injunction.

On March 19, 1981, the trial Judge issued an Order 4 granting respondent's

application for preliminary mandatory injunction, and herein petitioner was ordered
immediately vacate the premises in question.

On March 26, 1981 and within the reglementary period, petitioner instead of filing an
answer, filed a "Motion to Dismiss" on the ground that the Court had no jurisdiction
over the subject matter or nature of the action or suit, and that the complaint is not
verified as required by law. The "Motion to Dismiss" however, did not contain a
notice of the time and place of hearing.

Accordingly, the trial court issued on April 10, 1981 two (2) Orders 5 viz:

1. One, declaring herein Petitioners in default; and

2. Another, denying herein petitioner's "Motion to Dismiss"

On April 18, 1981, petitioners filed their Motion to Set Aside Order of Default and
Motion to Dismiss. 6

Two days later, or on April 20, 1981, the trial court rendered its decision against
herein petitioner. Hence, this filing of the instant petition raising as issues the
following:

1. Whether the trial court has jurisdiction over the subject matter or
nature of the action or suit which is a simple case of ejectment; and

2. Whether the trial court has committed a grave abuse of discretion

when it caused to issue a writ of preliminary mandatory injunction and
placed the plaintiffs in possession of the property.
Actually, the question before the Court is whether the case at bar is an ejectment
case and therefore, within the jurisdiction of the city or municipal courts, or a case
for recovery of possession, falling within the jurisdiction of the then Court of First
Instance.

Settled is the rule that jurisdiction of the court and the nature of the action are
determined by the averments in the complaint. 7

The complaint alleges that demand to vacate the premises was made in 1977, which
is not disputed by petitioner. Since the complaint filed by the respondents was in
1981, which is definitely more than one year from the termination of possession by
the herein petitioner, the proper action to be filed is an  accion publiciana or an
action for recovery of possession.

Likewise, petitioner's motion to dismiss did not contain a notice of the time and place
of hearing, and is therefore a useless piece of paper with no legal effect. Rule 15 of
the Rules of Court provides:

Sec. 4: Notice of a motion shall be served by the applicant to all parties

concerned, at least three (3) days before the hearing thereof, together
with a copy of the motion, and of any affidavits and other papers
accompanying it. The court, however, for good cause may hear a motion
on shorter notice, especially on matters which the court may dispose of
on its own motion.

Sec. 5: The notice shall be directed to the parties concerned, and shall
state the time and place for the hearing of the motion.

Sec. 6: No motion shall be acted upon by the court, without proof of

service of the notice thereof, except when the court is satisfied that the
rights of the adverse party or parties are not affected.

Any motion that does not comply with the foregoing rules should not be accepted for
filing and if filed, is not entitled to judicial cognizance and does not affect any
reglementary period involved for the filing of the requisite pleading. Thus, where the
motion is directed to the Clerk of Court, not to the parties and merely states that the
same is submitted "for the resolution of the court upon receipt thereof" said motion
is fatally defective. 8

In the Instant case, the notice of hearing in the petitioner's "Motion to Dismiss" was
addressed to the Clerk of Court in this wise:

THE CLERK OF COURT

CFI, BRANCH IX

GREETINGS:

Please submit the foregoing motion for the kind consideration of the
Honorable Court immediately upon your receipt hereof without need of
presence of counsel and further arguments. 9

Not having complied with the rules, the "Motion to Dismiss" filed by herein petitioner
did not stay the running of the reglementary period to file an answer. Consequently,
the Order of Default and the Judgment of Default by the trial court is in order and
the averments in the Motion to Dismiss can be disregarded.

As to the issue of jurisdiction, the case of Spouses Medina and Bernal vs.

Valdellon  10 is illuminating in pointing out the distinction between accion
publiciana or recovery of possession and unlawful detainer.
 The nature of the action embodied in the complaint is one for recovery of
possession brought before the Court of First Instance by the alleged
owners of a piece of land against the defendants who were supposed to
have unlawfully continued in possession since 1969 when they were
supposed to return it to plaintiffs, plus damages. That the action is not for
unlawful detainer contemplated in Rule 70 of the Rules of Court, which
falls under the exclusive original jurisdiction of the city courts or
municipal courts, is very apparent because an action of unlawful detainer
is defined as "withholding by a person from another for not more than
one year, of the possession of a land or building to which the latter is
entitled after the expiration or termination of the former's right to hold
possession by virtue of a contract express or implied."

The court a quo committed no error in declaring petitioner in default. The demand by

the herein respondents to vacate the premises was made as early as 1977. The
complaint for recovery of possession was filed by the respondents in 1981 which is
more than one year from the expiration and/or termination of possession. The
instant case then, is an accion publiciana  or for recovery of possession and not an
ejectment case.

WHEREFORE, finding no grave abuse of discretion on the part of the trial judge, in
issuing the Order appealed from, the petition is hereby DISMISSED. SO ORDERED.

[G.R. No. 58027. September 28, 1992.]

THE GOLDEN COUNTRY FARMS, INC., Petitioner, v. SANVAR DEVELOPMENT

CORP., Respondent.

B.C. De los Santos & Associates Law Offices for Petitioner.

Yolando F. Busmente for Respondent.

SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; SUMMONS; SERVICE UPON PRIVATE

CORPORATION; RULE WHEN EFFECTED THROUGH A CLERK-TYPIST. — In G & G
Trading Corp. v. Court of Appeals, (158 SCRA 466, 469), we had occasion to rule:
"Although it maybe true that the service of summons was made on a person not
authorized to receive the same in behalf of the petitioner, nevertheless since it
appears that the summons and complaint were in fact received by the corporation
through its said clerk, the Court finds that there was substantial compliance with the
rule on service of summons. Indeed the purpose of said rule as above stated to
assure service of summons on the corporation had thereby been attained. The need
for speedy justice must prevail over a technicality." There was, substantial
compliance with the rules on service of summons since it appears that the summons
and complaint were actually received by the petitioner corporation through its clerk,
thereby satisfying the purpose of notice (Rebollido v. Court of Appeals, 170 SCRA
800, 811).

2. ID.; ID.; DEFAULTS; MAY BE ORDERED FOR FAILURE TO FILE AN ANSWER

WITHIN THE REGLEMENTARY PERIOD. — We do not agree with petitioner’s claim
that it cannot be declared in default for not filing an answer while resolution of its
joint motion for reconsideration of the order denying its motion to dismiss was held
in abeyance by the lower court. Petitioner received the denial order of its motion to
dismiss on May 15, 1980; hence, by mathematical computation, the 15-day period to
file an answer provided in Section 1, Rule 77 of the Revised Rules of Court expired
on May 30, 1980. However, on May 30, 1980, which was the last day to file its
answer, petitioner filed a joint motion for reconsideration, instead of filing an answer.
In this regard, we share the opinion of the lower court that petitioner’s joint motion
for reconsideration which merely reiterated the grounds in its motion to dismiss was
pro forma and did not toll the running of the period to file an answer. In the case of
PCIB v. Escolin (67 SCRA 202) this Court rule that a motion for reconsideration
which does not make out a new matter sufficiently persuasive to induce modification
of judgment will be denied and that a repetition of arguments or grounds already
discussed in prior incidents may properly be categorized as merely for purposes of
delay.

3. ID.; ID.; ID.; RELIEF FROM ORDER OF DEFAULT; RULE. — As we have ruled in the
case of Philippine Bank of Commerce v. Jose M. Aruego (102 SCRA 530, 537): "It
has been held that to entitle a party to relief from a judgment taken against him
through his mistake, inadvertence, surprise or excusable neglect, he must show to
the court that he has a meritorious defense. In other words, in order to set aside the
order of default, the defendant must not only show that his failure to answer was
due to fraud, accident, mistake or excusable negligence but also that he has a
meritorious defense." In the case of Development Insurance Corp. v. Intermediate
Appellate Court (143 SCRA 62), this Court also ruled that a default judgment will not
be lifted if defendant has no valid defense.

DECISION

MELO, J.:

Before us is an appeal by certiorari from the decision of the then Court of First

Instance of Rizal, Branch XX, Pasig, Metro Manila, at that time Presided over by the
Honorable Celso L. Magsino, and the order dated February 16, 1981 denying
petitioner’s and its co-defendant’s joint motion for reconsideration wherein petitioner
Golden Country Farm, Inc. (GCFI, for short) was declared in default. 

The factual background of this case may be stated as follows:

On February 28, 1980, respondent Sanvar Development Corporation (Sanvar, for

short) sued petitioner GCFI and its President, Armando T. Romualdez, for a sum of
money representing the unpaid balance of construction materials purchased by
petitioner from Respondent.

Per return of the sheriff, summons and copy of the complaint were served on March
5, 1980 upon petitioner at its principal office through a certain Miss I.E. Lagrimas,
clerk-typist of petitioner. On March 20, 1980, petitioner filed a motion to dismiss on
the ground that summons was not properly served in accordance with Section 13,
Rule 14 of the Revised Rules of Court. Petitioner’s motion to dismiss was denied by
the lower court on May 2, 1980 and copy of the denial order was received by
petitioner on May 15, 1980. On May 30, 1980, Petitioner, together with its president,
filed a joint motion for reconsideration, the resolution of which was held in abeyance
by the lower court. Subsequently, respondent filed an omnibus motion praying that
the joint motion for reconsideration be denied and that petitioner be declared in
default. On February 16, 1981, the lower court issued an omnibus order denying the
joint motion for reconsideration and declaring petitioner in default for failure to file
an answer within the reglementary period.

Pursuant to the order of default, respondent Sanvar presented its evidence ex-parte
and based on said evidence, the lower court adjudged petitioner GCFI liable to
respondent Sanvar in the principal sum of P105,362.50. The complaint against
petitioner’s president was, however, dismissed because he was sued in his capacity
as president of petitioner. A copy of the decision was received by petitioner on
August 14, 1981.

Hence, the instant appeal wherein petitioner raises the following issues:

1) Whether or not summons directed to petitioner corporation which was served

through Miss Lagrimas, clerk-typist of the petitioner, is sufficient service for the trial
court to acquire jurisdiction over said corporation.

2) Whether or not petitioner can be declared in default for not filing an answer to the
complaint while its joint motion for reconsideration of the order denying its motion to
dismiss remained pending for the court’s consideration.

Service of process on a corporation is controlled by Sec. 13, Rule 14 of the Revised

Rules of Court, thus —

"SECTION 13. Service upon private domestic corporation or partnership. — If the

defendant is a corporation organized under the laws of the Philippines or a
partnership duly registered, service may be made on the president, manager,
secretary, cashier, agent, or any of its directors."

Petitioner claims that the foregoing enumeration is exclusive and service of summons
is without force and effect unless made upon any one of those enumerated. So in the
case at bar, it is argued, the lower court did not acquire jurisdiction over petitioner-
corporation since service of summons was effected through a mere clerk, a person
who is not one of those authorized officers mentioned in the aforequoted Section 13
upon whom valid service of summons can be made.

We cannot accept the strict and literal interpretation of petitioner. Thus, in G & G
Trading Corp. v. Court of Appeals (158 SCRA 466, 469), we had occasion to rule:

"Although it maybe true that the service of summons was made on a person not
authorized to receive the same in behalf of the petitioner, nevertheless since it
appears that the summons and complaint were in fact received by the corporation
through its said clerk, the Court finds that there was substantial compliance with the
rule on service of summons. Indeed the purpose of said rule as above stated to
assure service of summons on the corporation had thereby been attained. The need
for speedy justice must prevail over a technicality."

In the case at bar, the fact that summons was received by petitioner through Miss
Lagrimas, is not disputed; rather, petitioner admits that on March 18, 1980, the
corporation and its legal counsel were informed by Miss Lagrimas of the summons
she received (pp. 8 and 9, Rollo). And indeed, by virtue of the receipt of the
summons, petitioner even filed a motion to dismiss.

We, therefore, agree with the lower court’s findings that:

". . . The actual receipt by the clerk-typist of the correct address of the corporation
must be construed as receipt on behalf of the officer of the corporation holding office
at that address. Mr. Romualdez, the general manager was holding office at that
address, he received the summons, and that summons must be binding on him
personally and on the corporation of which he is the general manager. It is to be
observed that the law firm of Avila, de los Santos and Associates is the same counsel
for both defendants, and it is simply absurd to split the personality of defendant
Romualdez between himself as general manager of defendant corporation and the
defendant corporation of which he is the general manager for purposes of service of
summons." (Annex H, pp. 38-39, Rollo)

The court a quo thereupon concluded:

". . . inasmuch as the spirit and purpose of the rule is ‘to bring home to the
corporation notice of the filing of the action’ . . . and it appearing that said defendant
had actually received the summons and a copy of the complaint albeit thru its clerk-
typist Miss Iluminada E. Lagrimas, and in fact has filed this instant motion, the Court
hereby considers the same as substantial compliance with the rules and therefore
denies the aforesaid motion." (Annex B, p. 22, Rollo).

There was, therefore, substantial compliance with the rules on service of summons
since it appears that the summons and complaint were actually received by the
petitioner corporation through its clerk, thereby satisfying the purpose of notice
(Rebollido v. Court of Appeals, 170 SCRA 800, 811).

We do not agree with petitioner’s claim that it cannot be declared in default for not
filing an answer while resolution of its joint motion for reconsideration of the order
denying its motion to dismiss was held in abeyance by the lower court.

Petitioner received the denial order of its motion to dismiss on May 15, 1980; hence,
by mathematical computation, the 15-day period to file an answer provided in
Section 1, Rule 77 of the Revised Rules of Court expired on May 30, 1980. However,
on May 30, 1980, which was the last day to file its answer, petitioner filed a joint
motion for reconsideration, instead of filing an answer. In this regard, we share the
opinion of the lower court that petitioner’s joint motion for reconsideration which
merely reiterated the grounds in its motion to dismiss was pro forma and did not toll
the running of the period to file an answer.

In the case of PCIB v. Escolin (67 SCRA 2023 this Court ruled that a motion for
reconsideration which does not make out a new matter sufficiently persuasive to
induce modification of judgment will be denied and that a repetition of arguments or
grounds already discussed in prior incidents may properly be categorized as merely
for purposes of delay.

An answer, not a motion for reconsideration of the order denying its motion to
dismiss, should have been filed within the reglementary period. The record does not
disclose that the proper answer was in fact filed. Withal, there can be no serious
challenge to the reception of evidence for the plaintiff thereafter.

Moreover, notwithstanding its receipt of the order of default on March 6, 1981,

petitioner did not even bother to take any steps to lift said order of default, but it
simply folded its arms for five months until the decision was handed down on July
15, 1981. Further weakening the position of the petitioner is the absence of a viable
defense against the documented claims of respondent for unpaid construction
materials purchased by petitioner.
As we have ruled in the case of Philippine Bank of Commerce v. Jose M. Aruego (102
SCRA 530, 537): :

"It has been held that to entitle a party to relief from a judgment taken against him
through his mistake, inadvertence, surprise or excusable neglect, he must show to
the court that he has a meritorious defense. In other words, in order to set aside the
order of default, the defendant must not only show that his failure to answer was
due to fraud, accident, mistake or excusable negligence but also that he has a
meritorious defense."

In the case of Development Insurance Corp. v. Intermediate Appellate Court (143

SCRA 62), this Court also ruled that a default judgment will not be lifted if defendant
has no valid defense.

It is to be noted in this regard that not even once, not in its motion to dismiss and
not now in its appeal has there been the least intimation on petitioner’s part that the
claim of respondent has been paid. All that petitioner can harp at is the alleged
defective service of summons.

WHEREFORE, the decision and order appealed from are hereby affirmed, with costs
against petitioner. SO ORDERED.

G.R. No. L-64591 January 17, 1985

RUFINO CO, Petitioner, vs. HON. EFICIO B. ACOSTA, in his Official Capacity as

Presiding Judge; RTC, Branch CLV, Pasig, Metro Manila, and THE
REFRIGERATION INDUSTRIES, INC., and DELTA MOTORS
CORPORATION, Respondents.

Camilo R. Flores and Cesar S. de Guzman for petitioner.

GUTIERREZ, JR., J.:

This is a petition for certiorari to annul and set aside (1) the respondent court's
decision dated March 9, 1983 ordering petitioner Rufino Co to pay respondents
Refrigeration Industries, Inc. and Delta Motors Corporation the sum of
P2,907,535.00 plus the legal rate of interest thereon from the date of demand,
P200,000.00 as and by way of attorney's fees, and costs; (2) the order of default
dated November 22, 1982; (3) the ex-parte presentation of the respondents'
evidence made on December 3, 1983; and (4) the sheriff's sale pursuant to the
March 9, 1983 decision and to issue an order extending the effects of the order of
dismissal of Civil Case No. 42815 dated November 26, 1980 to herein
petitioner.chanroblesvirtualawlibrary chanrobles virtual law library

On November 20, 1979, Pepsi Cola Bottling Company of the Philippines, Inc.
(hereinafter called PEPSI), through Mr. C.M. Aboitiz issued three (3) purchase orders
addressed to CTC Appliance Center for 12,000 units of refrigerators valued at
P35,322,900.00. Petitioner Rufino Co is the proprietor of the Center.

On November 21, 1979, in a formal deed of assignment, petitioner Co assigned his

rights and interests to the three purchase orders and to the money value of the
deliveries made or to be made thereunder to respondent Refrigeration's Industries,
Inc. (hereinafter called R II).
On March 13, 1980, PEPSI wrote a letter to the private respondents informing them
that on March 9, 1981, it took notice of the assignments of the purchase orders by
the petitioner and stated that it was not recognizing the same.

In the course of time, 10,000 units of refrigerators were delivered and paid. No
problem arose from these 10,000 units.

On March 18, 1981, PEPSI wrote a letter to the petitioner requesting the delivery of
1,000 units of refrigerators not later than March 31, 1981 and stating that PEPSI will
be talking directly to respondent RII through Mr. Dominador Gana on the matter of
storage fees.

From March 23, 1981 to May 21, 1981 PEPSI received 1,000 units of refrigerators
directly from respondent RII. The total invoice price of these units was
P2,907,535.00.

On June 2, 1981, private respondent RII sent a letter of demand to PEPSI.

On June 4, 1981, PEPSI wrote private respondent RII acknowledging receipt of the
demand letter but stating that it does not recognize and does not feel bound by the
petitioner's assignment of the purchase orders.

On June 24, 1981, private respondent RII sent another letter of demand to PEPSI
demanding payment of the P2,907,535.00 within five days, 

On June 26, 1981, PEPSI informed respondent RII that there is no legal basis for the
demand and no reason for PEPSI to pay the 1,000 units, It added further that
respondent RII's recourse is against the petitioner.

On July 8, 1981, failing to collect from PEPSI, private respondent RII sent a letter of
demand to the petitioner demanding payment of P2,907,535.00, but the latter
refused and failed to pay.

On September 10, 1981, private respondent RII and Delta Motors Corporation filed
Civil Case No. 42815 for a sum of money with attachment before Branch X of the
Court of First Instance of Rizal, against Pepsi Cola Bottling Company of the
Philippines, Inc., and petitioner Rufino Co.

On November 26, 1981, the private respondents filed a formal ex-parte motion to
dismiss the complaint against PEPSI. Attached to the motion is an instrument
entitled "Joint Release, Waiver and/or Quitclaim" which covenants that Delta Motors,
RII, and PEPSI mutually agreed to release and forever discharge each other from any
and all liabilities or causes of action arising out of the transaction involving the 1,000
units of refrigerators in order to maintain harmonious business relations among the
parties. On the same day, the respondent court issued an order which reads:

On motion of the plaintiff, the complaint against the defendant Pepsi-Cola Bottling
Company of the Philippines, Inc. is hereby DISMISSED.

On November 19, 1982, the private respondents filed an ex-parte motion to declare
the petitioner Rufino Co in default for having failed to file his answer.

On November 22, 1982, the respondent court issued the following order:

AS PRAYED FOR by plaintiff thru counsel, defendant Rufino Co is hereby declared in

default and plaintiff is allowed to present its evidence ex-parte on December 3, 1982
at 2:30 p.m.
On March 9, 1983, the respondent court rendered its decision, the dispositive portion
of which states:

WHEREFORE, premises considered judgment is hereby rendered in favor of the

plaintiffs and against the defendant Rufino Co, ordering the latter to pay the former
the sum of P2,907,535.00 plus the legal rate of interest therein from date of
demand; the sum of P200,000.00 as and by way of attorney's fees; plus the costs of
suit.

On April 12, 1983, petitioner Co filed a "Petition for Relief from Judgment" alleging:

1. That excusable negligence transpired which prevented petitioner from availing the
usual and ordinary remedies under the law.

2. That petitioner has a valid and meritorious defense and had he not been
prevented from presenting his evidence the decision could have been different.

Pending resolution of the petitioner's petition for relief from judgment, the
respondent court issued a writ of execution dated April 12, 1983, and as a
consequence, virtually all of the petitioner's real properties were levied upon on
execution and advertised for sale at public auction on July 15, 20, and 22, 1983.

On April 27, 1983 the petitioner filed a motion for a restraining order to restrain the
writ of execution.chanroblesvirtualawlibrary

On June 6, 1983, the petitioner filed an urgent motion for resolution of his petition
for the issuance of a restraining order.

On June 9, 1983, the petitioner again filed an urgent supplementary motion for a
restraining order pending the resolution of his petition for relief or a motion to
dismiss the case.

On July 6, 1983, the petitioner filed still another urgent motion for resolution of his
petition for the issuance of a restraining order pointing out that the respondent court
had not resolved his motion even as the date of sale in the sheriff's notice for the
sale on execution of his properties was only a few days away.

On July 13, 1983, the respondent court issued the following order:

For lack of merit, the "Petition for Relief from Judgment" and the "Petition for the
Issuance of a Restraining Order filed by defendant Rufino Co" are hereby DENIED.

On August 31, 1983, we issued a temporary restraining order enjoining the

respondent Regional Trial Court of Pasig, Branch CLV from taking further action in
Civil Case No. 42815, more particularly from taking any further proceedings relative
to the writ of execution in said civil case, until further orders.

The petitioner raises the following legal issues for our resolution:

I 

CONSIDERING THAT UNDER THE ALLEGATIONS OF THE COMPLAINT, BOTH THE

DEFENDANTS PEPSI COLA BOTTLING COMPANY OF THE PHILIPPINES, INC.,
(HEREAFTER TO BE REFERRED TO AS PEPSI FOR SHORT) and RUFINO CO ARE
INDISPENSABLE PARTIES, SUED UNDER A COMMON CAUSE OF ACTION, MAY THE
PLAINTIFF MOVE TO DISMISS THE CASE AGAINST THE PEPSI WITHOUT NOTICE TO
DEFENDANT RUFINO CO? 

II
AFTER THE HONORABLE COURT DISMISSED THE CASE AGAINST PEPSI UPON THE
EX-PARTE MOTION OF THE PLAINTIFFS, DID THE RESPONDENT HONORABLE COURT
RETAIN AUTHORITY TO ACT IN THE CASE AND ISSUE ORDERS, SUCH AS THE
ORDER DECLARING THE DEFENDANT RUFINO CO IN DEFAULT AND HEARING
PLAINTIFF'S EVIDENCE EX-PARTE, CONSIDERING THAT PEPSI IS AN
INDISPENSABLE PARTY? 

III

WHETHER OR NOT THE DECISION RENDERED IN THIS CASE IS VALID

CONSIDERING THAT UPON THE DISMISSAL OF THE CASE AGAINST PEPSI, THE
RESPONDENT HONORABLE COURT LOST AUTHORITY TO ACT FURTHER: WHETHER
OR NOT, IN CONSEQUENCE, THE SHERIFF'S NOTICE TO SELL, AND THE
SUBSEQUENT SALES OF PETITIONER'S PROPERTIES PRODUCED ANY LEGAL
EFFECTS.

IV

WHETHER OR NOT THE BENEFITS OF THE DISMISSAL OF THE CASE AGAINST PEPSI,
WHICH DISMISSAL HAS LONG BECOME FINAL AND UNAPPEALABLE, SHOULD BE
EXTENDED TO THE PETITIONER RUFINO CO.

The petitioner contends that he and the Pepsi-Cola Bottling Company of the
Philippines, Inc. are indispensable parties sued under a common cause of action and
that if the complaint is dismissed insofar as PEPSI is concerned, the court should
have ordered also the dismissal of the case insofar as it affects the petitioner.
According to him, it does not matter that the dismissal is upon the evidence
presented by the plaintiff or upon the latter's mere desistance, for in both instances,
a lack of sufficient legal basis must be the cause.

On the other hand, the private respondents state that the petitioner is confusing the
decision of the court a quo  because instead of questioning the order denying the
petition for relief from judgment, the petitioner assails the decision of the court
dated March 9, 1983 which has already become final and executory with the writ of
execution issued already being implemented by the Deputy Sheriff of
Rizal.chanroblesvirtualawlibrary

The private respondents argue that our ruling in Lim Tanhu v. Hon. Ramolete (66
SCRA 425) is not applicable because there are important facts which differentiate
the Lim Tanhu case from the instant petition. The respondents state that (1) in the
case of Lim Tanhu, the same cause of action was averred by several defendants,
some of whom were declared in default and some of whom filed their answers. In the
case at bar, they contend that respondents RII's cause of action against the
petitioner is entirely different from its cause of action against PEPSI, the former
being the assignor of the purchase orders and the latter being the maker of the
purchase orders; (2) in the case of Lim Tanhu, some of the defendants were
declared in default, hence, the defenses set up by those who answered the complaint
were available to the other defendants who were declared in default. In the case at
bar, both defendants Rufino Co and PEPSI did not answer the complaint. It is argued
that there are no defenses which can be interposed by Rufino Co; (3) in the case
of Lim Tanhu, a motion to lift the order of default was filed by the defaulting
defendant, while in the case at bar, no motion to lift order of default was filed by
defendant Rufino Co; and (4) in the case of Lim Tanhu, all the defendants were
indispensable parties while in the case at bar, plaintiffs may file an action against
any of the defendants for the simple reason that a valid judgment can be rendered
against either of the two defendants.

We agree with the petitioner.

The private respondents' complaint for a sum of money with attachment against
PEPSI and Rufino Co clearly shows that PEPSI and the petitioner are indispensable
parties to the case. In fact the private respondents sued both PEPSI and the herein
petitioner under a common cause of action. Paragraph 21 of the complaint states
that:

21. That both defendants are guilty of conspiracy; connivance, unfair play, and foul
tactics because on the one hand, PEPSI received and accepted the 1,000
refrigerators from plaintiffs without the intention to pay the latter but only with the
intent to set off the debts of Rufino Co. On the other hand, Rufino Co refused to pay
plaintiffs the price of the 1,000 refrigerators despite due demand, and he was happy
that his debts or obligations to PEPSI were set off or were discounted by means not
coming from his pockets. In other words, both defendants acting in concert and with
a view to victimize the hapless and unsuspecting plaintiffs made simultaneous acts
calculated to gain and to profit from the loss and misfortune of plaintiffs.

Likewise, the affidavit attached in support of the complaint is framed in such a way
that there can be no doubt as to the intention of the private respondents in suing
PEPSI and the petitioner herein as indispensable parties. Paragraphs two (2) and
three (3) of said affidavit state:

2. That, however, in spite of Pepsi's rejection and refusal to honor and to recognize
the assignment, Pepsi, as aforesaid received and accepted the delivery to it by
Refrigeration of 1,000 units of "Frigidaire" and "Sharp" electric refrigerators of
various sizes and measurements. But Pepsi refused to pay the invoice price of
P2,907,535.00, because Pepsi's intention was not to pay Refrigeration and Delta but
only to set off the accountabilities and obligations of Rufino Co to Pepsi. Upon formal
demand by Refrigeration and Delta upon Pepsi and Rufino Co to pay for the 1,000
refrigerators; both Pepsi and Rufino Co refused to pay, without just or legal
grounds: 

3. That based on the Deed of Assignment issued by Rufino Co in favor of

Refrigeration and Delta, and from the surrounding acts and circumstances performed
by Pepsi, especially its acts in rejecting the assignment by Rufino Co, its receiving
and accepting the delivery of 1,000 units of refrigerators from Refrigeration, and its
keen desire to just set-off the debts of Rufino Co and not to pay a single cent to
Refrigeration and Delta, it is clear that Pepsi was guilty of a fraud, bad faith, and
deceit in contracting the debt or incurring the obligation, thereby prejudicing and
damaging Refrigeration and Delta in the huge amount aforementioned.

Our ruling in Lim Tanhu v. Hon. Ramolete (66 SCRA 425) is applicable to the instant
petition. The fact that in the case of Lim Tanhu  several defendants were declared in
default and the defenses set up by those who answered the complaint were available
to those who were in default, while in the case at bar both PEPSI and the petitioner
did not answer the complaint, is of no moment because our ruling in the Lim
Tanhu case was based on the fact that all the defendants therein were indispensable
parties and the plaintiff moved for the dropping of two defendants from the
complaint. The situation is similar to this case where both PEPSI and Rufino Co were
sued as indispensable parties under a common cause of action, and on motion of the
private respondent PEPSI was dropped as a party defendant. We held in the Lim
Tanhu case that:

Stated differently, in all instances where a common cause of action is alleged against
several defendants, some of whom answer and the others do not, the latter or those
in default acquire a vested right not only to own the defense interposed in the
answer of their codefendant or co-defendants not in default but also to expect a
result of the litigation totally common with them in kind and in amount whether
favorable or unfavorable. The substantive unity of the plaintiff's cause against all the
defendant is carried through to its objective phase as ineluctably demanded by the
homogeniety and indivisibility of justice itself. Indeed, since the singleness of the
cause of action also inevitably implies that an the defendants are indispensable
parties, the court's power to act is integral and cannot be split such that it cannot
relieve any of them and at the same time render judgment against the rest.
Considering the tenor of the section in question, it is to be assumed that when any
defendant allows himself to be in default knowing that his co-defendant has already
answered, he does so trusting in the assurance implicit in the rule that his default is
in essence a mere formality that deprives him of no more than the right to take part
in the trial and that the court would deem anything done by or for the answering
defendant as done by or for him. The presumption is that otherwise he would not
have seen to it that he would not be in default. Of course, he has to suffer the
consequences of whatever the answering defendant may do or fail to do, regardless
of possible adverse consequences, but if the complaint has to be dismissed in so far
as the answering defendant is concerned it becomes his inalienable right that the
same be dismissed also as to him. It does not matter that the dismissal is upon the
evidence presented by the plaintiff himself or upon the latter's mere desistance, for
in both contingencies, the lack of sufficient legal basis must be the cause. The
integrity of the common cause of action against all the defendants and the
indispensability of all of them in the proceedings do not permit any possibility of
waiver of the plaintiff's right only as to one or some of them, without including all of
them, and so, as a rule, withdrawal must be deemed to be a confession of weakness
as to all. This is not only elementary justice; it also precludes the concomitant
hazard that plaintiff might resort to the kind of strategem practiced by private
respondent herein that resulted in totally depriving petitioners of every opportunity
to defend themselves against her claim, which, after all, as will be seen later in this
opinion, the record does not show to be invulnerable, both in their factual and legal
aspects, taking into consideration the tenor of the pleadings and the probative value
of the competent evidence which were before the trial court when it rendered its
assailed decision. Where all the defendants are indispensable parties, for which
reason the absence of any of them in the case would result in the court's losing its
competency to act validly, any compromise that the plaintiff might wish to make with
any of them must, as a matter of correct procedure, have to await until after the
rendition of the judgment, at which state the plaintiff may then treat the matter of
its execution and the satisfaction of his claim as variably as he might please.
Accordingly, in the case now before Us together with the dismissal of the complaint
against the non-defaulted defendants, the court should have ordered also the
dismissal thereof as to petitioners.

Applying the above-quoted ruling, we find that the respondent court erred in (1)
declaring petitioner Co in default; (2) in hearing the plaintiff's evidence ex-parte  on
December 3, 1982; (3) in rendering the decision dated March 9, 1983; (4) in issuing
the writ of execution and in having the petitioner's properties levied upon in
execution; (5) in having them advertised for sale, and consequently, (6) in ordering
them sold to answer for the private respondents' claim. After the lower court
dropped PEPSI as a party defendant in Civil Case No. 42815, the respondent court
lost authority to act further in the case insofar as the petitioner is concerned.

Furthermore, the private respondents' admission in their complaint that the

assignments made to them by the petitioner are genuine, valid, and in accord with
Article 1475 of the Civil Code taken together with the joint waiver, release, or
quitclaim in favor of PEPSI which received and profited from the 1,000 refrigerators
virtually absolve the petitioner from any and all legal liability insofar as the purchase
orders are concerned.

WHEREFORE, the petition is granted. The proceedings in the respondent court in Civil
Case No. 42815 subsequent to the November 26, 1981 order dismissing the
complaint as against Pepsi-Cola Bottling Company of the Philippines, Inc., are hereby
annulled and set aside, particularly the ex-parte presentation of private respondents'
evidence against the petitioner on December 3, 1982 and the decision dated March
9, 1983. The respondent court is ordered to extend the effects of the dismissal of the
complaint to petitioner Rufino Co. The respondent court is permanently enjoined
from taking any further action in said civil case except as herein indicated. SO
ORDERED.

G.R. No. L-40098 August 29, 1975

ANTONIO LIM TANHU, DY OCHAY, ALFONSO LEONARDO NG SUA and CO

OYO, petitioners, 
vs.
HON. JOSE R. RAMOLETE as Presiding Judge, Branch III, CFI, Cebu and TAN
PUT, respondents.

Zosa, Zosa, Castillo, Alcudia & Koh for petitioners.

Fidel Manalo and Florido & Associates for respondents.

BARREDO, J.:

Petition for (1) certiorari to annul and set aside certain actuations of respondent
Court of First Instance of Cebu Branch III in its Civil Case No. 12328, an action for
accounting of properties and money totalling allegedly about P15 million pesos filed
with a common cause of action against six defendants, in which after declaring four
of the said defendants herein petitioners, in default and while the trial as against the
two defendants not declared in default was in progress, said court granted plaintiff's
motion to dismiss the case in so far as the non-defaulted defendants were concerned
and thereafter proceeded to hear ex-parte the rest of the plaintiffs evidence and
subsequently rendered judgment by default against the defaulted defendants, with
the particularities that notice of the motion to dismiss was not duly served on any of
the defendants, who had alleged a compulsory counterclaim against plaintiff in their
joint answer, and the judgment so rendered granted reliefs not prayed for in the
complaint, and (2) prohibition to enjoin further proceedings relative to the motion for
immediate execution of the said judgment.

Originally, this litigation was a complaint filed on February 9, 1971 by respondent

Tan Put only against the spouses-petitioners Antonio Lim Tanhu and Dy Ochay.
Subsequently, in an amended complaint dated September 26, 1972, their son Lim
Teck Chuan and the other spouses-petitioners Alfonso Leonardo Ng Sua and Co Oyo
and their son Eng Chong Leonardo were included as defendants. In said amended
complaint, respondent Tan alleged that she "is the widow of Tee Hoon Lim Po Chuan,
who was a partner in the commercial partnership, Glory Commercial Company ...
with Antonio Lim Tanhu and Alfonso Ng Sua that "defendant Antonio Lim Tanhu,
Alfonso Leonardo Ng Sua, Lim Teck Chuan, and Eng Chong Leonardo, through fraud
and machination, took actual and active management of the partnership and
although Tee Hoon Lim Po Chuan was the manager of Glory Commercial Company,
defendants managed to use the funds of the partnership to purchase lands and
building's in the cities of Cebu, Lapulapu, Mandaue, and the municipalities of Talisay
and Minglanilla, some of which were hidden, but the description of those already
discovered were as follows: (list of properties) ...;" and that:

13. (A)fter the death of Tee Hoon Lim Po Chuan, the defendants, without
liquidation continued the business of Glory Commercial Company by
purportedly organizing a corporation known as the Glory Commercial
Company, Incorporated, with paid up capital in the sum of P125,000.00,
which money and other assets of the said Glory Commercial Company,
Incorporated are actually the assets of the defunct Glory Commercial
Company partnership, of which the plaintiff has a share equivalent to one
third (¹/3 ) thereof;

14. (P)laintiff, on several occasions after the death of her husband, has
asked defendants of the above-mentioned properties and for the
liquidation of the business of the defunct partnership, including
investments on real estate in Hong Kong, but defendants kept on
promising to liquidate said properties and just told plaintiff to

15. (S)ometime in the month of November, 1967, defendants, Antonio

Lim Tanhu, by means of fraud deceit and misrepresentations did then
and there, induce and convince the plaintiff to execute a quitclaim of all
her rights and interests, in the assets of the partnership of Glory
Commercial Company, which is null and void, executed through fraud
and without any legal effect. The original of said quitclaim is in the
possession of the adverse party defendant Antonio Lim Tanhu.

16. (A)s a matter of fact, after the execution of said quitclaim, defendant
Antonio Lim Tanhu offered to pay the plaintiff the amount P65,000.00
within a period of one (1) month, for which plaintiff was made to sign a
receipt for the amount of P65,000.00 although no such amount was given
and plaintiff was not even given a copy of said document;

17. (T)hereafter, in the year 1968-69, the defendants who had earlier
promised to liquidate the aforesaid properties and assets in favor among
others of plaintiff  and until the middle of the year 1970 when the plaintiff
formally demanded from the defendants the accounting of real and
personal properties of the Glory Commercial Company, defendants
refused and stated that they would not give the share of the plaintiff. (Pp.
36-37, Record.)
 She prayed as follows:

WHEREFORE, it is most respectfully prayed that judgment be rendered:

a) Ordering the defendants to render an accounting of the real and

personal properties of the Glory Commercial Company including those
registered in the names of the defendants and other persons, which
properties are located in the Philippines and in Hong Kong;

b) Ordering the defendants to deliver to the plaintiff after accounting, one

third (¹/3 ) of the total value of all the properties which is approximately
P5,000,000.00 representing the just share of the plaintiff;

c) Ordering the defendants to pay the attorney of the plaintiff the sum of
Two Hundred Fifty Thousand Pesos (P250,000.00) by way of attorney's
fees and damages in the sum of One Million Pesos (P1,000,000.00).

This Honorable Court is prayed for other remedies and reliefs consistent
with law and equity and order the defendants to pay the costs. (Page 38,
Record.)

The admission of said amended complaint was opposed by defendants upon the
ground that there were material modifications of the causes of action previously
alleged, but respondent judge nevertheless allowed the amendment reasoning that:

The present action is for accounting of real and personal properties as

well as for the recovery of the same with damages.

An objective consideration of pars. 13 and 15 of the amended complaint

pointed out by the defendants to sustain their opposition will show that
the allegations of facts therein are merely to amplify material averments
constituting the cause of action in the original complaint. It likewise
include necessary and indispensable defendants without whom no final
determination can be had in the action and in order that complete relief
is to be accorded as between those already parties.

Considering that the amendments sought to be introduced do not change

the main causes of action in the original complaint and the reliefs
demanded and to allow amendments is the rule, and to refuse them the
exception and in order that the real question between the parties may be
properly and justly threshed out in a single proceeding to avoid
multiplicity of actions. (Page 40, Record.)

In a single answer with counterclaim, over the signature of their common counsel,
defendants denied specifically not only the allegation that respondent Tan is the
widow of Tee Hoon because, according to them, his legitimate wife was Ang Siok Tin
still living and with whom he had four (4) legitimate children, a twin born in 1942,
and two others born in 1949 and 1965, all presently residing in Hongkong, but also
all the allegations of fraud and conversion quoted above, the truth being, according
to them, that proper liquidation had been regularly made of the business of the
partnership and Tee Hoon used to receive his just share until his death, as a result of
which the partnership was dissolved and what corresponded to him were all given to
his wife and children. To quote the pertinent portions of said answer:

AND BY WAY OF SPECIAL AND AFFIRMATIVE DEFENSES,

defendants hereby incorporate all facts averred and alleged in the

answer, and further most respectfully declare:
1. That in the event that plaintiff is filing the present complaint as an heir
of Tee Hoon Lim Po Chuan, then, she has no legal capacity to sue as
such, considering that the legitimate wife, namely: Ang Siok Tin, together
with their children are still alive. Under Sec. 1, (d), Rule 16 of the Revised
Rules of Court, lack of legal capacity to sue is one of the grounds for a
motion to dismiss and so defendants prays that a preliminary hearing be
conducted as provided for in Sec. 5, of the same rule;

2. That in the alternative case or event that plaintiff is filing the present
case under Art. 144 of the Civil Code, then, her claim or demand has
been paid, waived abandoned or otherwise extinguished as evidenced by
the 'quitclaim' Annex 'A' hereof, the ground cited is another ground for a
motion to dismiss (Sec. 1, (h), Rule 16) and hence defendants pray that
a preliminary hearing be made in connection therewith pursuant to
Section 5 of the aforementioned rule;

3. That Tee Hoon Lim Po Chuan was legally married to Ang Siok Tin and
were blessed with the following children, to wit: Ching Siong Lim and
Ching Hing Lim (twins) born on February 16, 1942; Lim Shing Ping born
on March 3, 1949 and Lim Eng Lu born on June 25, 1965 and presently
residing in Hongkong;

4. That even before the death of Tee Hoon Lim Po Chuan, the plaintiff
was no longer his common law wife and even though she was not entitled
to anything left by Tee Hoon Lim Po Chuan, yet, out of the kindness and
generosity on the part of the defendants, particularly Antonio Lain Tanhu,
who, was inspiring to be monk and in fact he is now a monk, plaintiff was
given a substantial amount evidenced by the 'quitclaim' (Annex 'A');

5. That the defendants have acquired properties out of their own personal
fund and certainly not from the funds belonging to the partnership, just
as Tee Hoon Lim Po Chuan had acquired properties out of his personal
fund and which are now in the possession of the widow and neither the
defendants nor the partnership have anything to do about said
properties;

6. That it would have been impossible to buy properties from funds

belonging to the partnership without the other partners knowing about it
considering that the amount taken allegedly is quite big and with such big
amount withdrawn the partnership would have been insolvent;

7. That plaintiff and Tee Hoon Lim Po Chuan were not blessed with
children who would have been lawfully entitled to succeed to the
properties left by the latter together with the widow and legitimate
children;

8. That despite the fact that plaintiff knew that she was no longer entitled
to anything of the shares of the late Tee Hoon Lim Po Chuan, yet, this
suit was filed against the defendant who have to interpose the following
—

COUNTERCLAIM

A. That the defendants hereby reproduced, by way of reference, all the

allegations and foregoing averments as part of this counterclaim; .

B. That plaintiff knew and was aware she was merely the common-law
wife of Tee Hoon Lim Po Chuan and that the lawful and legal is still living,
together with the legitimate children, and yet she deliberately suppressed
 this fact, thus showing her bad faith and is therefore liable for exemplary
damages in an amount which the Honorable Court may determine in the
exercise of its sound judicial discretion. In the event that plaintiff is
married to Tee Hoon Lim Po Chuan, then, her marriage is bigamous and
should suffer the consequences thereof;

C. That plaintiff was aware and had knowledge about the 'quitclaim', even
though she was not entitled to it, and yet she falsely claimed that
defendants refused even to see her and for filing this unfounded,
baseless, futile and puerile complaint, defendants suffered mental
anguish and torture conservatively estimated to be not less than
P3,000.00;

D. That in order to defend their rights in court, defendants were

constrained to engage the services of the undersigned counsel, obligating
themselves to pay P500,000.00 as attorney's fees;

E. That by way of litigation expenses during the time that this case will be
before this Honorable Court and until the same will be finally terminated
and adjudicated, defendants will have to spend at least P5,000.00. (Pp.
44-47. Record.)

After unsuccessfully trying to show that this counterclaim is merely permissive and
should be dismissed for non-payment of the corresponding filing fee, and after being
overruled by the court, in due time, plaintiff answered the same, denying its material
allegations.

On February 3, 1973, however, the date set for the pre-trial, both of the two
defendants-spouses the Lim Tanhus and Ng Suas, did not appear, for which reason,
upon motion of plaintiff dated February 16, 1973, in an order of March 12, 1973,
they were all "declared in DEFAULT as of February 3, 1973 when they failed to
appear at the pre-trial." They sought to hive this order lifted thru a motion for
reconsideration, but the effort failed when the court denied it. Thereafter, the trial
started, but at the stage thereof where the first witness of the plaintiff by the name
of Antonio Nuñez who testified that he is her adopted son, was up for re-cross-
examination, said plaintiff unexpectedly filed on October 19, 1974 the following
simple and unreasoned

MOTION TO DROP DEFENDANTS LIM TECK 

CHUAN AND ENG CHONG LEONARDO

COMES now plaintiff, through her undersigned counsel, unto the

Honorable Court most respectfully moves to drop from the complaint the
defendants Lim Teck Chuan and Eng Chong Leonardo and to consider the
case dismissed insofar as said defendants Lim Teck Chuan and Eng Chong
Leonardo are concerned.

WHEREFORE, it is most respectfully prayed of the Honorable Court to

drop from the complaint the defendants Lim Teck Chuan and Eng Chong
Leonardo and to dismiss the case against them without pronouncement
as to costs. (Page 50, Record.)

which she set for hearing on December 21, 1974. According to

petitioners, none of the defendants declared in default were notified of
said motion, in violation of Section 9 of Rule 13, since they had asked for
the lifting of the order of default, albeit unsuccessfully, and as regards
the defendants not declared in default, the setting of the hearing of said
motion on October 21, 1974 infringed the three-day requirement of
Section 4 of Rule 15, inasmuch as Atty. Adelino Sitoy of Lim Teck Chuan
 was served with a copy of the motion personally only on October 19,
1974, while Atty. Benjamin Alcudia of Eng Chong Leonardo was served by
registered mail sent only on the same date.

Evidently without even verifying the notices of service, just as simply as

plaintiff had couched her motion, and also without any legal grounds
stated, respondent court granted the prayer of the above motion thus:

ORDER

Acting on the motion of the plaintiff praying for the dismissal of the
complaint as against defendants Lim Teck Chuan and Eng Chong
Leonardo. —

The same is hereby GRANTED. The complaint as against defendant Lim

Teck Chuan and Eng Chong Leonardo is hereby ordered DISMISSED
without pronouncement as to costs.

Simultaneously, the following order was also issued:

Considering that defendants Antonio Lim Tanhu and his spouse Dy Ochay
as well as defendants Alfonso Ng Sua and his spouse Co Oyo have been
declared in default for failure to appear during the pre-trial and as to the
other defendants the complaint had already been ordered dismissed as
against them.

Let the hearing of the plaintiff's evidence ex-parte  be set on November

20, 1974, at 8:30 A.M. before the Branch Clerk of Court who is deputized
for the purpose, to swear in witnesses and to submit her report within ten
(10) days thereafter. Notify the plaintiff.

SO ORDERED.

Cebu City, Philippines, October 21, 1974. (Page 52, Record.)

But, in connection with this last order, the scheduled ex-parte reception of evidence
did not take place on November 20, 1974, for on October 28, 1974, upon verbal
motion of plaintiff, the court issued the following self-explanatory order: .

Acting favorably on the motion of the plaintiff dated October 18, 1974,
the Court deputized the Branch Clerk of Court to receive the evidence of
the plaintiff ex-parte  to be made on November 20, 1974. However, on
October 28, 1974, the plaintiff, together with her witnesses, appeared in
court and asked, thru counsel, that she be allowed to present her
evidence.

Considering the time and expenses incurred by the plaintiff in bringing

her witnesses to the court, the Branch Clerk of Court is hereby authorized
to receive immediately the evidence of the plaintiff ex-parte.

SO ORDERED.

Cebu City, Philippines, October 28, 1974. (Page 53. Record.)

Upon learning of these orders on October 23, 1973, the defendant Lim Teck Cheng,
thru counsel, Atty. Sitoy, filed a motion for reconsideration thereof, and on
November 1, 1974, defendant Eng Chong Leonardo, thru counsel Atty. Alcudia, filed
also his own motion for reconsideration and clarification of the same orders. These
motions were denied in an order dated December 6, 1974 but received by the
movants only on December 23, 1974. Meanwhile, respondent court rendered the
impugned decision on December 20, 1974. It does not appear when the parties were
served copies of this decision.

Subsequently, on January 6, 1975, all the defendants, thru counsel, filed a motion to
quash the order of October 28, 1974. Without waiting however for the resolution
thereof, on January 13, 1974, Lim Teck Chuan and Eng Chong Leonardo went to the
Court of Appeals with a petition for certiorari seeking the annulment of the above-
mentioned orders of October 21, 1974 and October 28, 1974 and decision of
December 20, 1974. By resolution of January 24, 1975, the Court of Appeals
dismissed said petition, holding that its filing was premature, considering that the
motion to quash the order of October 28, 1974 was still unresolved by the trial court.
This holding was reiterated in the subsequent resolution of February 5, 1975 denying
the motion for reconsideration of the previous dismissal.

On the other hand, on January 20, 1975, the other defendants, petitioners herein,
filed their notice of appeal, appeal bond and motion for extension to file their record
on appeal, which was granted, the extension to expire after fifteen (15) days from
January 26 and 27, 1975, for defendants Lim Tanhu and Ng Suas, respectively. But
on February 7, 1975, before the perfection of their appeal, petitioners filed the
present petition with this Court. And with the evident intent to make their procedural
position clear, counsel for defendants, Atty. Manuel Zosa, filed with respondent court
a manifestation dated February 14, 1975 stating that "when the non-defaulted
defendants Eng Chong Leonardo and Lim Teck Chuan filed their petition in the Court
of Appeals, they in effect abandoned their motion to quash the order of October 28,
1974," and that similarly "when Antonio Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng
Sua and Co Oyo, filed their petition for certiorari  and prohibition ... in the Supreme
Court, they likewise abandoned their motion to quash." This manifestation was acted
upon by respondent court together with plaintiffs motion for execution pending
appeal in its order of the same date February 14, 1975 this wise:

ORDER

When these incidents, the motion to quash the order of October 28, 1974
and the motion for execution pending appeal were called for hearing
today, counsel for the defendants-movants submitted their manifestation
inviting the attention of this Court that by their filing for certiorari and
prohibition with preliminary injunction in the Court of Appeals which was
dismissed and later the defaulted defendants filed with the Supreme
Court certiorari with prohibition they in effect abandoned their motion to
quash.

IN VIEW HEREOF, the motion to quash is ordered ABANDONED. The

resolution of the motion for execution pending appeal shall be resolved
after the petition for certiorari and prohibition shall have been resolved by
the Supreme Court.

SO ORDERED.

Cebu City, Philippines, February 14, 1975. (Page 216, Record.)

Upon these premises, it is the position of petitioners that respondent court acted
illegally, in violation of the rules or with grave abuse of discretion in acting on
respondent's motion to dismiss of October 18, 1974 without previously ascertaining
whether or not due notice thereof had been served on the adverse parties, as, in
fact, no such notice was timely served on the non-defaulted defendants Lim Teck
Chuan and Eng Chong Leonardo and no notice at all was ever sent to the other
defendants, herein petitioners, and more so, in actually ordering the dismissal of the
case by its order of October 21, 1974 and at the same time setting the case for
further hearing as against the defaulted defendants, herein petitioners, actually
hearing the same ex-parte  and thereafter rendering the decision of December 20,
1974 granting respondent Tan even reliefs not prayed for in the complaint. According
to the petitioners, to begin with, there was compulsory counterclaim in the common
answer of the defendants the nature of which is such that it cannot be decided in an
independent action and as to which the attention of respondent court was duly called
in the motions for reconsideration. Besides, and more importantly, under Section 4
of Rule 18, respondent court had no authority to divide the case before it by
dismissing the same as against the non-defaulted defendants and thereafter
proceeding to hear it ex-parte and subsequently rendering judgment against the
defaulted defendants, considering that in their view, under the said provision of the
rules, when a common cause of action is alleged against several defendants, the
default of any of them is a mere formality by which those defaulted are not allowed
to take part in the proceedings, but otherwise, all the defendants, defaulted and not
defaulted, are supposed to have but a common fate, win or lose. In other words,
petitioners posit that in such a situation, there can only be one common judgment
for or against all the defendant, the non-defaulted and the defaulted. Thus,
petitioners contend that the order of dismissal of October 21, 1974 should be
considered also as the final judgment insofar as they are concerned, or, in the
alternative, it should be set aside together with all the proceedings and decision held
and rendered subsequent thereto, and that the trial be resumed as of said date, with
the defendants Lim Teck Chuan and Eng Chong Leonardo being allowed to defend
the case for all the defendants.

On the other hand, private respondent maintains the contrary view that inasmuch as
petitioners had been properly declared in default, they have no personality nor
interest to question the dismissal of the case as against their non-defaulted co-
defendants and should suffer the consequences of their own default. Respondent
further contends, and this is the only position discussed in the memorandum
submitted by her counsel, that since petitioners have already made or at least
started to make their appeal, as they are in fact entitled to appeal, this special civil
action has no reason for being. Additionally, she invokes the point of prematurity
upheld by the Court of Appeals in regard to the above-mentioned petition therein of
the non-defaulted defendants Lim Teck Chuan and Eng Chong Leonardo. Finally, she
argues that in any event, the errors attributed to respondent court are errors of
judgment and may be reviewed only in an appeal.

After careful scrutiny of all the above-related proceedings, in the court below and
mature deliberation, the Court has arrived at the conclusion that petitioners should
be granted relief, if only to stress emphatically once more that the rules of procedure
may not be misused and abused as instruments for the denial of substantial justice.
A review of the record of this case immediately discloses that here is another
demonstrative instance of how some members of the bar, availing of their
proficiency in invoking the letter of the rules without regard to their real spirit and
intent, succeed in inducing courts to act contrary to the dictates of justice and
equity, and, in some instances, to wittingly or unwittingly abet unfair advantage by
ironically camouflaging their actuations as earnest efforts to satisfy the public clamor
for speedy disposition of litigations, forgetting all the while that the plain injunction
of Section 2 of Rule 1 is that the "rules shall be liberally construed in order to
promote their object and to assist the parties in obtaining not only 'speedy' but more
imperatively, "just ... and inexpensive determination of every action and
proceeding." We cannot simply pass over the impression that the procedural
maneuvers and tactics revealed in the records of the case at bar were deliberately
planned with the calculated end in view of depriving petitioners and their co-
defendants below of every opportunity to properly defend themselves against a claim
of more than substantial character, considering the millions of pesos worth of
properties involved as found by respondent judge himself in the impugned decision,
a claim that appears, in the light of the allegations of the answer and the documents
already brought to the attention of the court at the pre-trial, to be rather dubious.
What is most regrettable is that apparently, all of these alarming circumstances have
escaped respondent judge who did not seem to have hesitated in acting favorably on
the motions of the plaintiff conducive to the deplorable objective just mentioned, and
which motions, at the very least, appeared to be 'of highly controversial' merit,
considering that their obvious tendency and immediate result would be to convert
the proceedings into a one-sided affair, a situation that should be readily
condemnable and intolerable to any court of justice.

Indeed, a seeming disposition on the part of respondent court to lean more on the
contentions of private respondent may be discerned from the manner it resolved the
attempts of defendants Dy Ochay and Antonio Lim Tanhu to have the earlier order of
default against them lifted. Notwithstanding that Dy Ochay's motion of October 8,
1971, co-signed by her with their counsel, Atty. Jovencio Enjambre (Annex 2 of
respondent answer herein) was over the jurat of the notary public before whom she
took her oath, in the order of November 2, 1971, (Annex 3 id.) it was held that "the
oath appearing at the bottom of the motion is not the one contemplated by the
abovequoted pertinent provision (See. 3, Rule 18) of the rules. It is not even a
verification. (See. 6, Rule 7.) What the rule requires as interpreted by the Supreme
Court is that the motion must have to be accompanied by an affidavit of merits that
the defendant has a meritorious defense, thereby ignoring the very simple legal
point that the ruling of the Supreme Court in Ong Peng vs. Custodio,  1 SCRA 781,
relied upon by His Honor, under which a separate affidavit of merit is required refers
obviously to instances where the motion is not over oath of the party concerned,
considering that what the cited provision literally requires is no more than a "motion
under oath." Stated otherwise, when a motion to lift an order of default contains the
reasons for the failure to answer as well as the facts constituting the prospective
defense of the defendant and it is sworn to by said defendant, neither a formal
verification nor a separate affidavit of merit is necessary.

What is worse, the same order further held that the motion to lift the order of default
"is an admission that there was a valid service of summons" and that said motion
could not amount to a challenge against the jurisdiction of the court over the person
of the defendant. Such a rationalization is patently specious and reveals an evident
failure to grasp the import of the legal concepts involved. A motion to lift an order of
default on the ground that service of summons has not been made in accordance
with the rules is in order and is in essence verily an attack against the jurisdiction of
the court over the person of the defendant, no less than if it were worded in a
manner specifically embodying such a direct challenge.

And then, in the order of February 14, 1972 (Annex 6, id.) lifting at last the order of
default as against defendant Lim Tanhu, His Honor posited that said defendant "has
a defense (quitclaim) which renders the claim of the plaintiff contentious." We have
read defendants' motion for reconsideration of November 25, 1971 (Annex 5, id.),
but We cannot find in it any reference to a "quitclaim". Rather, the allegation of a
quitclaim is in the amended complaint (Pars. 15-16, Annex B of the petition herein)
in which plaintiff maintains that her signature thereto was secured through fraud and
deceit. In truth, the motion for reconsideration just mentioned, Annex 5, merely
reiterated the allegation in Dy Ochay's earlier motion of October 8, 1971, Annex 2, to
set aside the order of default, that plaintiff Tan could be but the common law wife
only of Tee Hoon, since his legitimate wife was still alive, which allegation, His Honor
held in the order of November 2, 1971, Annex 3, to be "not good and meritorious
defense". To top it all, whereas, as already stated, the order of February 19, 1972,
Annex 6, lifted the default against Lim Tanhu because of the additional consideration
that "he has a defense (quitclaim) which renders the claim of the plaintiff
contentious," the default of Dy Ochay was maintained notwithstanding that exactly
the same "contentions" defense as that of her husband was invoked by her.
Such tenuous, if not altogether erroneous reasonings and manifest inconsistency in
the legal postures in the orders in question can hardly convince Us that the matters
here in issue were accorded due and proper consideration by respondent court. In
fact, under the circumstances herein obtaining, it seems appropriate to stress that,
having in view the rather substantial value of the subject matter involved together
with the obviously contentious character of plaintiff's claim, which is discernible even
on the face of the complaint itself, utmost care should have been taken to avoid the
slightest suspicion of improper motivations on the part of anyone concerned. Upon
the considerations hereunder to follow, the Court expresses its grave concern that
much has to be done to dispel the impression that herein petitioners and their co-
defendants are being railroaded out of their rights and properties without due
process of law, on the strength of procedural technicalities adroitly planned by
counsel and seemingly unnoticed and undetected by respondent court, whose orders,
gauged by their tenor and the citations of supposedly pertinent provisions and
jurisprudence made therein, cannot be said to have proceeded from utter lack of
juridical knowledgeability and competence.

–1–

The first thing that has struck the Court upon reviewing the record is the seeming
alacrity with which the motion to dismiss the case against non-defaulted defendants
Lim Teck Chuan and Eng Chong Leonardo was disposed of, which definitely ought not
to have been the case. The trial was proceeding with the testimony of the first
witness of plaintiff and he was still under re-cross-examination. Undoubtedly, the
motion to dismiss at that stage and in the light of the declaration of default against
the rest of the defendants was a well calculated surprise move, obviously designed to
secure utmost advantage of the situation, regardless of its apparent unfairness. To
say that it must have been entirely unexpected by all the defendants, defaulted and
non-defaulted , is merely to rightly assume that the parties in a judicial proceeding
can never be the victims of any procedural waylaying as long as lawyers and judges
are imbued with the requisite sense of equity and justice.

But the situation here was aggravated by the indisputable fact that the adverse
parties who were entitled to be notified of such unanticipated dismissal motion did
not get due notice thereof. Certainly, the non-defaulted defendants had the right to
the three-day prior notice required by Section 4 of Rule 15. How could they have had
such indispensable notice when the motion was set for hearing on Monday, October
21, 1974, whereas the counsel for Lim Teck Chuan, Atty. Sitoy was personally
served with the notice only on Saturday, October 19, 1974 and the counsel for Eng
Chong Leonardo, Atty. Alcudia, was notified by registered mail which was posted
only that same Saturday, October 19, 1974? According to Chief Justice Moran, "three
days at least must intervene between the date of service of notice and the date set
for the hearing, otherwise the court may not validly act on the motion." (Comments
on the Rules of Court by Moran, Vol. 1, 1970 ed. p. 474.) Such is the correct
construction of Section 4 of Rule 15. And in the instant case, there can be no
question that the notices to the non-defaulted defendants were short of the
requirement of said provision.

We can understand the over-anxiety of counsel for plaintiff, but what is

incomprehensible is the seeming inattention of respondent judge to the explicit
mandate of the pertinent rule, not to speak of the imperatives of fairness,
considering he should have realized the far-reaching implications, specially from the
point of view he subsequently adopted, albeit erroneously, of his favorably acting on
it. Actually, he was aware of said consequences, for simultaneously with his order of
dismissal, he immediately set the case for the ex-parte hearing of the evidence
against the defaulted defendants, which, incidentally, from the tenor of his order
which We have quoted above, appears to have been done by him motu propio As a
matter of fact, plaintiff's motion also quoted above did not pray for it.
Withal, respondent court's twin actions of October 21, 1974 further ignores or is
inconsistent with a number of known juridical principles concerning defaults, which
We will here take occasion to reiterate and further elucidate on, if only to avoid a
repetition of the unfortunate errors committed in this case. Perhaps some of these
principles have not been amply projected and elaborated before, and such paucity of
elucidation could be the reason why respondent judge must have acted as he did.
Still, the Court cannot but express its vehement condemnation of any judicial
actuation that unduly deprives any party of the right to be heard without clear and
specific warrant under the terms of existing rules or binding jurisprudence. Extreme
care must be the instant reaction of every judge when confronted with a situation
involving risks that the proceedings may not be fair and square to all the parties
concerned. Indeed, a keen sense of fairness, equity and justice that constantly looks
for consistency between the letter of the adjective rules and these basic principles
must be possessed by every judge, If substance is to prevail, as it must, over form
in our courts. Literal observance of the rules, when it is conducive to unfair and
undue advantage on the part of any litigant before it, is unworthy of any court of
justice and equity. Withal, only those rules and procedure informed, with and
founded on public policy deserve obedience in accord with their unequivocal
language or words..

Before proceeding to the discussion of the default aspects of this case, however, it
should not be amiss to advert first to the patent incorrectness, apparent on the face
of the record, of the aforementioned order of dismissal of October 21, 1974 of the
case below as regards non-defaulted defendants Lim and Leonardo. While it is true
that said defendants are not petitioners herein, the Court deems it necessary for a
full view of the outrageous procedural strategy conceived by respondent's counsel
and sanctioned by respondent court to also make reference to the very evident fact
that in ordering said dismissal respondent court disregarded completely the
existence of defendant's counterclaim which it had itself earlier held if indirectly, to
be compulsory in nature when it refused to dismiss the same on the ground alleged
by respondent Tan that he docketing fees for the filing thereof had not been paid by
defendants.

Indeed, that said counterclaim is compulsory needs no extended elaboration. As may

be noted in the allegations hereof aforequoted, it arose out of or is necessarily
connected with the occurrence that is the subject matter of the plaintiff's claim,
(Section 4, Rule 9) namely, plaintiff's allegedly being the widow of the deceased Tee
Hoon entitled, as such, to demand accounting of and to receive the share of her
alleged late husband as partner of defendants Antonio Lim Tanhu and Alfonso
Leonardo Ng Sua in Glory Commercial Company, the truth of which allegations all
the defendants have denied. Defendants maintain in their counterclaim that plaintiff
knew of the falsity of said allegations even before she filed her complaint, for she
had in fact admitted her common-law relationship with said deceased in a document
she had jointly executed with him by way of agreement to terminate their
illegitimate relationship, for which she received P40,000 from the deceased, and with
respect to her pretended share in the capital and profits in the partnership, it is also
defendants' posture that she had already quitclaimed, with the assistance of able
counsel, whatever rights if any she had thereto in November, 1967, for the sum of
P25,000 duly receipted by her, which quitclaim was, however, executed, according to
respondent herself in her amended complaint, through fraud. And having filed her
complaint knowing, according to defendants, as she ought to have known, that the
material allegations thereof are false and baseless, she has caused them to suffer
damages. Undoubtedly, with such allegations, defendants' counterclaim is
compulsory, not only because the same evidence to sustain it will also refute the
cause or causes of action alleged in plaintiff's complaint, (Moran, supra p. 352) but
also because from its very nature, it is obvious that the same cannot "remain
pending for independent adjudication by the court." (Section 2, Rule 17.)
The provision of the rules just cited specifically enjoins that "(i)f a counterclaim has
been pleaded by a defendant prior to the service upon him of the plaintiff's motion to
dismiss, the action shall not be dismissed against the defendant's objection unless
the counterclaim can remain pending for independent adjudication by the court."
Defendants Lim and Leonardo had no opportunity to object to the motion to dismiss
before the order granting the same was issued, for the simple reason that they were
not opportunity notified of the motion therefor, but the record shows clearly that at
least defendant Lim immediately brought the matter of their compulsory
counterclaim to the attention of the trial court in his motion for reconsideration of
October 23, 1974, even as the counsel for the other defendant, Leonardo, predicated
his motion on other grounds. In its order of December 6, 1974, however, respondent
court not only upheld the plaintiffs supposed absolute right to choose her adversaries
but also held that the counterclaim is not compulsory, thereby virtually making
unexplained and inexplicable 180-degree turnabout in that respect.

There is another equally fundamental consideration why the motion to dismiss should
not have been granted. As the plaintiff's complaint has been framed, all the six
defendants are charged with having actually taken part in a conspiracy to
misappropriate, conceal and convert to their own benefit the profits, properties and
all other assets of the partnership Glory Commercial Company, to the extent that
they have allegedly organized a corporation, Glory Commercial Company, Inc. with
what they had illegally gotten from the partnership. Upon such allegations, no
judgment finding the existence of the alleged conspiracy or holding the capital of the
corporation to be the money of the partnership is legally possible without the
presence of all the defendants. The non-defaulted defendants are alleged to be
stockholders of the corporation and any decision depriving the same of all its assets
cannot but prejudice the interests of said defendants. Accordingly, upon these
premises, and even prescinding from the other reasons to be discussed anon it is
clear that all the six defendants below, defaulted and non-defaulted, are
indispensable parties. Respondents could do no less than grant that they are so on
page 23 of their answer. Such being the case, the questioned order of dismissal is
exactly the opposite of what ought to have been done. Whenever it appears to the
court in the course of a proceeding that an indispensable party has not been joined,
it is the duty of the court to stop the trial and to order the inclusion of such party.
(The Revised Rules of Court, Annotated & Commented by Senator Vicente J.
Francisco, Vol. 1, p. 271, 1973 ed. See also Cortez vs. Avila, 101 Phil. 705.) Such an
order is unavoidable, for the "general rule with reference to the making of parties in
a civil action requires the joinder of all necessary parties wherever possible, and the
joinder of all indispensable parties under any and all conditions, the presence of
those latter being a sine qua non  of the exercise of judicial power." (Borlasa vs.
Polistico, 47 Phil. 345, at p. 347.) It is precisely " when an indispensable party is not
before the court (that) the action should be dismissed." (People v. Rodriguez, 106
Phil. 325, at p. 327.) The absence of an indispensable party renders all subsequent
actuations of the court null and void, for want of authority to act, not only as to the
absent parties but even as to those present. In short, what respondent court did
here was exactly the reverse of what the law ordains — it eliminated those who by
law should precisely be joined.

As may he noted from the order of respondent court quoted earlier, which resolved
the motions for reconsideration of the dismissal order filed by the non-defaulted
defendants, His Honor rationalized his position thus:

It is the rule that it is the absolute prerogative of the plaintiff to choose,

the theory upon which he predicates his right of action, or the parties he
desires to sue, without dictation or imposition by the court or the adverse
party. If he makes a mistake in the choice of his right of action, or in that
of the parties against whom he seeks to enforce it, that is his own
concern as he alone suffers therefrom. The plaintiff cannot be compelled
 to choose his defendants, He may not, at his own expense, be forced to
implead anyone who, under the adverse party's theory, is to answer for
defendant's liability. Neither may the Court compel him to furnish the
means by which defendant may avoid or mitigate their liability. (Vaño vs.
Alo, 95 Phil. 495-496.)

This being the rule this court cannot compel the plaintiff to continue
prosecuting her cause of action against the defendants-movants if in the
course of the trial she believes she can enforce it against the remaining
defendants subject only to the limitation provided in Section 2, Rule 17 of
the Rules of Court. ... (Pages 6263, Record.)

Noticeably, His Honor has employed the same equivocal terminology as in plaintiff's
motion of October 18, 1974 by referring to the action he had taken as being
"dismissal of the complaint against them or their being dropped therefrom", without
perceiving that the reason for the evidently intentional ambiguity is transparent. The
apparent idea is to rely on the theory that under Section 11 of Rule 3, parties may
be dropped by the court upon motion of any party at any stage of the action, hence
"it is the absolute right prerogative of the plaintiff to choose—the parties he desires
to sue, without dictation or imposition by the court or the adverse party." In other
words, the ambivalent pose is suggested that plaintiff's motion of October 18, 1974
was not predicated on Section 2 of Rule 17 but more on Section 11 of Rule 3. But the
truth is that nothing can be more incorrect. To start with, the latter rule does not
comprehend whimsical and irrational dropping or adding of parties in a complaint.
What it really contemplates is erroneous or mistaken non-joinder and misjoinder of
parties. No one is free to join anybody in a complaint in court only to drop him
unceremoniously later at the pleasure of the plaintiff. The rule presupposes that the
original inclusion had been made in the honest conviction that it was proper and the
subsequent dropping is requested because it has turned out that such inclusion was
a mistake. And this is the reason why the rule ordains that the dropping be "on such
terms as are just" — just to all the other parties. In the case at bar, there is nothing
in the record to legally justify the dropping of the non-defaulted defendants, Lim and
Leonardo. The motion of October 18, 1974 cites none. From all appearances, plaintiff
just decided to ask for it, without any relevant explanation at all. Usually, the court
in granting such a motion inquires for the reasons and in the appropriate instances
directs the granting of some form of compensation for the trouble undergone by the
defendant in answering the complaint, preparing for or proceeding partially to trial,
hiring counsel and making corresponding expenses in the premises. Nothing of
these, appears in the order in question. Most importantly, His Honor ought to have
considered that the outright dropping of the non-defaulted defendants Lim and
Leonardo, over their objection at that, would certainly be unjust not only to the
petitioners, their own parents, who would in consequence be entirely defenseless,
but also to Lim and Leonardo themselves who would naturally correspondingly suffer
from the eventual judgment against their parents. Respondent court paid no heed at
all to the mandate that such dropping must be on such terms as are just" — meaning
to all concerned with its legal and factual effects.

Thus, it is quite plain that respondent court erred in issuing its order of dismissal of
October 21, 1974 as well as its order of December 6, 1974 denying reconsideration
of such dismissal. As We make this ruling, We are not oblivious of the circumstance
that defendants Lim and Leonardo are not parties herein. But such consideration is
inconsequential. The fate of the case of petitioners is inseparably tied up with said
order of dismissal, if only because the order of ex-parte hearing of October 21, 1974
which directly affects and prejudices said petitioners is predicated thereon.
Necessarily, therefore, We have to pass on the legality of said order, if We are to
decide the case of herein petitioners properly and fairly.

The attitude of the non-defaulted defendants of no longer pursuing further their

questioning of the dismissal is from another point of view understandable. On the
one hand, why should they insist on being defendants when plaintiff herself has
already release from her claims? On the other hand, as far as their respective
parents-co-defendants are concerned, they must have realized that they (their
parents) could even be benefited by such dismissal because they could question
whether or not plaintiff can still prosecute her case against them after she had
secured the order of dismissal in question. And it is in connection with this last point
that the true and correct concept of default becomes relevant.

At this juncture, it may also be stated that the decision of the Court of Appeals of
January 24, 1975 in G. R. No. SP-03066 dismissing the petition for certiorari of non-
defaulted defendants Lim and Leonardo impugning the order of dismissal of October
21, 1974, has no bearing at all in this case, not only because that dismissal was
premised by the appellate court on its holding that the said petition was premature
inasmuch as the trial court had not yet resolved the motion of the defendants of
October 28, 1974 praying that said disputed order be quashed, but principally
because herein petitioners were not parties in that proceeding and cannot, therefore,
be bound by its result. In particular, We deem it warranted to draw the attention of
private respondent's counsel to his allegations in paragraphs XI to XIV of his answer,
which relate to said decision of the Court of Appeals and which have the clear
tendency to make it appear to the Court that the appeals court had upheld the
legality and validity of the actuations of the trial court being questioned, when as a
matter of indisputable fact, the dismissal of the petition was based solely and
exclusively on its being premature without in any manner delving into its merits. The
Court must and does admonish counsel that such manner of pleading, being
deceptive and lacking in candor, has no place in any court, much less in the Supreme
Court, and if We are adopting a passive attitude in the premises, it is due only to the
fact that this is counsel's first offense. But similar conduct on his part in the future
will definitely be dealt with more severely. Parties and counsel would be well advised
to avoid such attempts to befuddle the issues as invariably then will be exposed for
what they are, certainly unethical and degrading to the dignity of the law profession.
Moreover, almost always they only betray the inherent weakness of the cause of the
party resorting to them.

–2–

Coming now to the matter itself of default, it is quite apparent that the impugned
orders must have proceeded from inadequate apprehension of the fundamental
precepts governing such procedure under the Rules of Court. It is time indeed that
the concept of this procedural device were fully understood by the bench and bar,
instead of being merely taken for granted as being that of a simple expedient of not
allowing the offending party to take part in the proceedings, so that after his
adversary shall have presented his evidence, judgment may be rendered in favor of
such opponent, with hardly any chance of said judgment being reversed or modified.

The Rules of Court contain a separate rule on the subject of default, Rule 18. But
said rule is concerned solely with default resulting from failure of the defendant or
defendants to answer within the reglementary period. Referring to the simplest form
of default, that is, where there is only one defendant in the action and he fails to
answer on time, Section 1 of the rule provides that upon "proof of such failure, (the
court shall) declare the defendant in default. Thereupon the court shall proceed to
receive the plaintiff's evidence and render judgment granting him such relief as the
complaint and the facts proven may warrant." This last clause is clarified by Section
5 which says that "a judgment entered against a party in default shall not exceed the
amount or be different in kind from that prayed for."

Unequivocal, in the literal sense, as these provisions 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."
(Moran, supra, p. 535 citing Macondary & Co. v. Eustaquio, 64 Phil. 466, citing with
approval Chaffin v. McFadden, 41 Ark. 42; Johnson v. Pierce, 12 Ark. 599; Mayden v.
Johnson, 59 Ga. 105; People v. Rust, 292 111. 328; Ken v. Leopold 21 111. A. 163;
Chicago, etc. Electric R. Co. v. Krempel 116 111. A. 253.)

Being declared in default does not constitute a waiver of rights except that of being
heard and of presenting evidence in the trial court. According to Section 2, "except
as provided in Section 9 of Rule 13, a party declared in default shall not be entitled
to notice of subsequent proceedings, nor to take part in the trial." That provision
referred to reads: "No service of papers other than substantially amended pleadings
and final orders or judgments shall be necessary on a party in default unless he files
a motion to set aside the order of default, in which event he shall be entitled to
notice of all further proceedings regardless of whether the order of default is set
aside or not." And pursuant to Section 2 of Rule 41, "a party who has been declared
in default may likewise appeal from the judgment rendered against him as contrary
to the evidence or to the law, even if no petition for relief to set aside the order of
default has been presented by him in accordance with Rule 38.".

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.

Incidentally, these considerations argue against the present widespread practice of

trial judges, as was done by His Honor in this case, of delegating to their clerks of
court the reception of the plaintiff's evidence when the defendant is in default. Such
a Practice is wrong in principle and orientation. It has no basis in any rule. When a
defendant allows himself to be declared in default, he relies on the faith that the
court would take care that his rights are not unduly prejudiced. He has a right to
presume that the law and the rules will still be observed. The proceedings are held in
his forced absence, and it is but fair that the plaintiff should not be allowed to take
advantage of the situation to win by foul or illegal means or with inherently
incompetent evidence. Thus, in such instances, there is need for more attention from
the court, which only the judge himself can provide. The clerk of court would not be
in a position much less have the authority to act in the premises in the manner
demanded by the rules of fair play and as contemplated in the law, considering his
comparably limited area of discretion and his presumably inferior preparation for the
functions of a judge. Besides, the default of the defendant is no excuse for the court
to renounce the opportunity to closely observe the demeanor and conduct of the
witnesses of the plaintiff, the better to appreciate their truthfulness and credibility.
We therefore declare as a matter of judicial policy that there being no imperative
reason for judges to do otherwise, the practice should be discontinued.

Another matter of practice worthy of mention at this point is that it is preferable to

leave enough opportunity open for possible lifting of the order of default before
proceeding with the reception of the plaintiff's evidence and the rendition of the
decision. "A judgment by default may amount to a positive and considerable injustice
to the defendant; and the possibility of such serious consequences necessitates a
careful and liberal examination of the grounds upon which the defendant may seek
to set it aside." (Moran, supra p. 534, citing Coombs vs. Santos, 24 Phil. 446; 449-
450.) The expression, therefore, in Section 1 of Rule 18 aforequoted which says that
"thereupon the court shall proceed to receive the plaintiff's evidence etc." is not to
be taken literally. The gain in time and dispatch should the court immediately try the
case on the very day of or shortly after the declaration of default is far outweighed
by the inconvenience and complications involved in having to undo everything
already done in the event the defendant should justify his omission to answer on
time.

The foregoing observations, as may be noted, refer to instances where the only
defendant or all the defendants, there being several, are declared in default. There
are additional rules embodying more considerations of justice and equity in cases
where there are several defendants against whom a common cause of action is
averred and not all of them answer opportunely or are in default, particularly in
reference to the power of the court to render judgment in such situations. Thus, in
addition to the limitation of Section 5 that the judgment by default should not be
more in amount nor different in kind from the reliefs specifically sought by plaintiff in
his complaint, Section 4 restricts the authority of the court in rendering judgment in
the situations just mentioned as follows:

Sec. 4. Judgment when some defendants answer, and other make

difficult. — When a complaint states a common cause of action against
several defendant some of whom answer, and the others fail to do so,
the court shall try the case against all upon the answer thus filed and
render judgment upon the evidence presented. The same proceeding
applies when a common cause of action is pleaded in a counterclaim,
cross-claim and third-party claim.

Very aptly does Chief Justice Moran elucidate on this provision and the controlling
jurisprudence explanatory thereof this wise:

Where a complaint states a common cause of action against several

defendants and some appear to defend the case on the merits while
others make default, the defense interposed by those who appear to
litigate the case inures to the benefit of those who fail to appear, and if
the court finds that a good defense has been made, all of the defendants
must be absolved. In other words, the answer filed by one or some of the
defendants inures to the benefit of all the others, even those who have
not seasonably filed their answer. (Bueno v. Ortiz, L-22978, June 27,
1968, 23 SCRA 1151.) The proper mode of proceeding where a complaint
states a common cause of action against several defendants, and one of
them makes default, is simply to enter a formal default order against
him, and proceed with the cause upon the answers of the others. The
defaulting defendant merely loses his standing in court, he not being
entitled to the service of notice in the cause, nor to appear in the suit in
any way. He cannot adduce evidence; nor can he be heard at the final
hearing, (Lim Toco v. Go Fay, 80 Phil. 166.) although he may appeal the
judgment rendered against him on the merits. (Rule 41, sec. 2.) If the
case is finally decided in the plaintiff's favor, a final decree is then
entered against all the defendants; but if the suit should be decided
against the plaintiff, the action will be dismissed as to all the defendants
alike. (Velez v. Ramas, 40 Phil. 787-792; Frow v. de la Vega, 15 Wal.
552,21 L. Ed. 60.) In other words the judgment will affect the defaulting
defendants either favorably or adversely. (Castro v. Peña, 80 Phil. 488.)

Defaulting defendant may ask execution if judgment is in his favor.

(Castro v. Peña, supra.) (Moran, Rules of Court, Vol. 1, pp. 538-539.)

In Castro vs. Peña, 80 Phil. 488, one of the numerous cases cited by
Moran, this Court elaborated on the construction of the same rule when it
sanctioned the execution, upon motion and for the benefit of the
defendant in default, of a judgment which was adverse to the plaintiff.
The Court held:

As above stated, Emilia Matanguihan, by her counsel, also was a movant

in the petition for execution Annex 1. Did she have a right to be such,
having been declared in default? In Frow vs. De la Vega, supra, cited as
authority in Velez vs. Ramas, supra, the Supreme Court of the United
States adopted as ground for its own decision the following ruling of the
New York Court of Errors in Clason vs. Morris, 10 Jons., 524:

It would be unreasonable to hold that because one defendant had made

default, the plaintiff should have a decree even against him, where the
court is satisfied from the proofs offered by the other, that in fact the
plaintiff is not entitled to a decree. (21 Law, ed., 61.)

The reason is simple: justice has to be consistent. The complaint stating

a common cause of action against several defendants, the complainant's
rights — or lack of them — in the controversy have to be the same, and
not different, as against all the defendant's although one or some make
default and the other or others appear, join issue, and enter into trial. For
instance, in the case of Clason vs. Morris  above cited, the New York Court
of Errors in effect held that in such a case if the plaintiff is not entitled to
a decree, he will not be entitled to it, not only as against the defendant
appearing and resisting his action but also as against the one who made
default. In the case at bar, the cause of action in the plaintiff's complaint
was common against the Mayor of Manila, Emilia Matanguihan, and the
other defendants in Civil Case No. 1318 of the lower court. The Court of
First Instance in its judgment found and held upon the evidence adduced
by the plaintiff and the defendant mayor that as between said plaintiff
and defendant Matanguihan the latter was the one legally entitled to
occupy the stalls; and it decreed, among other things, that said plaintiff
immediately vacate them. Paraphrasing the New York Court of Errors, it
would be unreasonable to hold now that because Matanguihan had made
default, the said plaintiff should be declared, as against her, legally
entitled to the occupancy of the stalls, or to remain therein, although the
Court of First Instance was so firmly satisfied, from the proofs offered by
the other defendant, that the same plaintiff was not entitled to such
occupancy that it peremptorily ordered her to vacate the stalls. If in the
cases of Clason vs. Morris, supra, Frow vs. De la Vega, supra, and Velez
vs. Ramas, supra the decrees entered inured to the benefit of the
defaulting defendants, there is no reason why that entered in said case
No. 1318 should not be held also to have inured to the benefit of the
defaulting defendant Matanguihan and the doctrine in said three cases
plainly implies that there is nothing in the law governing default which
would prohibit the court from rendering judgment favorable to the
defaulting defendant in such cases. If it inured to her benefit, it stands to
reason that she had a right to claim that benefit, for it would not be a
benefit if the supposed beneficiary were barred from claiming it; and if
the benefit necessitated the execution of the decree, she must be
possessed of the right to ask for the execution thereof as she did when
she, by counsel, participated in the petition for execution Annex 1.

Section 7 of Rule 35 would seem to afford a solid support to the above

considerations. It provides that when a complaint states a common cause
of action against several defendants, some of whom answer, and the
others make default, 'the court shall try the case against all upon the
answer thus filed and render judgment upon the evidence presented by
the parties in court'. It is obvious that under this provision the case is
tried jointly not only against the defendants answering but also against
 those defaulting, and the trial is held upon the answer filed by the
former; and the judgment, if adverse, will prejudice the defaulting
defendants no less than those who answer. In other words, the defaulting
defendants are held bound by the answer filed by their co-defendants and
by the judgment which the court may render against all of them. By the
same token, and by all rules of equity and fair play, if the judgment
should happen to be favorable, totally or partially, to the answering
defendants, it must correspondingly benefit the defaulting ones, for it
would not be just to let the judgment produce effects as to the defaulting
defendants only when adverse to them and not when favorable.

In Bueno vs. Ortiz, 23 SCRA 1151, the Court applied the provision under discussion
in the following words:

In answer to the charge that respondent Judge had committed a grave

abuse of discretion in rendering a default judgment against the PC,
respondents allege that, not having filed its answer within the
reglementary period, the PC was in default, so that it was proper for
Patanao to forthwith present his evidence and for respondent Judge to
render said judgment. It should be noted, however, that in entering the
area in question and seeking to prevent Patanao from continuing his
logging operations therein, the PC was merely executing an order of the
Director of Forestry and acting as his agent. Patanao's cause of action
against the other respondents in Case No. 190, namely, the Director of
Forestry, the District Forester of Agusan, the Forest Officer of Bayugan,
Agusan, and the Secretary of Agriculture and Natural Resources. Pursuant
to Rule 18, Section 4, of the Rules of Court, 'when a complaint states a
common cause of action against several defendants some of whom
answer and the others fail to do so, the court shall try the case against all
upon the answer thus filed (by some) and render judgment upon the
evidence presented.' In other words, the answer filed by one or some of
the defendants inures to the benefit of all the others, even those who
have not seasonably filed their answer.

Indeed, since the petition in Case No. 190 sets forth a common cause of
action against all of the respondents therein, a decision in favor of one of
them would necessarily favor the others. In fact, the main issue, in said
case, is whether Patanao has a timber license to undertake logging
operations in the disputed area. It is not possible to decide such issue in
the negative, insofar as the Director of Forestry, and to settle it
otherwise, as regards the PC, which is merely acting as agent of the
Director of Forestry, and is, therefore, his alter ego, with respect to the
disputed forest area.

Stated differently, in all instances where a common cause of action is alleged against
several defendants, some of whom answer and the others do not, the latter or those
in default acquire a vested right not only to own the defense interposed in the
answer of their co- defendant or co-defendants not in default but also to expect a
result of the litigation totally common with them in kind and in amount whether
favorable or unfavorable. The substantive unity of the plaintiff's cause against all the
defendants is carried through to its adjective phase as ineluctably demanded by the
homogeneity and indivisibility of justice itself. Indeed, since the singleness of the
cause of action also inevitably implies that all the defendants are indispensable
parties, the court's power to act is integral and cannot be split such that it cannot
relieve any of them and at the same time render judgment against the rest.
Considering the tenor of the section in question, it is to be assumed that when any
defendant allows himself to be declared in default knowing that his defendant has
already answered, he does so trusting in the assurance implicit in the rule that his
default is in essence a mere formality that deprives him of no more than the right to
take part in the trial and that the court would deem anything done by or for the
answering defendant as done by or for him. The presumption is that otherwise he
would not -have seen to that he would not be in default. Of course, he has to suffer
the consequences of whatever the answering defendant may do or fail to do,
regardless of possible adverse consequences, but if the complaint has to be
dismissed in so far as the answering defendant is concerned it becomes his
inalienable right that the same be dismissed also as to him. It does not matter that
the dismissal is upon the evidence presented by the plaintiff or upon the latter's
mere desistance, for in both contingencies, the lack of sufficient legal basis must be
the cause. The integrity of the common cause of action against all the defendants
and the indispensability of all of them in the proceedings do not permit any
possibility of waiver of the plaintiff's right only as to one or some of them, without
including all of them, and so, as a rule, withdrawal must be deemed to be a
confession of weakness as to all. This is not only elementary justice; it also precludes
the concomitant hazard that plaintiff might resort to the kind of procedural
strategem practiced by private respondent herein that resulted in totally depriving
petitioners of every opportunity to defend themselves against her claims which, after
all, as will be seen later in this opinion, the record does not show to be invulnerable,
both in their factual and legal aspects, taking into consideration the tenor of the
pleadings and the probative value of the competent evidence which were before the
trial court when it rendered its assailed decision where all the defendants are
indispensable parties, for which reason the absence of any of them in the case would
result in the court losing its competency to act validly, any compromise that the
plaintiff might wish to make with any of them must, as a matter of correct
procedure, have to await until after the rendition of the judgment, at which stage the
plaintiff may then treat the matter of its execution and the satisfaction of his claim as
variably as he might please. Accordingly, in the case now before Us together with the
dismissal of the complaint against the non-defaulted defendants, the court should
have ordered also the dismissal thereof as to petitioners.

Indeed, there is more reason to apply here the principle of unity and indivisibility of
the action just discussed because all the defendants here have already joined
genuine issues with plaintiff. Their default was only at the pre-trial. And as to such
absence of petitioners at the pre-trial, the same could be attributed to the fact that
they might not have considered it necessary anymore to be present, since their
respective children Lim and Leonardo, with whom they have common defenses,
could take care of their defenses as well. Anything that might have had to be done
by them at such pre-trial could have been done for them by their children, at least
initially, specially because in the light of the pleadings before the court, the prospects
of a compromise must have appeared to be rather remote. Such attitude of
petitioners is neither uncommon nor totally unjustified. Under the circumstances, to
declare them immediately and irrevocably in default was not an absolute necessity.
Practical considerations and reasons of equity should have moved respondent court
to be more understanding in dealing with the situation. After all, declaring them in
default as respondent court did not impair their right to a common fate with their
children.

–3–

Another issue to be resolved in this case is the question of whether or not herein
petitioners were entitled to notice of plaintiff's motion to drop their co-defendants
Lim and Leonardo, considering that petitioners had been previously declared in
default. In this connection, the decisive consideration is that according to the
applicable rule, Section 9, Rule 13, already quoted above, (1) even after a defendant
has been declared in default, provided he "files a motion to set aside the order of
default, — he shall be entitled to notice of all further proceedings regardless of
whether the order of default is set aside or not" and (2) a party in default who has
not filed such a motion to set aside must still be served with all "substantially
amended or supplemented pleadings." In the instant case, it cannot be denied that
petitioners had all filed their motion for reconsideration of the order declaring them
in default. Respondents' own answer to the petition therein makes reference to the
order of April 3, 1973, Annex 8 of said answer, which denied said motion for
reconsideration. On page 3 of petitioners' memorandum herein this motion is
referred to as "a motion to set aside the order of default." But as We have not been
favored by the parties with a copy of the said motion, We do not even know the
excuse given for petitioners' failure to appear at the pre-trial, and We cannot,
therefore, determine whether or not the motion complied with the requirements of
Section 3 of Rule 18 which We have held to be controlling in cases of default for
failure to answer on time. (The Philippine-British Co. Inc. etc. et al. vs. The Hon.
Walfrido de los Angeles etc. et al., 63 SCRA 50.)

We do not, however, have here, as earlier noted, a case of default for failure to
answer but one for failure to appear at the pre-trial. We reiterate, in the situation
now before Us, issues have already been joined. In fact, evidence had been partially
offered already at the pre-trial and more of it at the actual trial which had already
begun with the first witness of the plaintiff undergoing re-cross-examination. With
these facts in mind and considering that issues had already been joined even as
regards the defaulted defendants, it would be requiring the obvious to pretend that
there was still need for an oath or a verification as to the merits of the defense of the
defaulted defendants in their motion to reconsider their default. Inasmuch as none of
the parties had asked for a summary judgment there can be no question that the
issues joined were genuine, and consequently, the reason for requiring such oath or
verification no longer holds. Besides, it may also be reiterated that being the parents
of the non-defaulted defendants, petitioners must have assumed that their presence
was superfluous, particularly because the cause of action against them as well as
their own defenses are common. Under these circumstances, the form of the motion
by which the default was sought to be lifted is secondary and the requirements of
Section 3 of Rule 18 need not be strictly complied with, unlike in cases of default for
failure to answer. We can thus hold as We do hold for the purposes of the revival of
their right to notice under Section 9 of Rule 13, that petitioner's motion for
reconsideration was in substance legally adequate regardless of whether or not it
was under oath.

In any event, the dropping of the defendants Lim and Leonardo from plaintiff's
amended complaint was virtually a second amendment of plaintiffs complaint. And
there can be no doubt that such amendment was substantial, for with the elimination
thereby of two defendants allegedly solidarily liable with their co-defendants, herein
petitioners, it had the effect of increasing proportionally what each of the remaining
defendants, the said petitioners, would have to answer for jointly and severally.
Accordingly, notice to petitioners of the plaintiff's motion of October 18, 1974 was
legally indispensable under the rule above-quoted. Consequently, respondent court
had no authority to act on the motion, to dismiss, pursuant to Section 6 of Rule 15,
for according to Senator Francisco, "(t) he Rules of Court clearly provide that no
motion shall be acted upon by the Court without the proof of service of notice
thereof, together with a copy of the motion and other papers accompanying it, to all
parties concerned at least three days before the hearing thereof, stating the time
and place for the hearing of the motion. (Rule 26, section 4, 5 and 6, Rules of Court
(now Sec. 15, new Rules). When the motion does not comply with this requirement,
it is not a motion. It presents no question which the court could decide. And the
Court acquires no jurisdiction to consider it. (Roman Catholic Bishop of Lipa vs.
Municipality of Unisan 44 Phil., 866; Manakil vs. Revilla, 42 Phil., 81.) (Laserna vs.
Javier, et al., CA-G.R. No. 7885, April 22, 1955; 21 L.J. 36, citing Roman Catholic
Bishop of Lipa vs. Municipality of Unisan 44 Phil., 866; Manakil vs. Revilla, 42 Phil.,
81.) (Francisco. The Revised Rules of Court in the Philippines, pp. 861-862.) Thus,
We see again, from a different angle, why respondent court's order of dismissal of
October 21, 1974 is fatally ineffective.
–4–

The foregoing considerations notwithstanding, it is respondents' position that

certiorari is not the proper remedy of petitioners. It is contended that inasmuch as
said petitioners have in fact made their appeal already by filing the required notice of
appeal and appeal bond and a motion for extension to file their record on appeal,
which motion was granted by respondent court, their only recourse is to prosecute
that appeal. Additionally, it is also maintained that since petitioners have expressly
withdrawn their motion to quash of January 4, 1975 impugning the order of October
28, 1974, they have lost their right to assail by certiorari the actuations of
respondent court now being questioned, respondent court not having been given the
opportunity to correct any possible error it might have committed.

We do not agree. As already shown in the foregoing discussion, the proceedings in

the court below have gone so far out of hand that prompt action is needed to restore
order in the entangled situation created by the series of plainly illegal orders it had
issued. The essential purpose of certiorari is to keep the proceedings in lower judicial
courts and tribunals within legal bounds, so that due process and the rule of law may
prevail at all times and arbitrariness, whimsicality and unfairness which justice
abhors may immediately be stamped out before graver injury, juridical and
otherwise, ensues. While generally these objectives may well be attained in an
ordinary appeal, it is undoubtedly the better rule to allow the special remedy of
certiorari at the option of the party adversely affected, when the irregularity
committed by the trial court is so grave and so far reaching in its consequences that
the long and cumbersome procedure of appeal will only further aggravate the
situation of the aggrieved party because other untoward actuations are likely to
materialize as natural consequences of those already perpetrated. If the law were
otherwise, certiorari would have no reason at all for being.

No elaborate discussion is needed to show the urgent need for corrective measures
in the case at bar. Verily, this is one case that calls for the exercise of the Supreme
Court's inherent power of supervision over all kinds of judicial actions of lower
courts. Private respondent's procedural technique designed to disable petitioners to
defend themselves against her claim which appears on the face of the record itself to
be at least highly controversial seems to have so fascinated respondent court that
none would be surprised should her pending motion for immediate execution of the
impugned judgment receive similar ready sanction as her previous motions which
turned the proceedings into a one-sided affair. The stakes here are high. Not only is
the subject matter considerably substantial; there is the more important aspect that
not only the spirit and intent of the rules but even the basic rudiments of fair play
have been disregarded. For the Court to leave unrestrained the obvious tendency of
the proceedings below would be nothing short of wittingly condoning inequity and
injustice resulting from erroneous construction and unwarranted application of
procedural rules.

–5–

The sum and total of all the foregoing disquisitions is that the decision here in
question is legally anomalous. It is predicated on two fatal malactuations of
respondent court namely (1) the dismissal of the complaint against the non-
defaulted defendants Lim and Leonardo and (2) the ex-parte reception of the
evidence of the plaintiff by the clerk of court, the subsequent using of the same as
basis for its judgment and the rendition of such judgment.

For at least three reasons which We have already fully discussed above, the order of
dismissal of October 21, 1974 is unworthy of Our sanction: (1) there was no timely
notice of the motion therefor to the non-defaulted defendants, aside from there
being no notice at all to herein petitioners; (2) the common answer of the
defendants, including the non-defaulted, contained a compulsory counterclaim
incapable of being determined in an independent action; and (3) the immediate
effect of such dismissal was the removal of the two non-defaulted defendants as
parties, and inasmuch as they are both indispensable parties in the case, the court
consequently lost the" sine qua non of the exercise of judicial power", per Borlasa
vs. Polistico, supra. This is not to mention anymore the irregular delegation to the
clerk of court of the function of receiving plaintiff's evidence. And as regards the ex-
parte reception of plaintiff's evidence and subsequent rendition of the judgment by
default based thereon, We have seen that it was violative of the right of the
petitioners, under the applicable rules and principles on default, to a common and
single fate with their non-defaulted co-defendants. And We are not yet referring, as
We shall do this anon to the numerous reversible errors in the decision itself.

It is to be noted, however, that the above-indicated two fundamental flaws in

respondent court's actuations do not call for a common corrective remedy. We
cannot simply rule that all the impugned proceedings are null and void and should be
set aside, without being faced with the insurmountable obstacle that by so doing We
would be reviewing the case as against the two non-defaulted defendants who are
not before Us not being parties hereto. Upon the other hand, for Us to hold that the
order of dismissal should be allowed to stand, as contended by respondents
themselves who insist that the same is already final, not only because the period for
its finality has long passed but also because allegedly, albeit not very accurately,
said 'non-defaulted defendants unsuccessfully tried to have it set aside by the Court
of Appeals whose decision on their petition is also already final, We would have to
disregard whatever evidence had been presented by the plaintiff against them and,
of course, the findings of respondent court based thereon which, as the assailed
decision shows, are adverse to them. In other words, whichever of the two apparent
remedies the Court chooses, it would necessarily entail some kind of possible
juridical imperfection. Speaking of their respective practical or pragmatic effects, to
annul the dismissal would inevitably prejudice the rights of the non-defaulted
defendants whom We have not heard and who even respondents would not wish to
have anything anymore to do with the case. On the other hand, to include petitioners
in the dismissal would naturally set at naught every effort private respondent has
made to establish or prove her case thru means sanctioned by respondent court. In
short, We are confronted with a legal para-dilemma. But one thing is certain — this
difficult situations has been brought about by none other than private respondent
who has quite cynically resorted to procedural maneuvers without realizing that the
technicalities of the adjective law, even when apparently accurate from the literal
point of view, cannot prevail over the imperatives of the substantive law and of
equity that always underlie them and which have to be inevitably considered in the
construction of the pertinent procedural rules.

All things considered, after careful and mature deliberation, the Court has arrived at
the conclusion that as between the two possible alternatives just stated, it would
only be fair, equitable and proper to uphold the position of petitioners. In other
words, We rule that the order of dismissal of October 21, 1974 is in law a dismissal
of the whole case of the plaintiff, including as to petitioners herein. Consequently, all
proceedings held by respondent court subsequent thereto including and principally
its decision of December 20, 1974 are illegal and should be set aside.

This conclusion is fully justified by the following considerations of equity:

1. It is very clear to Us that the procedural maneuver resorted to by private

respondent in securing the decision in her favor was ill-conceived. It was
characterized by that which every principle of law and equity disdains — taking unfair
advantage of the rules of procedure in order to unduly deprive the other party of full
opportunity to defend his cause. The idea of "dropping" the non-defaulted
defendants with the end in view of completely incapacitating their co-defendants
from making any defense, without considering that all of them are indispensable
parties to a common cause of action to which they have countered with a common
defense readily connotes an intent to secure a one-sided decision, even improperly.
And when, in this connection, the obvious weakness of plaintiff's evidence is taken
into account, one easily understands why such tactics had to be availed of. We
cannot directly or indirectly give Our assent to the commission of unfairness and
inequity in the application of the rules of procedure, particularly when the propriety
of reliance thereon is not beyond controversy.

2. The theories of remedial law pursued by private respondents, although approved

by His Honor, run counter to such basic principles in the rules on default and such
elementary rules on dismissal of actions and notice of motions that no trial court
should be unaware of or should be mistaken in applying. We are at a loss as to why
His Honor failed to see through counsel's inequitous strategy, when the provisions
(1) on the three-day rule on notice of motions, Section 4 of Rule 15, (2) against
dismissal of actions on motion of plaintiff when there is a compulsory counterclaim,
Section 2, Rule 17, (3) against permitting the absence of indispensable parties,
Section 7, Rule 3, (4) on service of papers upon defendants in default when there
are substantial amendments to pleadings, Section 9, Rule 13, and (5) on the unity
and integrity of the fate of defendants in default with those not in default where the
cause of action against them and their own defenses are common, Section 4, Rule
18, are so plain and the jurisprudence declaratory of their intent and proper
construction are so readily comprehensible that any error as to their application
would be unusual in any competent trial court.

3. After all, all the malactuations of respondent court are traceable to the initiative of
private respondent and/or her counsel. She cannot, therefore, complain that she is
being made to unjustifiably suffer the consequences of what We have found to be
erroneous orders of respondent court. It is only fair that she should not be allowed to
benefit from her own frustrated objective of securing a one-sided decision.

4. More importantly, We do not hesitate to hold that on the basis of its own recitals,
the decision in question cannot stand close scrutiny. What is more, the very
considerations contained therein reveal convincingly the inherent weakness of the
cause of the plaintiff. To be sure, We have been giving serious thought to the idea of
merely returning this case for a resumption of trial by setting aside the order of
dismissal of October 21, 1974, with all its attendant difficulties on account of its
adverse effects on parties who have not been heard, but upon closer study of the
pleadings and the decision and other circumstances extant in the record before Us,
We are now persuaded that such a course of action would only lead to more legal
complications incident to attempts on the part of the parties concerned to
desperately squeeze themselves out of a bad situation. Anyway, We feel confident
that by and large, there is enough basis here and now for Us to rule out the claim of
the plaintiff.

Even a mere superficial reading of the decision would immediately reveal that it is
littered on its face with deficiencies and imperfections which would have had no
reason for being were there less haste and more circumspection in rendering the
same. Recklessness in jumping to unwarranted conclusions, both factual and legal, is
at once evident in its findings relative precisely to the main bases themselves of the
reliefs granted. It is apparent therein that no effort has been made to avoid glaring
inconsistencies. Where references are made to codal provisions and jurisprudence,
inaccuracy and inapplicability are at once manifest. It hardly commends itself as a
deliberate and consciencious adjudication of a litigation which, considering the
substantial value of the subject matter it involves and the unprecedented procedure
that was followed by respondent's counsel, calls for greater attention and skill than
the general run of cases would.

Inter alia, the following features of the decision make it highly improbable that if We
took another course of action, private respondent would still be able to make out any
case against petitioners, not to speak of their co-defendants who have already been
exonerated by respondent herself thru her motion to dismiss:

1. According to His Honor's own statement of plaintiff's case, "she is the widow of the
late Tee Hoon Po Chuan (Po Chuan, for short) who was then one of the partners in
the commercial partnership, Glory Commercial Co. with defendants Antonio Lim
Tanhu (Lim Tanhu, for short) and Alfonso Leonardo Ng Sua (Ng Sua, for short) as
co-partners; that after the death of her husband on March 11, 1966 she is entitled to
share not only in the capital and profits of the partnership but also in the other
assets, both real and personal, acquired by the partnership with funds of the latter
during its lifetime."

Relatedly, in the latter part of the decision, the findings are to the following effect: .

That the herein plaintiff Tan Put and her late husband Po Chuan married
at the Philippine Independent Church of Cebu City on December, 20,
1949; that Po Chuan died on March 11, 1966; that the plaintiff and the
late Po Chuan were childless but the former has a foster son Antonio
Nuñez whom she has reared since his birth with whom she lives up to the
present; that prior to the marriage of the plaintiff to Po Chuan the latter
was already managing the partnership Glory Commercial Co. then
engaged in a little business in hardware at Manalili St., Cebu City; that
prior to and just after the marriage of the plaintiff to Po Chuan she was
engaged in the drugstore business; that not long after her marriage,
upon the suggestion of Po Chuan the plaintiff sold her drugstore for
P125,000.00 which amount she gave to her husband in the presence of
defendant Lim Tanhu and was invested in the partnership Glory
Commercial Co. sometime in 1950; that after the investment of the
above-stated amount in the partnership its business flourished and it
embarked in the import business and also engaged in the wholesale and
retail trade of cement and GI sheets and under huge profits;

xxx xxx xxx

That the late Po Chuan was the one who actively managed the business
of the partnership Glory Commercial Co. he was the one who made the
final decisions and approved the appointments of new personnel who
were taken in by the partnership; that the late Po Chuan and defendants
Lim Tanhu and Ng Sua are brothers, the latter two (2) being the elder
brothers of the former; that defendants Lim Tanhu and Ng Sua are both
naturalized Filipino citizens whereas the late Po Chuan until the time of
his death was a Chinese citizen; that the three (3) brothers were partners
in the Glory Commercial Co. but Po Chuan was practically the owner of
the partnership having the controlling interest; that defendants Lim
Tanhu and Ng Sua were partners in name but they were mere employees
of Po Chuan .... (Pp. 89-91, Record.)

How did His Honor arrive at these conclusions? To start with, it is not clear in the
decision whether or not in making its findings of fact the court took into account the
allegations in the pleadings of the parties and whatever might have transpired at the
pre-trial. All that We can gather in this respect is that references are made therein to
pre-trial exhibits and to Annex A of the answer of the defendants to plaintiff's
amended complaint. Indeed, it was incumbent upon the court to consider not only
the evidence formally offered at the trial but also the admissions, expressed or
implied, in the pleadings, as well as whatever might have been placed before it or
brought to its attention during the pre-trial. In this connection, it is to be regretted
that none of the parties has thought it proper to give Us an idea of what took place
at the pre-trial of the present case and what are contained in the pre-trial order, if
any was issued pursuant to Section 4 of Rule 20.
The fundamental purpose of pre-trial, aside from affording the parties every
opportunity to compromise or settle their differences, is for the court to be apprised
of the unsettled issues between the parties and of their respective evidence relative
thereto, to the end that it may take corresponding measures that would abbreviate
the trial as much as possible and the judge may be able to ascertain the facts with
the least observance of technical rules. In other words whatever is said or done by
the parties or their counsel at the pre- trial serves to put the judge on notice of their
respective basic positions, in order that in appropriate cases he may, if necessary in
the interest of justice and a more accurate determination of the facts, make inquiries
about or require clarifications of matters taken up at the pre-trial, before finally
resolving any issue of fact or of law. In brief, the pre-trial constitutes part and parcel
of the proceedings, and hence, matters dealt with therein may not be disregarded in
the process of decision making. Otherwise, the real essence of compulsory pre-trial
would be insignificant and worthless.

Now, applying these postulates to the findings of respondent court just quoted, it will
be observed that the court's conclusion about the supposed marriage of plaintiff to
the deceased Tee Hoon Lim Po Chuan is contrary to the weight of the evidence
brought before it during the trial and the pre-trial.

Under Article 55 of the Civil Code, the declaration of the contracting parties that they
take each other as husband and wife "shall be set forth in an instrument" signed by
the parties as well as by their witnesses and the person solemnizing the marriage.
Accordingly, the primary evidence of a marriage must be an authentic copy of the
marriage contract. While a marriage may also be proved by other competent
evidence, the absence of the contract must first be satisfactorily explained. Surely,
the certification of the person who allegedly solemnized a marriage is not admissible
evidence of such marriage unless proof of loss of the contract or of any other
satisfactory reason for its non-production is first presented to the court. In the case
at bar, the purported certification issued by a Mons. Jose M. Recoleto, Bishop,
Philippine Independent Church, Cebu City, is not, therefore, competent evidence,
there being absolutely no showing as to unavailability of the marriage contract and,
indeed, as to the authenticity of the signature of said certifier, the jurat allegedly
signed by a second assistant provincial fiscal not being authorized by law, since it is
not part of the functions of his office. Besides, inasmuch as the bishop did not testify,
the same is hearsay.

As regards the testimony of plaintiff herself on the same point and that of her
witness Antonio Nuñez, there can be no question that they are both self-serving and
of very little evidentiary value, it having been disclosed at the trial that plaintiff has
already assigned all her rights in this case to said Nuñez, thereby making him the
real party in interest here and, therefore, naturally as biased as herself. Besides, in
the portion of the testimony of Nuñez copied in Annex C of petitioner's
memorandum, it appears admitted that he was born only on March 25, 1942, which
means that he was less than eight years old at the supposed time of the alleged
marriage. If for this reason alone, it is extremely doubtful if he could have been
sufficiently aware of such event as to be competent to testify about it.

Incidentally, another Annex C of the same memorandum purports to be the

certificate of birth of one Antonio T. Uy supposed to have been born on March 23,
1937 at Centro Misamis, Misamis Occidental, the son of one Uy Bien, father, and Tan
Put, mother. Significantly, respondents have not made any adverse comment on this
document. It is more likely, therefore, that the witness is really the son of plaintiff by
her husband Uy Kim Beng. But she testified she was childless. So which is which? In
any event, if on the strength of this document, Nuñez is actually the legitimate son
of Tan Put and not her adopted son, he would have been but 13 years old in 1949,
the year of her alleged marriage to Po Chuan, and even then, considering such age,
his testimony in regard thereto would still be suspect.
Now, as against such flimsy evidence of plaintiff, the court had before it, two
documents of great weight belying the pretended marriage. We refer to (1) Exhibit
LL, the income tax return of the deceased Tee Hoon Lim Po Chuan indicating that the
name of his wife was Ang Sick Tin and (2) the quitclaim, Annex A of the answer,
wherein plaintiff Tan Put stated that she had been living with the deceased without
benefit of marriage and that she was his "common-law wife". Surely, these two
documents are far more reliable than all the evidence of the plaintiff put together.

Of course, Exhibit LL is what might be termed as pre-trial evidence. But it is evidence

offered to the judge himself, not to the clerk of court, and should have at least
moved him to ask plaintiff to explain if not rebut it before jumping to the conclusion
regarding her alleged marriage to the deceased, Po Chuan. And in regard to the
quitclaim containing the admission of a common-law relationship only, it is to be
observed that His Honor found that "defendants Lim Tanhu and Ng Sua had the
plaintiff execute a quitclaim on November 29, 1967 (Annex "A", Answer) where they
gave plaintiff the amount of P25,000 as her share in the capital and profits of the
business of Glory Commercial Co. which was engaged in the hardware business",
without making mention of any evidence of fraud and misrepresentation in its
execution, thereby indicating either that no evidence to prove that allegation of the
plaintiff had been presented by her or that whatever evidence was actually offered
did not produce persuasion upon the court. Stated differently, since the existence of
the quitclaim has been duly established without any circumstance to detract from its
legal import, the court should have held that plaintiff was bound by her admission
therein that she was the common-law wife only of Po Chuan and what is more, that
she had already renounced for valuable consideration whatever claim she might have
relative to the partnership Glory Commercial Co.

And when it is borne in mind that in addition to all these considerations, there are
mentioned and discussed in the memorandum of petitioners (1) the certification of
the Local Civil Registrar of Cebu City and (2) a similar certification of the Apostolic
Prefect of the Philippine Independent Church, Parish of Sto. Niño, Cebu City, that
their respective official records corresponding to December 1949 to December 1950
do not show any marriage between Tee Hoon Lim Po Chuan and Tan Put, neither of
which certifications have been impugned by respondent until now, it stands to reason
that plaintiff's claim of marriage is really unfounded. Withal, there is still another
document, also mentioned and discussed in the same memorandum and
unimpugned by respondents, a written agreement executed in Chinese, but
purportedly translated into English by the Chinese Consul of Cebu, between Tan Put
and Tee Hoon Lim Po Chuan to the following effect:

CONSULATE OF THE REPUBLIC OF CHINA Cebu City, Philippines

TRANSLATION

This is to certify that 1, Miss Tan Ki Eng Alias Tan Put, have lived with Mr.
Lim Po Chuan alias TeeHoon since 1949 but it recently occurs that we are
incompatible with each other and are not in the position to keep living
together permanently. With the mutual concurrence, we decided to
terminate the existing relationship of common law-marriage and
promised not to interfere each other's affairs from now on. The Forty
Thousand Pesos (P40,000.00) has been given to me by Mr. Lim Po Chuan
for my subsistence.

Witnesses:

Mr. Lim Beng Guan Mr. Huang Sing Se

Signed on the 10 day of the 7th month of the 54th year of the Republic of
China (corresponding to the year 1965).
 (SGD) TAN KI ENG

Verified from the records. JORGE TABAR (Pp. 283-284, Record.)

Indeed, not only does this document prove that plaintiff's relation to the deceased
was that of a common-law wife but that they had settled their property interests with
the payment to her of P40,000.

In the light of all these circumstances, We find no alternative but to hold that plaintiff
Tan Put's allegation that she is the widow of Tee Hoon Lim Po Chuan has not been
satisfactorily established and that, on the contrary, the evidence on record
convincingly shows that her relation with said deceased was that of a common-law
wife and furthermore, that all her claims against the company and its surviving
partners as well as those against the estate of the deceased have already been
settled and paid. We take judicial notice of the fact that the respective counsel who
assisted the parties in the quitclaim, Attys. H. Hermosisima and Natalio Castillo, are
members in good standing of the Philippine Bar, with the particularity that the latter
has been a member of the Cabinet and of the House of Representatives of the
Philippines, hence, absent any credible proof that they had allowed themselves to be
parties to a fraudulent document His Honor did right in recognizing its existence,
albeit erring in not giving due legal significance to its contents.

2. If, as We have seen, plaintiff's evidence of her alleged status as legitimate wife of
Po Chuan is not only unconvincing but has been actually overcome by the more
competent and weighty evidence in favor of the defendants, her attempt to
substantiate her main cause of action that defendants Lim Tanhu and Ng Sua have
defrauded the partnership Glory Commercial Co. and converted its properties to
themselves is even more dismal. From the very evidence summarized by His Honor
in the decision in question, it is clear that not an iota of reliable proof exists of such
alleged misdeeds.

Of course, the existence of the partnership has not been denied, it is actually
admitted impliedly in defendants' affirmative defense that Po Chuan's share had
already been duly settled with and paid to both the plaintiff and his legitimate family.
But the evidence as to the actual participation of the defendants Lim Tanhu and Ng
Sua in the operation of the business that could have enabled them to make the
extractions of funds alleged by plaintiff is at best confusing and at certain points
manifestly inconsistent.

In her amended complaint, plaintiff repeatedly alleged that as widow of Po Chuan

she is entitled to ¹/3 share of the assets and properties of the partnership. In fact,
her prayer in said complaint is, among others, for the delivery to her of such
¹/3 share. His Honor's statement of the case as well as his findings and judgment are
all to that same effect. But what did she actually try to prove at the ex-
parte  hearing?

According to the decision, plaintiff had shown that she had money of her own when
she "married" Po Chuan and "that prior to and just after the marriage of the plaintiff
to Po Chuan, she was engaged in the drugstore business; that not long after her
marriage, upon the suggestion of Po Chuan, the plaintiff sold her drugstore for
P125,000 which amount she gave to her husband in the presence of Tanhu and was
invested in the partnership Glory Commercial Co. sometime in 1950; that after the
investment of the above-stated amount in the partnership, its business flourished
and it embarked in the import business and also engaged in the wholesale and retail
trade of cement and GI sheets and under (sic) huge profits." (pp. 25-26, Annex L,
petition.)

To begin with, this theory of her having contributed of P125,000 to the capital of the
partnership by reason of which the business flourished and amassed all the millions
referred to in the decision has not been alleged in the complaint, and inasmuch as
what was being rendered was a judgment by default, such theory should not have
been allowed to be the subject of any evidence. But inasmuch as it was the clerk of
court who received the evidence, it is understandable that he failed to observe the
rule. Then, on the other hand, if it was her capital that made the partnership
flourish, why would she claim to be entitled to only to ¹/ 3 of its assets and profits?
Under her theory found proven by respondent court, she was actually the owner of
everything, particularly because His Honor also found "that defendants Lim Tanhu
and Ng Sua were partners in the name but they were employees of Po Chuan that
defendants Lim Tanhu and Ng Sua had no means of livelihood at the time of their
employment with the Glory Commercial Co. under the management of the late Po
Chuan except their salaries therefrom; ..." (p. 27, id.) Why then does she claim only
¹/3 share? Is this an indication of her generosity towards defendants or of a
concocted cause of action existing only in her confused imagination engendered by
the death of her common-law husband with whom she had settled her common-law
claim for recompense of her services as common law wife for less than what she
must have known would go to his legitimate wife and children?

Actually, as may be noted from the decision itself, the trial court was confused as to
the participation of defendants Lim Tanhu and Ng Sua in Glory Commercial Co. At
one point, they were deemed partners, at another point mere employees and then
elsewhere as partners-employees, a newly found concept, to be sure, in the law on
partnership. And the confusion is worse comfounded in the judgment which allows
these "partners in name" and "partners-employees" or employees who had no means
of livelihood and who must not have contributed any capital in the business, "as Po
Chuan was practically the owner of the partnership having the controlling interest",
¹/3 each of the huge assets and profits of the partnership. Incidentally, it may be
observed at this juncture that the decision has made Po Chuan play the inconsistent
role of being "practically the owner" but at the same time getting his capital from the
P125,000 given to him by plaintiff and from which capital the business allegedly
"flourished."

Anent the allegation of plaintiff that the properties shown by her exhibits to be in the
names of defendants Lim Tanhu and Ng Sua were bought by them with partnership
funds, His Honor confirmed the same by finding and holding that "it is likewise clear
that real properties together with the improvements in the names of defendants Lim
Tanhu and Ng Sua were acquired with partnership funds as these defendants were
only partners-employees of deceased Po Chuan in the Glory Commercial Co. until the
time of his death on March 11, 1966." (p. 30,  id.) It Is Our considered view,
however, that this conclusion of His Honor is based on nothing but pure unwarranted
conjecture. Nowhere is it shown in the decision how said defendants could have
extracted money from the partnership in the fraudulent and illegal manner pretended
by plaintiff. Neither in the testimony of Nuñez nor in that of plaintiff, as these are
summarized in the decision, can there be found any single act of extraction of
partnership funds committed by any of said defendants. That the partnership might
have grown into a multi-million enterprise and that the properties described in the
exhibits enumerated in the decision are not in the names of Po Chuan, who was
Chinese, but of the defendants who are Filipinos, do not necessarily prove that Po
Chuan had not gotten his share of the profits of the business or that the properties in
the names of the defendants were bought with money of the partnership. In this
connection, it is decisively important to consider that on the basis of the concordant
and mutually cumulative testimonies of plaintiff and Nuñez, respondent court found
very explicitly that, and We reiterate:

xxx xxx xxx

That the late Po Chuan was the one who actively managed the business
of the partnership Glory Commercial Co. he was the one who made the
final decisions and approved the appointments of new Personnel who
 were taken in by the partnership; that the late Po Chuan and defendants
Lim Tanhu and Ng Sua are brothers, the latter to (2) being the elder
brothers of the former; that defendants Lim Tanhu and Ng Sua are both
naturalized Filipino citizens whereas the late Po Chuan until the time of
his death was a Chinese citizen; that the three (3) brothers were partners
in the Glory Commercial Co. but Po Chuan was practically the owner of
the partnership having the controlling interest; that defendants Lim
Tanhu and Ng Sua were partners in name but they were mere employees
of Po Chuan; .... (Pp. 90-91, Record.)

If Po Chuan was in control of the affairs and the running of the partnership, how
could the defendants have defrauded him of such huge amounts as plaintiff had
made his Honor believe? Upon the other hand, since Po Chuan was in control of the
affairs of the partnership, the more logical inference is that if defendants had
obtained any portion of the funds of the partnership for themselves, it must have
been with the knowledge and consent of Po Chuan, for which reason no accounting
could be demanded from them therefor, considering that Article 1807 of the Civil
Code refers only to what is taken by a partner without the consent of the other
partner or partners. Incidentally again, this theory about Po Chuan having been
actively managing the partnership up to his death is a substantial deviation from the
allegation in the amended complaint to the effect that "defendants Antonio Lim
Tanhu, Alfonso Leonardo Ng Sua, Lim Teck Chuan and Eng Chong Leonardo, through
fraud and machination, took actual and active management of the partnership and
although Tee Hoon Lim Po Chuan was the manager of Glory Commercial Co.,
defendants managed to use the funds of the partnership to purchase lands and
buildings etc. (Par. 4, p. 2 of amended complaint, Annex B of petition) and should
not have been permitted to be proven by the hearing officer, who naturally did not
know any better.

Moreover, it is very significant that according to the very tax declarations and land
titles listed in the decision, most if not all of the properties supposed to have been
acquired by the defendants Lim Tanhu and Ng Sua with funds of the partnership
appear to have been transferred to their names only in 1969 or later, that is, long
after the partnership had been automatically dissolved as a result of the death of Po
Chuan. Accordingly, defendants have no obligation to account to anyone for such
acquisitions in the absence of clear proof that they had violated the trust of Po Chuan
during the existence of the partnership. (See Hanlon vs. Hansserman and. Beam, 40
Phil. 796.)

There are other particulars which should have caused His Honor to readily disbelieve
plaintiffs' pretensions. Nuñez testified that "for about 18 years he was in charge of
the GI sheets and sometimes attended to the imported items of the business of
Glory Commercial Co." Counting 18 years back from 1965 or 1966 would take Us to
1947 or 1948. Since according to Exhibit LL, the baptismal certificate produced by
the same witness as his birth certificate, shows he was born in March, 1942, how
could he have started managing Glory Commercial Co. in 1949 when he must have
been barely six or seven years old? It should not have escaped His Honor's attention
that the photographs showing the premises of Philippine Metal Industries after its
organization "a year or two after the establishment of Cebu Can Factory in 1957 or
1958" must have been taken after 1959. How could Nuñez have been only 13 years
old then as claimed by him to have been his age in those photographs when
according to his "birth certificate", he was born in 1942? His Honor should not have
overlooked that according to the same witness, defendant Ng Sua was living in
Bantayan until he was directed to return to Cebu after the fishing business thereat
floundered, whereas all that the witness knew about defendant Lim Teck Chuan's
arrival from Hongkong and the expenditure of partnership money for him were only
told to him allegedly by Po Chuan, which testimonies are veritably exculpatory as to
Ng Sua and hearsay as to Lim Teck Chuan. Neither should His Honor have failed to
note that according to plaintiff herself, "Lim Tanhu was employed by her husband
although he did not go there always being a mere employee of Glory Commercial
Co." (p. 22, Annex the decision.)

The decision is rather emphatic in that Lim Tanhu and Ng Sua had no known income
except their salaries. Actually, it is not stated, however, from what evidence such
conclusion was derived in so far as Ng Sua is concerned. On the other hand, with
respect to Lim Tanhu, the decision itself states that according to Exhibit NN-Pre trial,
in the supposed income tax return of Lim Tanhu for 1964, he had an income of
P4,800 as salary from Philippine Metal Industries alone and had a total assess sable
net income of P23,920.77 that year for which he paid a tax of P4,656.00. (p. 14.
Annex L, id.) And per Exhibit GG-Pretrial in the year, he had a net income of P32,000
for which be paid a tax of P3,512.40. (id.) As early as 1962, "his fishing business in
Madridejos Cebu was making money, and he reported "a net gain from operation (in)
the amount of P865.64" (id., per Exhibit VV-Pre-trial.) From what then did his Honor
gather the conclusion that all the properties registered in his name have come from
funds malversed from the partnership?

It is rather unusual that His Honor delved into financial statements and books of
Glory Commercial Co. without the aid of any accountant or without the same being
explained by any witness who had prepared them or who has knowledge of the
entries therein. This must be the reason why there are apparent inconsistencies and
inaccuracies in the conclusions His Honor made out of them. In Exhibit SS-Pre-trial,
the reported total assets of the company amounted to P2,328,460.27 as of
December, 1965, and yet, Exhibit TT-Pre-trial, according to His Honor, showed that
the total value of goods available as of the same date was P11,166,327.62. On the
other hand, per Exhibit XX-Pre-trial, the supposed balance sheet of the company for
1966, "the value of inventoried merchandise, both local and imported", as found by
His Honor, was P584,034.38. Again, as of December 31, 1966, the value of the
company's goods available for sale was P5,524,050.87, per Exhibit YY and YY-Pre-
trial. Then, per Exhibit II-3-Pre-trial, the supposed Book of Account, whatever that
is, of the company showed its "cash analysis" was P12,223,182.55. We do not
hesitate to make the observation that His Honor, unless he is a certified public
accountant, was hardly qualified to read such exhibits and draw any definite
conclusions therefrom, without risk of erring and committing an injustice. In any
event, there is no comprehensible explanation in the decision of the conclusion of His
Honor that there were P12,223,182.55 cash money defendants have to account for,
particularly when it can be very clearly seen in Exhibits 11-4, 11-4- A, 11-5 and 11-
6-Pre-trial, Glory Commercial Co. had accounts payable as of December 31, 1965 in
the amount of P4,801,321.17. (p. 15, id.) Under the circumstances, We are not
prepared to permit anyone to predicate any claim or right from respondent court's
unaided exercise of accounting knowledge.

Additionally, We note that the decision has not made any finding regarding the
allegation in the amended complaint that a corporation denominated Glory
Commercial Co., Inc. was organized after the death of Po Chuan with capital from
the funds of the partnership. We note also that there is absolutely no finding made
as to how the defendants Dy Ochay and Co Oyo could in any way be accountable to
plaintiff, just because they happen to be the wives of Lim Tanhu and Ng Sua,
respectively. We further note that while His Honor has ordered defendants to deliver
or pay jointly and severally to the plaintiff P4,074,394.18 or ¹/ 3 of the
P12,223,182.55, the supposed cash belonging to the partnership as of December 31,
1965, in the same breath, they have also been sentenced to partition and give
¹/3share of the properties enumerated in the dispositive portion of the decision,
which seemingly are the very properties allegedly purchased from the funds of the
partnership which would naturally include the P12,223,182.55 defendants have to
account for. Besides, assuming there has not yet been any liquidation of the
partnership, contrary to the allegation of the defendants, then Glory Commercial Co.
would have the status of a partnership in liquidation and the only right plaintiff could
have would be to what might result after such liquidation to belong to the deceased
partner, and before this is finished, it is impossible to determine, what rights or
interests, if any, the deceased had (Bearneza vs. Dequilla 43 Phil. 237). In other
words, no specific amounts or properties may be adjudicated to the heir or legal
representative of the deceased partner without the liquidation being first terminated.

Indeed, only time and the fear that this decision would be much more extended than
it is already prevent us from further pointing out the inexplicable deficiencies and
imperfections of the decision in question. After all, what have been discussed should
be more than sufficient to support Our conclusion that not only must said decision be
set aside but also that the action of the plaintiff must be totally dismissed, and, were
it not seemingly futile and productive of other legal complications, that plaintiff is
liable on defendants' counterclaims. Resolution of the other issues raised by the
parties albeit important and perhaps pivotal has likewise become superfluous.

IN VIEW OF ALL THE FOREGOING, the petition is granted. All proceedings held in
respondent court in its Civil Case No. 12328 subsequent to the order of dismissal of
October 21, 1974 are hereby annulled and set aside, particularly the ex-
parte  proceedings against petitioners and the decision on December 20, 1974.
Respondent court is hereby ordered to enter an order extending the effects of its
order of dismissal of the action dated October 21, 1974 to herein petitioners Antonio
Lim Tanhu, Dy Ochay, Alfonso Leonardo Ng Sua and Co Oyo. And respondent court is
hereby permanently enjoined from taking any further action in said civil case gave
and except as herein indicated. Costs against private respondent.
G.R. No. 106436 December 3, 1994

VIRGILIO D. IMSON, petitioner, 
vs.
HON. COURT OF APPEALS, HOLIDAY HILLS STOCK AND BREEDING FARM
CORPORATION, FNCB FINANCE CORPORATION, respondents.

Polotan Law Office for petitioner.

Felix R. Solomon for private respondents.

PUNO, J.:

The case at bench arose from a vehicular collision on December 11, 1983, involving
petitioner's Toyota Corolla and a Hino diesel truck registered under the names of
private respondents FNCB Finance Corporation and Holiday Hills Stock and Breeding
Farm Corporation. The collision seriously injured petitioner and totally wrecked his
car.

On January 6, 1984, petitioner filed with the RTC Baguio City 1 a Complaint for
Damages2 Sued were private respondents as registered owners of the truck; truck
driver Felix B. Calip, Jr.; the beneficial owners of the truck, Gorgonio Co Adarme,
Felisa T. Co (also known as Felisa Tan), and Cirilia Chua Siok Bieng, and the truck
insurer, Western Guaranty Corporation.

The Complaint prayed that defendants be ordered to pay, jointly and severally, two
hundred seventy thousand pesos (P270,000.00) as compensatory damages, fifty
thousand pesos (P50,000.00) each as moral and exemplary damages, and attorney's
fees, litigation expenses, and cost of suit. 8

Defendants driver and beneficial owners failed to answer and were declared in
default.4 On May 29, 1987, however, petitioner and defendant insurer, entered into a
compromise agreement which provided, inter alia:

1. Defendant Western Guaranty Corporation (Western Guaranty for short)

admits that its total liability under the laws and the insurance contract
sued upon is P70,000.00;

2. In full settlement of its liability under the laws and the said insurance
contract, defendant Western Guaranty shall pay plaintiff (herein
petitioner) the amount of P70,000.00 upon the signing of this
compromise agreement;
 3. This compromise agreement shall in no way waive nor prejudice
plaintiffs (herein petitioner's) rights to proceed against the other
defendants with respect the remainder of his claims;

4. This compromise agreement shall be a full and final settlement of the

issues between plaintiff (herein petitioner) and defendant Western
Guaranty in their complaint and answer and, from now on, they shall
have no more right against one another except the enforcement of this
compromise agreement.

In consequence of the compromise agreement, the trial court dismissed the

Complaint for Damages against Western Guaranty Corporation on June 16, 1987. 8 A
copy of the Order of dismissal was received by private respondent Holiday Hills Stock
and Breeding Farm Corporation on July 13, 1987. Nearly eighteen (18) months later,
said private respondent moved to dismiss the case against all the other defendants.
It argued that since they are all indispensable parties under a common cause of
action, the dismissal of the case against defendant insurer must result in the
dismissal of the suit against all of them. The trial court denied the motion.

Private respondent Holiday Hills Stock and Breeding Farm Corporation assailed the
denial order through a Petition for Certiorari, Prohibition and Mandamus  With
Restraining Order filed with respondent Court of Appeals. The Petition was docketed
as CA-G.R. SP No. 17651. On July 10, 1992, the Court of Appeals, 7 through its
Special Sixth Division,8 reversed the trial court, as it ruled:

The petitioner (herein private respondent Holiday Hills Stock and Breeding Farm
Corporation) cites the doctrine laid down in Lim Tanhu v. Hon. Ramolete, 66 SCRA
425, as applied later in Co v. Acosta, 134 SCRA 185, to support its averment that the
court a quo  gravely abused its discretion in refusing to dismiss the case.

Essentially, the doctrine adverted to essays that in a common cause of action where
all the defendants are indispensable parties, the court's power to act is integral and
cannot be split, such that it cannot relieve any of them and at the same time render
judgment against the rest.

We find applicability of the doctrine to the case at bar.

A cursory reading of the complaint . . . reveals that the cause of action was the
alleged bad faith and gross negligence of the defendants resulting in the injuries
complained of and for which the action for damages was filed. The inclusion of
Western Guaranty Corporation was vital to the claim, it being the insurer of the
diesel truck without which, the claim could be set for naught. Stated otherwise, it is
an indispensable party as the petitioner (herein private respondent stock and
breeding farm corporation) . . . . Private respondent's (herein petitioner's argument
that the said insurance company was sued on a different cause of action, i.e., its
bounden duty under the insurance law to pay or settle claims arising under its policy
coverage, is untenable, for the cited law perceives the existence of a just cause, and
according to the answer filed by the Western Guaranty Corporation . . . the
proximate cause of the accident was the fault of the plaintiff (herein petitioner),
hence it was not liable for damages. There is in fact a congruence of affirmative
defense among the answering defendants.

Moreover, it is undisputed that the injury caused is covered by the insurance

company concerned. Thus, when the said insurer settled its liability with the private
respondent (petitioner herein) . . . , the other defendants, as the insured and
indispensable parties to a common cause of action, necessarily benefited from such
settlement including the defaulted defendants, for as stated in the aforecited cases,
it is deemed that anything done by or for the answering defendant is done by or for
the ones in default since it is implicit in the rule that default is in essence a mere
formality that deprives them of no more than to take part in the trial, but if the
complaint is dismissed as to the answering defendant, it should also be dismissed as
to them.9 (Citations omitted.)

Petitioner now comes to this Court with the following assignments of error:

A.

RESPONDENT COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN

RULING THAT THE DEFENDANTS IN CIVIL CASE NO. 248-R ARE
INDISPENSABLE PARTIES;

B.

RESPONDENT COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN

RULING THAT IN CIVIL CASE NO. 248-R THERE IS A COMMON CAUSE OF
ACTION AGAINST THE DEFENDANTS THEREIN;

C.

RESPONDENT COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN

RULING THAT IN CIVIL CASE NO. 248-R THE RULING OF THIS
HONORABLE COURT IN LIM TAN HU VS. RAMOLETE IS APPLICABLE;

D.

RESPONDENT COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN

RULING THAT THE DOCTRINE OF ESTOPPEL AND LACHES ON MATTERS
OF JURISDICTION IS NOT APPLICABLE IN CIVIL CASE NO. 248-R.

There is merit to the petition,.

In the case of Lim Tanhu v. Ramolete, 66 SCRA 425, 458-459 (1975) this court held
that:

. . . (I)n all instances where a common cause of action is alleged against

several defendants, some of whom answer and the others do not, the
latter or those in default acquire a vested right not only to own the
defense interposed in the answer of their co-defendant or co-defendants
not in default but also to expect a result of the litigation totally common
with them in kind and in amount whether favorable or unfavorable. The
substantive unity of the plaintiffs cause against all the defendants is
carried through to its adjective phase as ineluctably demanded by the
homogeneity and indivisibility of justice itself. . . . The integrity of the
common cause of action against all the defendants and the
indispensability of all of them in the proceedings do not permit any
possibility of waiver of the plaintiffs right only as to one or some of them,
without including all of them, and so, as a rule, withdrawal must be
deemed to be a confession of weakness as to all. . . . . Where all the
defendants are indispensable parties, for which reason the absence of
any of them in the case would result in the court losing its competency to
act validly, any compromise that the plaintiff might wish to make with
any of them must, as a matter of correct procedure, have to await until
after the rendition of the judgment, at which stage the plaintiff may then
treat the matter of its execution and the satisfaction of his claim as
variably as he might please. Accordingly, in the case now before Us
together with the dismissal of the complaint against the non-defaulted
defendants, the court should have ordered also the dismissal thereof as
to petitioner (referring to the defaulting defendants in the case).
In sum, Lim Tanhu states that where a complaint alleges a common cause of action
against defendants who are all indispensable parties to the case, its dismissal against
any of them by virtue of a compromise agreement with the plaintiff necessarily
results in the dismissal of the case against the other defendants, including those in
default. The ruling is rooted on the rationale that the court's power to act in a case
involving a common cause of action against indispensable parties "is integral and
cannot be split such that it cannot relieve any of them and at the same time render
judgment against the rest. 10

For Lim Tanhu  to apply to the case at bench, it must be established that: (1)
petitioner has common cause of action against private respondents and the other
defendants in Civil Case No. 248-R; and (2) all the defendants are indispensable
parties to the case.

Cause of action has a fixed meaning in this jurisdiction. It is the delict or wrong by
which the right of the plaintiff is violated by the defendant. 11 The question as to
whether a plaintiff has a cause of action is determined by the averments in the
pleadings pertaining to the acts of the defendant. Whether such acts give him a right
of action is determined by substantive law. 12

In the case at bench, it is clear that petitioner has different and separate causes of
action against the defendants in the case. The allegations in the Complaint show that
petitioner seeks to recover from the truck driver for his wrong which caused injury to
petitioner and his car. The cause of action against him is based on quasi-delict under
Article 2176 of the New Civil Code. Quasi-delict, too, is the basis of the cause of
action against defendants beneficial and registered owners. But in their case, it is
Article 2180 of the same Code which governs the rights of the parties.

However, with respect to defendant Western Guaranty Corporation, petitioner's

cause of action is based on contract. He seeks to recover from the insurer on the
basis of the third party liability clause of its insurance contract with the owners of the
truck. This is acknowledged by the second paragraph of the compromise agreement
between petitioner and defendant insurer, thus:

2. In full settlement of its liability under the laws and the said insurance
contract, defendant Western Guaranty shall pay plaintiff (herein
petitioner) the amount of P70,000.00 upon the signing of this
compromise agreement.

Quite clearly then, Lim Tanhu will not apply to the case at bench for there is no
showing that petitioner has a common cause of action against the defendants
in Civil Case No. 248-R.

But this is not all. Defendants in Civil Case No. 248-R are not all indispensable
parties. An indispensable party is one whose interest will be affected by the court's
action in the litigation, and without whom no final determination of the case can be
had. The party's interest in the subject matter of the suit and in the relief sought are
so inextricably intertwined with the other parties' that his legal presence as a party
to the proceeding is an absolute necessity. 13 In his absence there cannot be a
resolution of the dispute of the parties before the court which is effective, complete,
or equitable.14

Conversely, a party is not indispensable to the suit if his interest in the controversy
or subject matter is distinct and divisible from the interest of the other parties and
will not necessarily be prejudiced by a judgment which does complete justice to the
parties in court.15 He is not indispensable if his presence would merely permit
complete relief between him and those already parties to the action, or will simply
avoid multiple litigation.16
It is true that all of petitioner's claims in Civil Case No. 248-R is premised on the
wrong committed by defendant truck driver. Concededly, the truck driver is an
indispensable party to the suit. The other defendants, however, cannot be
categorized as indispensable parties. They are merely proper parties to the case.
Proper parties have been described as parties whose presence is necessary in order
to adjudicate the whole controversy, but whose interests are so far separable that a
final decree can be made in their absence without affecting them. 17 It is easy to see
that if any of them had not been impleaded as defendant, the case would still
proceed without prejudicing the party not impleaded. Thus, if petitioner did not sue
Western Guaranty Corporation, the omission would not cause the dismissal of the
suit against the other defendants. Even without the insurer, the trial court would not
lose its competency to act completely and validly on the damage suit. The insurer,
clearly, is not an indispensable party in Civil Case No. 248-R.

IN VIEW WHEREOF, the instant petition is GRANTED. The Decision, dated July 10,
1992, of the Court of Appeals in CA-G.R. SP No. 17651 is REVERSED AND SET
ASIDE. The Complaint in Civil Case No. 248-R is REINSTATED and REMANDED to the
trial court for further proceedings. No costs. SO ORDERED.

G.R. No. 80391 February 28, 1989

SULTAN ALIMBUSAR P. LIMBONA, petitioner, 

vs.
CONTE MANGELIN, SALIC ALI, SALINDATO ALI, PILIMPINAS CONDING,
ACMAD TOMAWIS, GERRY TOMAWIS, JESUS ORTIZ, ANTONIO DELA FUENTE,
DIEGO PALOMARES, JR., RAUL DAGALANGIT, and BIMBO
SINSUAT, respondents.

Ambrosio Padilla, Mempin & Reyes Law Offices for petitioner petitioner.

Makabangkit B. Lanto for respondents.

SARMIENTO, J.:

The acts of the Sangguniang Pampook of Region XII are assailed in this petition. The
antecedent facts are as follows:

1. On September 24, 1986, petitioner Sultan Alimbusar Limbona was

appointed as a member of the Sangguniang Pampook, Regional
Autonomous Government, Region XII, representing Lanao del Sur.

2. On March 12, 1987 petitioner was elected Speaker of the Regional

Legislative Assembly or Batasang Pampook of Central Mindanao
(Assembly for brevity).

3. Said Assembly is composed of eighteen (18) members. Two of said

members, respondents Acmad Tomawis and Pakil Dagalangit, filed on
March 23, 1987 with the Commission on Elections their respective
certificates of candidacy in the May 11, 1987 congressional elections for
the district of Lanao del Sur but they later withdrew from the aforesaid
election and thereafter resumed again their positions as members of the
Assembly.

4. On October 21, 1987 Congressman Datu Guimid Matalam, Chairman of

the Committee on Muslim Affairs of the House of Representatives, invited
Mr. Xavier Razul, Pampook Speaker of Region XI, Zamboanga City and
the petitioner in his capacity as Speaker of the Assembly, Region XII, in a
letter which reads:

The Committee on Muslim Affairs well undertake consultations

and dialogues with local government officials, civic, religious
organizations and traditional leaders on the recent and
present political developments and other issues affecting
Regions IX and XII.

The result of the conference, consultations and dialogues

would hopefully chart the autonomous governments of the
two regions as envisioned and may prod the President to
constitute immediately the Regional Consultative Commission
as mandated by the Commission.

You are requested to invite some members of the Pampook

Assembly of your respective assembly on November 1 to 15,
1987, with venue at the Congress of the Philippines. Your
presence, unstinted support and cooperation is (sic)
indispensable.

5. Consistent with the said invitation, petitioner sent a telegram to Acting

Secretary Johnny Alimbuyao of the Assembly to wire all Assemblymen
that there shall be no session in November as "our presence in the house
committee hearing of Congress take (sic) precedence over any pending
business in batasang pampook ... ."

6. In compliance with the aforesaid instruction of the petitioner, Acting

Secretary Alimbuyao sent to the members of the Assembly the following
telegram:

TRANSMITTING FOR YOUR INFORMATION AND GUIDANCE

TELEGRAM RECEIVED FROM SPEAKER LIMBONA QUOTE
CONGRESSMAN JIMMY MATALAM CHAIRMAN OF THE HOUSE
COMMITTEE ON MUSLIM AFFAIRS REQUESTED ME TO ASSIST
SAID COMMITTEE IN THE DISCUSSION OF THE PROPOSED
AUTONOMY ORGANIC NOV. 1ST TO 15. HENCE WERE ALL
ASSEMBLYMEN THAT THERE SHALL BE NO SESSION IN
NOVEMBER AS OUR PRESENCE IN THE HOUSE COMMITTEE
HEARING OF CONGRESS TAKE PRECEDENCE OVER ANY
PENDING BUSINESS IN BATASANG PAMPOOK OF MATALAM
FOLLOWS UNQUOTE REGARDS.

7. On November 2, 1987, the Assembly held session in defiance of

petitioner's advice, with the following assemblymen present:

1. Sali, Salic

2. Conding, Pilipinas (sic)

3. Dagalangit, Rakil

4. Dela Fuente, Antonio

5. Mangelen, Conte

6. Ortiz, Jesus

7. Palomares, Diego
 8. Sinsuat, Bimbo

9. Tomawis, Acmad

10. Tomawis, Jerry

After declaring the presence of a quorum, the Speaker Pro-Tempore was

authorized to preside in the session. On Motion to declare the seat of the
Speaker vacant, all Assemblymen in attendance voted in the affirmative,
hence, the chair declared said seat of the Speaker vacant. 8. On
November 5, 1987, the session of the Assembly resumed with the
following Assemblymen present:

1. Mangelen Conte-Presiding Officer

2. Ali Salic

3. Ali Salindatu

4. Aratuc, Malik

5. Cajelo, Rene

6. Conding, Pilipinas (sic)

7. Dagalangit, Rakil

8. Dela Fuente, Antonio

9. Ortiz, Jesus

10 Palomares, Diego

11. Quijano, Jesus

12. Sinsuat, Bimbo

13. Tomawis, Acmad

14. Tomawis, Jerry

An excerpt from the debates and proceeding of said session reads:

HON. DAGALANGIT: Mr. Speaker, Honorable Members of the House, with

the presence of our colleagues who have come to attend the session
today, I move to call the names of the new comers in order for them to
cast their votes on the previous motion to declare the position of the
Speaker vacant. But before doing so, I move also that the designation of
the Speaker Pro Tempore as the Presiding Officer and Mr. Johnny
Evangelists as Acting Secretary in the session last November 2, 1987 be
reconfirmed in today's session.

HON. SALIC ALI: I second the motions.

PRESIDING OFFICER: Any comment or objections on the two motions

presented? Me chair hears none and the said motions are approved. ...

Twelve (12) members voted in favor of the motion to declare the seat of
the Speaker vacant; one abstained and none voted against. 1
 Accordingly, the petitioner prays for judgment as follows:

WHEREFORE, petitioner respectfully prays that-

(a) This Petition be given due course;

(b) Pending hearing, a restraining order or writ of preliminary injunction

be issued enjoining respondents from proceeding with their session to be
held on November 5, 1987, and on any day thereafter;

(c) After hearing, judgment be rendered declaring the proceedings held

by respondents of their session on November 2, 1987 as null and void;

(d) Holding the election of petitioner as Speaker of said Legislative

Assembly or Batasan Pampook, Region XII held on March 12, 1987 valid
and subsisting, and

(e) Making the injunction permanent.

Petitioner likewise prays for such other relief as may be just and
equitable. 2

Pending further proceedings, this Court, on January 19, 1988, received a resolution
filed by the Sangguniang Pampook, "EXPECTING ALIMBUSAR P. LIMBONA FROM
MEMBERSHIP OF THE SANGGUNIANG PAMPOOK AUTONOMOUS REGION XII," 3 on
the grounds, among other things, that the petitioner "had caused to be prepared and
signed by him paying [sic] the salaries and emoluments of Odin Abdula, who was
considered resigned after filing his Certificate of Candidacy for Congressmen for the
First District of Maguindanao in the last May 11, elections. . . and nothing in the
record of the Assembly will show that any request for reinstatement by Abdula was
ever made . . ." 4 and that "such action of Mr. Lim bona in paying Abdula his salaries
and emoluments without authority from the Assembly . . . constituted a usurpation
of the power of the Assembly," 5 that the petitioner "had recently caused withdrawal
of so much amount of cash from the Assembly resulting to the non-payment of the
salaries and emoluments of some Assembly [sic]," 6 and that he had "filed a case
before the Supreme Court against some members of the Assembly on question which
should have been resolved within the confines of the Assembly," 7 for which the
respondents now submit that the petition had become "moot and academic". 8

The first question, evidently, is whether or not the expulsion of the petitioner
(pending litigation) has made the case moot and academic.

We do not agree that the case has been rendered moot and academic by reason
simply of the expulsion resolution so issued. For, if the petitioner's expulsion was
done purposely to make this petition moot and academic, and to preempt the Court,
it will not make it academic.

On the ground of the immutable principle of due process alone, we hold that the
expulsion in question is of no force and effect. In the first place, there is no showing
that the Sanggunian had conducted an investigation, and whether or not the
petitioner had been heard in his defense, assuming that there was an investigation,
or otherwise given the opportunity to do so. On the other hand, what appears in the
records is an admission by the Assembly (at least, the respondents) that "since
November, 1987 up to this writing, the petitioner has not set foot at the
Sangguniang Pampook." 9 "To be sure, the private respondents aver that "[t]he
Assemblymen, in a conciliatory gesture, wanted him to come to Cotabato
City," 10 but that was "so that their differences could be threshed out and
settled." 11Certainly, that avowed wanting or desire to thresh out and settle, no
matter how conciliatory it may be cannot be a substitute for the notice and hearing
contemplated by law.

While we have held that due process, as the term is known in administrative law,
does not absolutely require notice and that a party need only be given the
opportunity to be heard, 12 it does not appear herein that the petitioner had, to begin
with, been made aware that he had in fact stood charged of graft and corruption
before his collegues. It cannot be said therefore that he was accorded any
opportunity to rebut their accusations. As it stands, then, the charges now levelled
amount to mere accusations that cannot warrant expulsion.

In the second place, (the resolution) appears strongly to be a bare act of vendetta by
the other Assemblymen against the petitioner arising from what the former perceive
to be abduracy on the part of the latter. Indeed, it (the resolution) speaks of "a case
[having been filed] [by the petitioner] before the Supreme Court . . . on question
which should have been resolved within the confines of the Assemblyman act which
some members claimed unnecessarily and unduly assails their integrity and
character as representative of the people" 13 an act that cannot possibly justify
expulsion. Access to judicial remedies is guaranteed by the Constitution, 14 and,
unless the recourse amounts to malicious prosecution, no one may be punished for
seeking redress in the courts.

We therefore order reinstatement, with the caution that should the past acts of the
petitioner indeed warrant his removal, the Assembly is enjoined, should it still be so
minded, to commence proper proceedings therefor in line with the most elementary
requirements of due process. And while it is within the discretion of the members of
the Sanggunian to punish their erring colleagues, their acts are nonetheless subject
to the moderating band of this Court in the event that such discretion is exercised
with grave abuse.

It is, to be sure, said that precisely because the Sangguniang Pampook(s) are
"autonomous," the courts may not rightfully intervene in their affairs, much less
strike down their acts. We come, therefore, to the second issue: Are the so-called
autonomous governments of Mindanao, as they are now constituted, subject to the
jurisdiction of the national courts? In other words, what is the extent of self-
government given to the two autonomous governments of Region IX and XII?

The autonomous governments of Mindanao were organized in Regions IX and XII by

Presidential Decree No. 1618 15 promulgated on July 25, 1979. Among other things,
the Decree established "internal autonomy" 16 in the two regions "[w]ithin the
framework of the national sovereignty and territorial integrity of the Republic of the
Philippines and its Constitution," 17 with legislative and executive machinery to
exercise the powers and responsibilities 18specified therein.

It requires the autonomous regional governments to "undertake all internal

administrative matters for the respective regions," 19 except to "act on matters which
are within the jurisdiction and competence of the National Government," 20 "which
include, but are not limited to, the following:

(1) National defense and security;

(2) Foreign relations;

(3) Foreign trade;

(4) Currency, monetary affairs, foreign exchange, banking and quasi-

banking, and external borrowing,
 (5) Disposition, exploration, development, exploitation or utilization of all
natural resources;

(6) Air and sea transport

(7) Postal matters and telecommunications;

(8) Customs and quarantine;

(9) Immigration and deportation;

(10) Citizenship and naturalization;

(11) National economic, social and educational planning; and

(12) General auditing. 21

In relation to the central government, it provides that "[t]he President shall have the
power of general supervision and control over the Autonomous Regions ..." 22

Now, autonomy is either decentralization of administration or decentralization of

power. There is decentralization of administration when the central government
delegates administrative powers to political subdivisions in order to broaden the base
of government power and in the process to make local governments "more
responsive and accountable," 23 "and ensure their fullest development as self-reliant
communities and make them more effective partners in the pursuit of national
development and social progress." 24 At the same time, it relieves the central
government of the burden of managing local affairs and enables it to concentrate on
national concerns. The President exercises "general supervision" 25 over them, but
only to "ensure that local affairs are administered according to law." 26 He has no
control over their acts in the sense that he can substitute their judgments with his
own. 27

Decentralization of power, on the other hand, involves an abdication of political

power in the favor of local governments units declare to be autonomous . In that
case, the autonomous government is free to chart its own destiny and shape its
future with minimum intervention from central authorities. According to a
constitutional author, decentralization of power amounts to "self-immolation," since
in that event, the autonomous government becomes accountable not to the central
authorities but to its constituency. 28

But the question of whether or not the grant of autonomy Muslim Mindanao under
the 1987 Constitution involves, truly, an effort to decentralize power rather than
mere administration is a question foreign to this petition, since what is involved
herein is a local government unit constituted prior to the ratification of the present
Constitution. Hence, the Court will not resolve that controversy now, in this case,
since no controversy in fact exists. We will resolve it at the proper time and in the
proper case.

Under the 1987 Constitution, local government units enjoy autonomy in these two
senses, thus:

Section 1. The territorial and political subdivisions of the Republic of the

Philippines are the provinces, cities, municipalities, and barangays. Here
shall be autonomous regions in Muslim Mindanao ,and the Cordilleras as
hereinafter provided. 29

Sec. 2. The territorial and political subdivisions shall enjoy local

autonomy. 30
 xxx xxx xxx

See. 15. Mere shall be created autonomous regions in Muslim Mindanao

and in the Cordilleras consisting of provinces, cities, municipalities, and
geographical areas sharing common and distinctive historical and cultural
heritage, economic and social structures, and other relevant
characteristics within the framework of this Constitution and the national
sovereignty as well as territorial integrity of the Republic of the
Philippines. 31

An autonomous government that enjoys autonomy of the latter category [CONST.

(1987), art. X, sec. 15.] is subject alone to the decree of the organic act creating it
and accepted principles on the effects and limits of "autonomy." On the other hand,
an autonomous government of the former class is, as we noted, under the
supervision of the national government acting through the President (and the
Department of Local Government). 32 If the Sangguniang Pampook (of Region XII),
then, is autonomous in the latter sense, its acts are, debatably beyond the domain of
this Court in perhaps the same way that the internal acts, say, of the Congress of the
Philippines are beyond our jurisdiction. But if it is autonomous in the former category
only, it comes unarguably under our jurisdiction. An examination of the very
Presidential Decree creating the autonomous governments of Mindanao persuades us
that they were never meant to exercise autonomy in the second sense, that is, in
which the central government commits an act of self-immolation. Presidential Decree
No. 1618, in the first place, mandates that "[t]he President shall have the power of
general supervision and control over Autonomous Regions." 33 In the second place,
the Sangguniang Pampook, their legislative arm, is made to discharge chiefly
administrative services, thus:

SEC. 7. Powers of the Sangguniang Pampook. The Sangguniang Pampook

shall exercise local legislative powers over regional affairs within the
framework of national development plans, policies and goals, in the
following areas:

(1) Organization of regional administrative system;

(2) Economic, social and cultural development of the Autonomous

Region;

(3) Agricultural, commercial and industrial programs for the Autonomous

Region;

(4) Infrastructure development for the Autonomous Region;

(5) Urban and rural planning for the Autonomous Region;

(6) Taxation and other revenue-raising measures as provided for in this

Decree;

(7) Maintenance, operation and administration of schools established by

the Autonomous Region;

(8) Establishment, operation and maintenance of health, welfare and

other social services, programs and facilities;

(9) Preservation and development of customs, traditions, languages and

culture indigenous to the Autonomous Region; and
 (10) Such other matters as may be authorized by law,including the
enactment of such measures as may be necessary for the promotion of
the general welfare of the people in the Autonomous Region.

The President shall exercise such powers as may be necessary to assure

that enactment and acts of the Sangguniang Pampook and the Lupong
Tagapagpaganap ng Pook are in compliance with this Decree, national
legislation, policies, plans and programs.

The Sangguniang Pampook shall maintain liaison with the Batasang

Pambansa. 34

Hence, we assume jurisdiction. And if we can make an inquiry in the validity of the
expulsion in question, with more reason can we review the petitioner's removal as
Speaker.

Briefly, the petitioner assails the legality of his ouster as Speaker on the grounds
that: (1) the Sanggunian, in convening on November 2 and 5, 1987 (for the sole
purpose of declaring the office of the Speaker vacant), did so in violation of the Rules
of the Sangguniang Pampook since the Assembly was then on recess; and (2)
assuming that it was valid, his ouster was ineffective nevertheless for lack of
quorum.

Upon the facts presented, we hold that the November 2 and 5, 1987 sessions were
invalid. It is true that under Section 31 of the Region XII Sanggunian Rules,
"[s]essions shall not be suspended or adjourned except by direction of the
Sangguniang Pampook," 35 but it provides likewise that "the Speaker may, on [sic]
his discretion, declare a recess of "short intervals." 36 Of course, there is
disagreement between the protagonists as to whether or not the recess called by the
petitioner effective November 1 through 15, 1987 is the "recess of short intervals"
referred to; the petitioner says that it is while the respondents insist that, to all
intents and purposes, it was an adjournment and that "recess" as used by their Rules
only refers to "a recess when arguments get heated up so that protagonists in a
debate can talk things out informally and obviate dissenssion [sic] and
disunity. 37 The Court agrees with the respondents on this regard, since clearly, the
Rules speak of "short intervals." Secondly, the Court likewise agrees that the
Speaker could not have validly called a recess since the Assembly had yet to
convene on November 1, the date session opens under the same Rules. 38 Hence,
there can be no recess to speak of that could possibly interrupt any session. But
while this opinion is in accord with the respondents' own, we still invalidate the twin
sessions in question, since at the time the petitioner called the "recess," it was not a
settled matter whether or not he could. do so. In the second place, the invitation
tendered by the Committee on Muslim Affairs of the House of Representatives
provided a plausible reason for the intermission sought. Thirdly, assuming that a
valid recess could not be called, it does not appear that the respondents called his
attention to this mistake. What appears is that instead, they opened the sessions
themselves behind his back in an apparent act of mutiny. Under the circumstances,
we find equity on his side. For this reason, we uphold the "recess" called on the
ground of good faith.

It does not appear to us, moreover, that the petitioner had resorted to the aforesaid
"recess" in order to forestall the Assembly from bringing about his ouster. This is not
apparent from the pleadings before us. We are convinced that the invitation was
what precipitated it.

In holding that the "recess" in question is valid, we are not to be taken as

establishing a precedent, since, as we said, a recess can not be validly declared
without a session having been first opened. In upholding the petitioner herein, we
are not giving him a carte blanche to order recesses in the future in violation of the
Rules, or otherwise to prevent the lawful meetings thereof.

Neither are we, by this disposition, discouraging the Sanggunian from reorganizing
itself pursuant to its lawful prerogatives. Certainly, it can do so at the proper time. In
the event that be petitioner should initiate obstructive moves, the Court is certain
that it is armed with enough coercive remedies to thwart them. 39

In view hereof, we find no need in dwelling on the issue of quorum.

WHEREFORE, premises considered, the petition is GRANTED. The Sangguniang

Pampook, Region XII, is ENJOINED to (1) REINSTATE the petitioner as Member,
Sangguniang Pampook, Region XII; and (2) REINSTATE him as Speaker thereof. No
costs. SO ORDERED.

G.R. No. 148361 November 29, 2005

RAFAEL BAUTISTA and LIGAYA ROSEL, Petitioners, 

vs.
MAYA-MAYA COTTAGES, INC., Respondent.

RESOLUTION

SANDOVAL GUTIERREZ, J.:

For our resolution is the instant petition for review on certiorari assailing the
Decision1 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.

G.R. No. L-35098 March 16, 1987

GIACOMINA MARINI-GONZALES, petitioner, 
vs.
HON. GUARDSON R. LOOD, Presiding Judge, Court of First Instance of Rizal,
Sixth Branch Pasig, Rizal; CELIA ANGELES-PASCUA; ELISEO ZARI, Assistant
Clerk of Court of above-mentioned branch, as appointed legal representative
of deceased defendant RAFAEL J. GONZALES; ESTEBAN S. ANGELES;
SPOUSES ROGELIO ANGELES and SINFORESA SALVADOR ANGELES;
SPOUSES REMEDIOS ANGELES-FERRAER and FLORENCIO FERRAER; JAIME
ANGELES; SPOUSES BENJAMIN ANGELES and MERLINA TORRES-ACABE and
her husband surnamed ACABE (first name unknown to
petitioner), respondents.

Norberto J. Quisumbing for petitioner.

Laso Beltran & Domondon for respondents.

PADILLA, J.:

This is a petition for certiorari to annul and set aside the orders issued by the
respondent Judge in Civil Case No. 12296 of the then Court of First Instance of Rizal,
Pasig Branch VI, on (1) 12 February 1972, which denied petitioner's Omnibus
Motion; (2) 25 March 1972, appointing the respondent Eliseo Zari, assistant clerk of
court of respondent court, as the legal representative of the deceased defendant
Rafael J. Gonzales; (3) 14 April 1972, which denied petitioner's motion for
reconsideration of the Order dated 12 February 1972; and (4) 17 May 1972, which
denied petitioner's motion for reconsideration of the Order dated 25 March 1972.

The records show that on 19 September 1969, the herein petitioner, Giacomina
Marini-Gonzales, now-deceased and represented by the special administrator of her
estate, Atty. Norberto J. Quisumbing, 1 filed a complaint against her husband Rafael
J. Gonzales and Celia Angeles-Pascua, Esteban S. Angeles, Rogelio S. Angeles,
Sinforesa Salvador- Angeles, Remedios Angeles-Ferraer, Florencio Ferraer, Jaime
Angeles, Benjamin Angeles, Merlina Torres-Angeles, and Lourdes Angeles-Acabe and
her husband whose first name is unknown to the plaintiff, in the then Court of First
Instance of Rizal, docketed as Civil Case no. 12296, for the annulment of allegedly
fraudulent disposition if various properties, both real and personal, therein listed,
made by the said Rafael J. Gonzales in favor of his co- defendants, allegedly in fraud
of plaintiff and in impairment of her interest in the conjugal partnership properties,
and without her knowledge and consent. The complaint also asked for damages. 2

In answer, the defendant Rafael J. Gonzales claimed that all the conjugal assets
which are in his possession were not used in any way for or transferred to the other
defendants; and that the properties owned by his co-defendants were not derived
from the conjugal properties owned by him and the plaintiff. 3

His co-defendants, for their part, alleged that the properties listed in the complaint
were bought or acquired, not with funds from the conjugal partnership of plaintiff
and defendant Rafael J. Gonzales, but with funds of the owners thereof. 4

Pre-trial conferences were held, and thereafter, the deposition of the defendant
Rafael J. Gonzales was taken in view of his deteriorating health. The taking of his
deposition, however, was not completed because he died on 5 September 1970.

On 25 September 1970, the herein petitioner, in a pleading entitled "Notice of Death

of Party and Omnibus Motion" notified the court of the death of the defendant Rafael
J. Gonzales and of her appointment by the then Court of First Instance of Rizal
(Quezon City branch) in Special Proceeding No. Q-14838 as special administratrix of
his testate estate, and prayed that she be substituted in place of the deceased; that
the pleadings, motions and papers, including the Answer with Counterclaim filed by
the decedent, be withdrawn and stricken out; and that she be granted leave to
amend her own complaint so as to allege therein her two capacities and rights —
one, as wife and two, as special administratrix of the testate estate of the late Rafael
J. Gonzales. 5 Later, the probate court appointed said plaintiff (herein petitioner) as
executrix in the testate estate of the late Rafael J. Gonzales. 6 She is also the sole
heir under his will. 7

Considering the Omnibus Motion, respondent Judge ordered the parties "to submit
their amended pleading in accordance with the Rules of Court within a period or as
soon as possible." 8

Pursuant thereto, the petitioner filed a "Compliance and Motion" reiterating her
prayer for the immediate grant of her Omnibus Motion filed earlier. A copy of an
Amended Complaint was appended to her motion. 9

The respondent Judge, however, in an Order dated 12 February 1972, denied the
Omnibus Motion for lack of merit. 10 Counsel for the petitioner received a copy of
the Order on 26 February 1972, and on 25 March 1972, he filed a motion for
reconsideration of said Order. 11

On that same day, 25 March 1972, the respondent Judge, upon motion of the herein
private respondents, issued an Order appointing Atty. Eliseo Zari, the assistant clerk
of court, the legal representative of the defendant Rafael J. Gonzales in the
case. 12 Upon receipt of a copy of this Order, counsel for the petitioner also filed a
motion for its reconsideration, and when both motions for reconsideration were
denied on 14 April 1972 13 and 17 May 1972, 14 respectively, he filed the instant
petition for certiorari with this Court.

The petition was given due course 15 and on 20 March 1973, this court, upon
application of the petitioner, issued a temporary restraining order restraining the
respondent Judge from proceeding with the initial reception of evidence in Civil Case
No. 12297 of the Court of First Instance of Rizal, Branch VI, Pasig. 16

The first issue raised by the petitioner is whether or not the respondent Judge acted
with grave abuse of discretion in denying the proposed amendment to the
petitioner's complaint to the end that she, as special administratrix, later, executrix
of the testate estate of her late husband Rafael J. Gonzales, be allowed to withdraw
the Answer with Counterclaim filed by said deceased during his lifetime and then join
cause with her, as plaintiff.

The law applicable is Section 1, Rule 10 of the Rules of Court which provides as
follows:

Sec. 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.

Likewise applicable is the law on estoppel to the effect that —

A party who has, with knowledge of the facts, assumed a particular

position in judicial proceedings, and has succeeded in maintaining that
position, is estopped to assume a position inconsistent therewith to the
prejudice of the adverse party. It is essential also that the party, claiming
the estoppel should have acted in reliance thereon, and that his rights
would be injuriously affected if his opponent were permitted to change his
position. When no wrong is done a change in position should and will be
allowed. The rule has no application where the knowledge or means of
knowledge of both parties is equal nor in case of mistake. Also the rule
has no application to change a position with respect to matters of law. 17

There is no doubt that the proposed amendments to the petitioner's complaint would
alter the position of Rafael J. Gonzales, from that of defendant to that of plaintiff.
But, while the aforequoted provisions of the Rules of Court authorize the courts to
disallow amendment of pleadings when it appears that the same is made to delay an
action or that the cause of action or defense is substantially altered thereby the rule
is not absolute. Courts are not precluded from allowing amendments of pleadings
even if the same will substantially change the cause of action or defense provided
that such amendments do not result in a substantial injury to the adverse party. This
is due to the permissive character of said rule. In fact, this Court has ruled that
amendments to pleadings are favored and should be liberally allowed in the
furtherance of justice. 18

The same is true with the principle of estoppel, just mentioned. It is essential that
the rights of the adverse party would be seriously affected in order to disallow a
change in position, but, when no wrong is done, a change in position may be
allowed.
We have examined the records of this case and we find no reason, nor have the
private respondents shown any, which would serve as a basis for a finding that they
(private respondents) would suffer substantial injury if the proposed amendments
were allowed. The mere change in the position of the deceased Rafael J. Gonzales,
from defendant to plaintiff, will not, by itself, lend credence to the allegation of the
petitioner in her complaint that the properties listed in the complaint belonged to the
conjugal partnership of the petitioner and Rafael J. Gonzales and that they were
fraudulently transferred to the private respondents, nor will it diminish the private
respondents' claim that the said properties were bought or acquired by them with
their own funds. The parties, in fact, have yet to prove their respective allegations.

On the other hand, to disallow the amendments proposed by the petitioner would
result in some absurdity. As wife and then as executrix and sole heir of the late
Rafael J. Gonzales, the petitioner would be 'giving with one hand and also receiving
with the other in the event that judgment were to be rendered for or against the
deceased defendant.

The other issue raised is whether or not the respondent Judge abused his discretion
in ordering the respondent Eliseo Zari to represent the deceased Rafael J. Gonzales
as party defendant in this case. The petitioner contends that the appointment of
another legal representative for the late Rafael J. Gonzales is nun and void in view of
her appointment as the special administratrix, later, executrix of the testate estate of
Rafael J. Gonzales, not to mention that she is the sole heir under his will. 19

We agree with petitioner's contention. Under the provisions of Section 2, Rule 87 of

the Rules of Court, it is the executor or administrator of the estate of the decedent
who may bring or defend actions in the name of the deceased, and tills Court has
ruled that the choice of an executor is the sole prerogative of the testator and is not
address to the discretion of the court. In the case of Ozaeta vs. Pecson, 20 this Court
said:

The choice of his executor is a precious prerogative of a testator, a

necessary concomitant of his right to dispose of his property in the
manner he wishes. It is natural that the testator should desire to appoint
one of his confidence, one who can be trusted to carry out his wishes in
the disposal of his estate. The curtailment of this right may be considered
as a curtailment of the rights to dispose. And as the rights granted by
him will take effect from the time of his death (Article 777, Civil Code of
the Philippines), the management of his estate by the administrator of his
choice should be made as soon as practicable, when no reasonable
objection to his assumption of the trust can be interposed any longer. It
has been held that when a will has been admitted to probate, it is the
duty of this court to issue letters testamentary to the person named as
executor upon his application (23 C.J. 1023). It is the testator that
appoints his executor, as the question as to his peculiar fitness for such
position or his want of ability to manage the estate cannot be addressed
to the discretion of the county judge. (Holbrook vs. Head, 6 S.W. 592,
593, 9 Ky 755).

Furthermore, the joinder of the deceased Rafael J. Gonzales as party defendant is no

longer necessary and may be dispensed with, since no cross-claim has been filed
against him by his co-defendants (private respondents herein); and the petitioner's
right under Article 173 of the Civil Code may be enforced against third persons even
without joining her husband as party defendant.

We find from an the foregoing, and so rule, that the respondent Judge gravely
abused his discretion in denying the petitioner's Omnibus Motion. Courts should be
liberal in allowing amendments to pleadings, especially where such amendments will
serve the ends of justice and avoid multiplity of suits.
WHEREFORE, the petition is GRANTED and a writ issued, annulling and setting aside
the Orders issued by the respondent Judge in Civil Case no. 12296 of the then Court
of First Instance of Rizal Branch VI, Pasig, on 12 February 1972, 25 March 1972, 14
April 1972, and 17 May 1972. The temporary restraining order, earlier issued by this
Court, is hereby made permanent. Costs against private respondents. SO ORDERED.

[G.R. No. 81024. February 3, 2000]

ASSET PRIVATIZATION TRUST,  petitioner, vs. COURT OF APPEALS, HON.

JESUS F. GUERRERO, Judge of the Regional Trial Court of Makati, Branch
148, STA. INES MELALE FOREST PRODUCTS CORPORATION, RODOLFO M.
CUENCA and MANUEL I. TINIO,  respondents.

DECISION

PURISIMA, J.:

May the proscription against multiplicity of suits be properly invoked to allow the
filing of a supplemental complaint involving basically the same parties as those in the
original complaint but with a cause of action arising from a transaction distinct from
that sued upon in the original complaint? This is the issue posed in the present
petition for review on certiorari of the Decision of the Court of Appeals.

At the outset, it should be clarified that the Development Bank of the Philippines
(DBP), not the Asset Privatization Trust (APT), was the original petitioner in the case.
APT was first impleaded as a party-respondent in the Resolution of August 14,
1989[1] on account of the fact that respondent Sta. Ines Melale Forest Products
Corporation (SIM) "has been taken over" by the APT. However, in its reply to the
manifestation and comment of APT, the DBP asserted that the transfer of SIMs rights
and interests to the APT cannot be a valid ground for the dismissal of the petition
because the said transfer was effected pendente lite. The case could prosper only if
the Court would direct "APT, as transferee (of SIMs interests), to be substituted in
the action or joined with petitioner" in accordance with Sec. 20, Rule 3 of the Rules
of Court.[2] Thus, pursuant to the said rule, in the Resolution of March 26, 1990,
[3]
 the Court ordered that the DBP "be substituted" as party-petitioner in this case by
APT.[4] Slxmis

The petition originated from a transaction between the DBP and Galleon Shipping
Corporation sometime in 1979. Galleon obtained several "foreign loan guarantee
accommodations" from DBP in the total amount of US$87.233 Million for the
acquisition of five (5) brand-new vessels and to finance twenty percent (20%) of the
acquisition cost of two (2) second-hand vessels. To secure payment thereof, Galleon
mortgaged the vessels to DBP. Named joint and solidary debtors with Galleon in such
transaction were SIM, Rodolfo M. Cuenca and Manuel I. Tinio. Due to Galleons
default in the payment of its obligations, DBP had to "make good its guarantees to
Galleons foreign creditors." In June 1984, DBP foreclosed the mortgage but the
proceeds of the auction sales conducted after the extrajudicial foreclosure of the
mortgage on the vessels, yielded a deficiency in the amount of P2,700,960,412.60.[5]

Apparently in anticipation of DBPs claim for the said deficiency, private respondents
SIM, Cuenca and Tinio lodged a complaint against DBP, National Development
Corporation (NDC) and Galleon (which had become the National Galleon Shipping
Corporation ([NGSC]) before Branch 148 of the Regional Trial Court of Makati,
alleging that under Letter of Instruction No. 1155, dated July 21, 1981, the then
President of the Philippines directed NDC to take over the ownership and operation of
Galleon. In compliance with such directive, on August 10, 1981 Galleon, represented
Cuenca, entered into a Memorandum of Agreement with NDC whereby the latter
acquired 100% of Galleons equity. However, without paying a single centavo in
accordance with the "share purchase agreement," NDC took over absolute ownership
of Galleon but mismanaged its operations and placed obstacles to the formal signing
of the "share purchase agreement". It is alleged that it was during the management
of NDC that Galleon incurred the aforesaid indebtedness with the accommodation of
DBP.

The Complaint prayed for the issuance of a temporary restraining order directing the
defendants "to cease and desist from filing or pursuing any action or claim for
deficiency judgment or enforcing further claim of any nature against the plaintiffs or
any of them whether connected or not with the transaction herein, whether the
action be judicial or extrajudicial foreclosure, until the rights of the parties shall have
been declared under L.O.I. 1155, the Memorandum Agreement, and other supporting
documents, and contemporaneous actions of the parties." They also prayed that the
injunction that the court would grant be made permanent; that they be declared as
"no longer liable to the defendants under the Deed of Undertaking, pledge,
mortgages, and other accessory contracts between the parties;" that the contracts
be declared as having been extinguished and the plaintiffs released from any and all
responsibilities therefor, and that the NDC be declared the absolute owner of Galleon
"even without the execution of a share purchase agreement and responsible for any
and all obligations of said Galleon and the plaintiffs, if any prior to the transfer of
ownership, management and control of defendant NDC." They further prayed that
NDC and Galleon be made to pay them their "advances" on behalf of Galleon in the
total amount of P15.15 million plus $2.3 million, the price of their equity in Galleon
and damages.[6]
In its answer to the complaint, DBP theorized that the liability of the plaintiffs therein
for Galleons obligation was not extinguished because L.O.I. 1155, which was not
implemented, was in fact revoked by L.O.I. 1195 dated February 19, 1982. Galleons
ownership was not transferred to NDC because Galleon and NDC did not proceed
with the formality of entering into the "share purchase agreement" which was
supposed to effect the conveyance as stipulated in the Memorandum of Agreement.
The DBP stated further that it was enforcing its claim against the plaintiffs upon a
deed of undertaking they had signed and not upon the deed of mortgage. By way of
counterclaim, the DBP reiterated its deficiency claim against the plaintiffs in the
amount of P2,700,960,412.60.[7]

On May 15, 1985, the trial court issued a writ of preliminary injunction ordering the
DBP and its co-defendants to "refrain from pursuing any other deficiency claims or
any other claim of any nature, whether judicial or extra-judicial, arising out of, bred
by or incident to the transactions covered by the complaint except as counterclaims
in this proceedings."[8]

Meanwhile, the DBP granted SIM, Cuenca and Tinio foreign loan guarantee
accommodations in the total amount of P238,526,225.68, as of August 31, 1985.
The transactions were secured by a mortgage over certain parcels of land owned by
SIM in Magallanes, Agusan del Sur.[9] The mortgage contract authorized DBP to take
actual possession of the mortgaged property upon breach of any of the conditions
therein stipulated.[10] Thus, when the mortgagor failed to pay their amortizations on
time, the DBP took the initial step to foreclose the mortgage by taking possession of
the mortgaged plant site in Magallanes, Agusan del Sur. It posted forty-five (45)
security guards with instructions to prevent the taking out therefrom of property or
equipment without DBPs approval.[11]

SIM took DBPs action as a "retaliatory move." [12] It sought to supplement the original
complaint in Civil Case No. 10378 by filing a "Motion to Admit Supplemental
Complaint."[13] It alleged that DBPs taking possession of the said plant was a "new
development" between the parties and in violation of the writ of preliminary
injunction issued and therefore, warranted the admission of the supplemental
complaint pursuant to Section 6, Rule 10 of the Rules of Court. Missdaa

The supplemental complaint dated June 13, 1985 sought a declaration that "the
defendant DBP is not entitled to foreclose the mortgage" and that DBPs act of
posting its security guards in the Agusan del Sur plant is null and void and unlawful.
The same pleading, the first sentence of which stated that it was filed by SIM only,
alleged that the presence of DBPs security men at the manufacturing and logging
plant site caused SIMs creditors, suppliers and workers to panic. SIM also claimed
that the foreclosure of mortgage would "paralyze" its "business operation" thereby
rendering jobless 2,300 employees. It then, prayed that judgment be rendered
"making the injunction permanent" and that petitioner be adjudged liable to SIM for
damages.[14]

Immediately, or on June 14, 1985, to be precise, the trial court issued an order
directing DBP and all persons acting under it "to refrain from interfering with the
possession, operation, management and administration" of SIMs plant at Agusan del
Norte, "as well as its other mortgaged properties, until plaintiffs motion could be
heard on June 21, 1985." In the same order the court directed DBP to file its
comment on or opposition to plaintiffs motion to admit supplemental complaint. [15]

The DBP opposed the admission of the supplemental complaint; alleging primarily
"that the subject matter of the supplemental complaint is not a proper subject to be
heard in the instant case." [16] Explaining that it "merely exercised its power as
attorney-in fact" under the mortgage contract, the DBP argued that the
supplemental complaint "introduces another cause of action into this case". It added
that the cause of action in the original complaint could not be joined with that
alleged in the supplemental complaint "pursuant to the provisions of Sec. 5 of Rule 2
of the Rules of Court."[17]

On August 20, 1985, the trial court issued an Order admitting the supplemental
complaint;[18] stating thus;

"Considering that the Supreme Court of the Philippines has implicitly

recognized the propriety of admitting a supplemental pleading although
the causes therein mentioned are not in any way relevant and material to
the action originally pleaded as a means of serving the ends of a speedy
administration of justice or a prompt dispatch of cases (De la Rama
Steamship Co., Inc. v. National Development Co., 6 SCRA 775, 781); that
the provisions of the Rules on joinder of causes of action should be
liberally construed to avoid multiplicity of suits and to expedite the
disposition of litigation at minimum cost (Francisco on Rules of Court,
1973 Ed., Vol. I, p. 186, citing cases & authorities); that the Supreme
Court has likewise recognized an exception to the general rule that it is a
prerequisite to the joinder of causes of action that all the causes must
affect all the parties to the action (Sapalico vs. Calpe, et. al., 41 Phil 850,
cited in Francisco, supra, p. 187); that cognizance of the cause pleaded in
plaintiffs supplemental pleading will not by itself cause prejudice to the
other parties inasmuch as certain specific procedural measures in the
course of the proceedings could be adopted and imposed by the Court to
obviate not only inconvenience on the part of the parties but more
importantly confusion of the material issues in controversy; and that the
filing of the supplemental pleading with this Court is not violative of the
rules on venue considering that the subject of the action refers essentially
to the propriety of the right of defendant Development Bank of the
Philippines to foreclose and the legality of certain acts done or about to
be perpetrated by the said defendants anterior to and as incidents of the
exercise of such right to foreclose, and not the actual foreclosure of the
mortgaged propertied located in Mindanao; Sdaadsc

This Court finds no cogent grounds to deny the admission of plaintiffs

Supplemental Complaint.

xxx xxx xxx"

The DBP questioned the said Order before the Court of Appeals via a petition
for certiorari dated November 19, 1985.[19]

On February 18, 1987, the Court of Appeals [20] declared the assailed Order as null
and void, dismissed the supplemental complaint and lifted the preliminary injunction
issued by the trial court. It held that the trial court gravely abused its discretion in
issuing subject Order for two reasons: First, the admission of the supplemental
complaint violated the rule on venue, specifically Sec. 2 (a), Rule 4 of the Rules of
Court. The supplemental complaint was filed when DBP had already initiated
foreclosure proceedings and therefore while the supplemental complaint appeared to
be a personal action, in reality it was a real action seeking "a ruling on the legality of
(DBPs) foreclosure action." Citing Lizares v. Caluag,[21] the Court of Appeals held that
venue was improperly laid. Second, a supplemental complaint should strengthen or
reinforce the cause of action or defense in the original complaint for it is meant to
"supply deficiencies in aid of one original pleading, not to entirely substitute the
latter." The supplemental complaint, however, has a subject matter "distinct and
different from each other." The cause of action in the original complaint arose from
the mortgage contract executed by Galleon while that in the supplemental complaint
arose from the mortgage contract "executed by principal obligors (firm)."
The Court of Appeals also held that the trial court gravely abused its discretion in
directing the parties "to maintain the status quo ante litem" as it would restrain the
DBP from exercising its right to foreclose the mortgage in accordance with P.D. No.
385. Section 2 of said decree specifically enjoins courts from issuing permanent
injunctions against any government financial institution that seeks foreclosure of
mortgage unless after hearing it is proven that after the filing of the foreclosure
proceedings, the borrower had paid twenty percent (20%) of the outstanding
arrearages. The status quo order also violated Sec. 5, Rule 58 of the Rules of Court,
as amended by B.P. Blg. 224, limiting the period of a restraining order to only twenty
(20) days from the date of its issuance, as well as Circular No. 13 dated May 17,
1984 of this Court enjoining Justices and Judges to observe strictly said provisions of
law.[22]

However, upon motion for reconsideration, the Court of Appeals reversed its
aforesaid Decision. In its Resolution dated August 25, 1987, the appellate court said:

"There is a difference between an action for foreclosure of mortgage, and

an action to stop the foreclosure of said mortgage, because the former is
a real action and, therefore, venue is governed by Section 2-(a) of Rule 4
of the Rules of Court; while the latter is definitely a personal action which
is governed by Section 2-(b) of said rule.

A personal action is one for the recovery of personal property, the

enforcement of a contract or damages for its breach, or for damages for
injury to person or property (1 C.J.S. 948). In a real action, the plaintiff
seeks the recovery of real property, or, as indicated in Section 2(a) of
Rule 4, it is an action affecting title to real property or for the recovery of
possession, or for partition or condemnation of, or foreclosure of a
mortgage on, real property (Hernandez vs. Rural Bank of Lucena, Inc., 81
SCRA 75, 84). Rtcspped

The case of Lizares, Inc. v. Caluag (4 SCRA 746) cited by petitioner in

support of its claim that venue was improperly laid is clearly not
applicable since said case involves Cacnios title to the real property
adverted to and involved his retention of possession of said property,
while in the case at bar, there is no dispute as to the title of the
properties therein. What is in issue is the right of petitioner to foreclose,
and this involves a personal action.

xxx xxx xxx

At any rate, the original and amended complaint filed by private

respondent Sta. Ines (SIM) against petitioner with the Regional Trial
Court of Makati, Branch 148, in Civil Case No. 10387, with prayer for the
issuance of a writ of preliminary injunction has for its purpose to declare
private respondents not liable as co-makers to petitioner in view of LOI
No. 1155, and to defeat petitioners right to sue respondents for a
deficiency claim. On May 15, 1985, said Court acting on the petition for
the issuance of a writ preliminary injunction, issued said writ restraining
petitioner -

xxx from pursuing any other deficiency claims or any other

claim of any nature, whether judicial or extrajudicial, arising
out of, bred by or incident to the transaction covered by the
complaint, except on counterclaim.

In spite of said injunction, on June 3, 1985 petitioner posted guards at

the Magallanes Plant of private respondent SIM to immobilize private
respondent, thereby causing panic on the suppliers of SIM. The need,
 therefore, for a declaration that the petitioner could not yet foreclose on
the mortgage and for an imposition of damages, necessitated the filing on
June 13, 1985 of a Motion to Admit Supplemental Complaint with
application for issuance of restraining order or preliminary injunction.
Private respondent SIM questioned the right of petitioner to take
possession of its mortgaged properties and assets and to foreclose the
same. On June 14, 1985, the respondent Judge issued a restraining order
directing petitioner. (sic)

xxx to refrain from interfering with the possession,

management and administration of respondents mortgaged
assets.

xxx xxx xxx."[23]

On the alleged error of the court a quo in directing the parties to maintain the status
quo ante litem, the Court of Appeals agreed with therein private respondents that in
raising the issue of equity, the DBP did so with "dirty hands" because it had invoked
the jurisdiction of the trial court to stop SIM from moving out any item from the
plant site and it had agreed with private respondents in open court that the status
quo ante litem should be maintained. The Court of Appeals considered as an
"important issue" the fact that the DBP had ceased to be the real party-in-interest by
the transfer of SIMs account to the APT. It noted the PCGGs letter to the DBP
emphasizing that it was necessary to keep SIM operational because as "a
surrendered asset with millions worth of valuable equipment," a foreclosure would
mean its closure, the loss of jobs and the eventual destruction of equipment by
vandals. The Court of Appeals added that the PCGG cannot allow the foreclosure of
SIM because of its policy that foreclosure is allowed only if "there is no pending
litigation or controversy regarding either the asset or the loan transaction which may
adversely affect the foreclosure of the sequestered asset." Korte

The DBP presented a motion for the reconsideration of the Resolution of August 25,
1987 but on November 25, 1987, the Court of Appeals denied the same for lack of
merit.

Undaunted, DBP has come to this Court via the instant petition for review
on certiorari where petitioner DBP (now the APT) contends that:

THE HONORABLE COURT OF APPEALS ERRED IN ADMITTING THE

SUPPLEMENTAL COMPLAINT IT BEING VIOLATIVE OF THE -

A) RULE ON VENUE OF REAL ACTION (Rule 4, Sec. 2-A, Revised

Rules of Court)

B) RULE ON JOINDER OF CAUSES OF ACTION (Rule 2, Sec. 5,

Revised Rules of Court)

C) RULE ON MATTERS SUBJECT OF SUPPLEMENTAL PLEADINGS

(Rule 10, Sec. 6, Revised Rules of Court)

II

THE HONORABLE COURT OF APPEALS ERRED IN UPHOLDING THE LOWER

COURTS ISSUANCE OF A RESTRAINING ORDER/PRELIMINARY
INJUNCTION WHICH IS CONTRARY TO LAW.

III
 THE HONORABLE COURT OF APPEALS ERRED IN CONSIDERING THAT
THE TRANSFER OF THE STA. INES MELALE ACCOUNT FROM DBP TO
ASSETS PRIVATIZATION TRUST WARRANTS DISMISSAL OF THE
PETITION

The petition is impressed with merit.

At the time the supplemental complaint was filed in Civil Case No. 10387, the
pertinent provision of Rule 10 of the Rules of Court provided:

"Sec. 6. Matters subject of supplemental pleadings. - Upon motion of a

party the court may, upon reasonable notice and upon such terms as are
just, permit him to serve a supplemental pleading setting forth
transactions, occurrences or events which have happened since the date
of the pleading sought to be supplemented. If the court deems it
advisable that the adverse party should plead thereto, it shall so order,
specifying the time therefor."[24]

Under the aforecited rule, a supplemental pleading is meant to supply deficiencies in

aid of the original pleading and not to dispense with or substitute the latter. [25] It is
not like an amended pleading which is a substitute for the original one. It does not
supersede the original, but assumes that the original pleading is to stand. The issues
joined under the original pleading remain as issues to be tried in the action. [26]

In Leobrera v. Court of Appeals [27] the Court ruled that when the cause of action
stated in the supplemental complaint is different from the cause of action mentioned
in the original complaint, the court should not admit the supplemental complaint. In
that case, the Bank of the Philippine Islands (BPI) granted Carlos Leobrera
an P800,000.00 credit facility that was secured by two (2) real estate mortgages.
The credit facility was later converted into "a revolving promissory note line" the last
of which was renewed on March 21, 1986 through two (2) ninety-day promissory
notes. Upon maturity of the notes, Leobrera and BPI negotiated for renewal thereof
but they failed to agree. Consequently, BPI demanded full payment of the 90-day
loans. Because Leobrera failed to pay the loans, BPI prepared to foreclose the
mortgages. However, before BPI could institute the foreclosure proceedings,
Leobrera filed a complaint for damages with a prayer for the issuance of a writ of
preliminary injunction to enjoin BPI from foreclosing the mortgages. The trial court
issued the writ applied for. Sclaw

It appeared, however, that apart from the P800,000.00 credit facility, BPI also
granted Leobrera a three-year term loan of P500,000.00 secured by a real estate
mortgage. After Leobrera had defaulted in his amortization payments, BPI called the
entire loan due and demandable. Leobrera failed to pay but before BPI could
foreclose the mortgage, Leobrera filed with the trial court a "Motion to File
Supplemental Complaint" with the supplemental complaint attached thereto. The trial
court granted Leobreras motion but the Court of Appeals nullified that order of the
trial court. Leobrera thus filed a petition for review on certiorari with this Court
which, in due course, denied Leobreras petition; this Court ratiocinating:

"As to the supplemental complaint, what likewise militates against its

admission is the fact that the matters involved therein are entirely
different from the causes of action mentioned in the original complaint.

A supplemental complaint should, as the name implies, supply only

deficiencies in aid of an original complaint [British Traders Insurance
Company v. Commissioner of Internal Revenue, G.R. No. L-20501, April
30, 1965, 13 SCRA 728]. It should contain only causes of action relevant
and material to the plaintiffs right and which help or aid the plaintiffs
right or defense [De la Rama Steamship Co., Inc. v. National
 Development Company, G.R. No. L-15659, November 30, 1962, 6 SCRA
775]. The supplemental complaint must be based on matters arising
subsequent to the original complaint related to the claim or defense
presented therein, and founded on the same cause of action. It cannot be
used to try a new matter or a new cause of action [See Randolph v.
Missouri-Kansas-Texas R. Co., D.C. Mo. 1948, 78 F. Supp. 727,
Berssenbrugge v. Luce Mfg. Co., D.C. Mo. 1939, 30 F. Supp. 101.]

While petitioner would persuade this Court that the causes of action are
interrelated, the record reveals otherwise. The record shows that
petitioners main cause of action in the original complaint filed in Civil
Case No. 15644 concerned BPIs threat to foreclose two real estate
mortgages securing the two 90-day promissory notes executed by
petitioner in 1986. Petitioner alleges that this threatened foreclosure
violated the terms of the 1980 amicable settlement between BPI and
petitioner.

The supplemental complaint on the other hand alleged facts of

harassment committed by BPI in unreasonably opting to declare
petitioner in default and in demanding full liquidation of the 1985 three-
year term loan. This three-year term loan, as previously mentioned, was
entirely distinct and separate from the two promissory notes. It was
independent of the 1980 amicable settlement between petitioner and BPI
which gave rise to the credit facility subject of the original complaint.
Although there is identity in the remedies asked for in the original and
supplemental complaints, i.e., injunction, petitioners subsequent cause of
action giving rise to the claim for damages in the supplemental complaint
is unrelated to the amicable settlement which brought about the grant of
the credit facilities, the breach of which settlement is alleged to be the
basis of the original complaint. Petitioner himself in his supplemental
complaint admits this. xxx.

xxx xxx xxx

The two causes of action being entirely different, the latter one could not
be successfully pleaded by supplemental complaint."[28]

The facts of the Leobrera cases are not very different from those in the case under
scrutiny. However, private respondent SIM attempts to impress upon the Court that
the facts alleged in the original complaint are connected with those in the
supplemental complaint because the DBPs act of initiating foreclosure proceedings as
regards the mortgaged plant in Agusan del Sur was in violation of the May 15, 1985
writ of preliminary injunction. Nevertheless, a closer look at the facts reveals that the
original complaint was based on a cause of action that is entirely different from that
stated in the supplemental complaint which arose out of a different set of facts. Sclex

A cause of action is the fact or combination of facts which affords a party a right to
judicial interference in his behalf. It is the reason why the litigation has come about;
it is the act or omission of defendant resulting in the violation of someones right. Its
existence is determined upon consideration of the statements or allegations in the
complaint.[29]

In the original complaint in Civil Case No. 10387, what private respondents sought to
prevent by their prayer for an injunction was the DBPs intention to go after private
respondents for the deficiency of P2,700,960,412.60 resulting from the foreclosure of
the mortgages in June 1984 of seven (7) vessels of Galleon. On the other hand, the
cause of action stated in the supplemental complaint was the DBPs initial act of
posing security guards in SIMs Agusan del Norte plant preparatory to the foreclosure
of the mortgage of the same plant, allegedly in contravention of the writ of
preliminary injunction issued by the trial court in Civil Case No. 10387. The
supplemental complaint, however, states a fact that is entirely distinct from those in
the original complaint. It alleges that the DBPs taking over the Agusan del Sur plant
of SIM could not have been in pursuance of any agreement between SIM and the
DBP because the mortgaged dated November 8, 1984 that was entered into between
those parties "does not provide extrajudicial and forcible taking over of the
mortgaged properties by defendant DBP." [30] Although the thrust of the allegations in
the supplemental complaint was to create a connection or relation between it and the
original complaint, the same allegations reveal the fact that its filing was impelled by
the imminence of the foreclosure of the November 8, 1984 mortgage, that is
different from and outside of the subject matter of the original complaint.

Furthermore, if the supplemental complaint "assumes the original pleading to stand,"

then there was no pint in naming only the SIM as the plaintiff in the supplemental
complaint. That fact only proves that the other plaintiffs in the original complaint,
namely, Cuenca and Tinio, have no cause of action against the DBP in the
supplemental complaint as it is in reality based on an entirely different subject
matter.

Granting that SIMs purpose in filing the supplemental complaint was to effect a
joinder of causes of action to avoid multiplicity of suits, it must fail just the same.
The Rules of Court provide that causes of action may be joined provided that they
arise out of the same contract, transaction or relation between the parties or are for
demands for money or are of the same nature and character. [31] In Republic v.
Hernandez,[32] the Court held:

"The statutory intent behind the provisions on joinder of causes of action

is to encourage joinder of actions which could reasonably be said to
involve kindred rights and wrongs, although the courts have not
succeeded in giving a standard definition of the terms used or in
developing a rule of universal application. The dominant idea is to permit
joinder of causes of action, legal or equitable, where there is some
substantial unity between them. While the rule allows a plaintiff to join as
many separate claims as he may have, there should nevertheless be
some unity in the problems presented and a common question of law and
fact involved, subject always to the restriction thereon regarding
jurisdiction, venue and joinder of parties. Unlimited joinder is not
authorized." Xlaw

In this case, hardly do the original and supplemental complaints meet the required
test of "unity in the problem presented" and "a common question of law and fact
involved" as regards jurisdiction, venue and joinder of parties. The ultimate problem
in the original complaint as far as private respondents are concerned is how to
prevent the DBP from pursuing the amount of deficiency after an extrajudicial
foreclosure sale of the mortgaged vessels. In the supplemental complaint, what
private respondent SIM seeks to preempt is the foreclosure of the mortgage of its
Agusan del Sur plant.

As regards the issues of jurisdiction and venue, the original complaint clearly
presents a personal action between the parties as it aims for a declaration of
nonliability of private respondents under the contracts wherein they are solidarily
liable with Galleon. A personal action is one brought for the recovery of personal
property or for the enforcement of some contract or for the recovery of damages for
its breach, or the recovery of damages for the commission of an injury to the person
or property.[33] Hence, it was properly filed with the RTC of Makati in accordance with
Sec. 2(b) of Rule 4 of the Rules of Court. [34]

On the other hand, the supplemental complaint is actually a real action as it was filed
for the "specific recovery of land, tenements, or hereditaments." [35] Notably, private
respondent SIM prays in the supplemental complaint that the DBP be declared as not
entitled to foreclose the mortgage dated November 8, 1984 and that the DBP be
ordered to restructure SIMs indebtedness. A declaration that the said mortgage
should not be foreclosed involves a determination of the validity of the mortgage
even though its subject matter, a real property, is located in Agusan del Sur and not
in Makati. Although the supplemental complaint was so crafted that a cursory perusal
thereof would create the impression that it is a personal action, the fact that is
actually a real action, notwithstanding the claim for damages, may be gleaned from
its prayer:

"WHEREFORE, it is most respectfully prayed that, after hearing on the

merits, judgment be rendered:

1. Making the injunction permanent;

2. Declaring that the defendant DBP is not entitled to foreclose the

mortgage under the Deed of Mortgage;

3. Ordering defendant DBP to restructure the indebtedness of plaintiff

SIM to defendant DBP;

4. Sentencing the defendant DBP to pay to plaintiff SIM the following

items of damages -

a) actual and consequential damages of not less that P21M;

b)moral damages of not less than P1M;

c)exemplary damages of not less than P1M; Xsc

d)25% of whatever may be recovered by plaintiff SIM from

defendant DBP as attorneys fees;

e)costs of suit;

5. Granting to the plaintiff SIM such further and other reliefs to which it
may be entitled in law and in equity."

Should the prayer for a permanent injunction be considered in connection with the
writ of injunction that enjoined the DBP from "pursuing any other deficiency claims
or any other claim of any nature, whether judicial or extrajudicial, arising out of,
bred by or incident to the transactions covered by the complaint," then SIMs
primordial aim in filing the supplemental complaint is to end DBPs continued
possession of the Agusan del Sur plant. That would of course mean that the court
had to deal with a transaction that is not "covered by the (original) complaint" as the
November 8, 1984 mortgage is not alleged therein. Moreover, upon admission of the
supplemental complaint, the Makati court would have to enforce the writ of
injunction in Agusan del Sur.

As regards the prayer that the DBP be declared as "not entitled to foreclose" the
November 8, 1984 mortgage that private respondent SIM admitted it had entered
into with the DBP, it might as well be read as a prayer for the setting aside of the
provisions of said mortgage, if not its nullification, in light of the following allegations
in the supplemental complaint:

"VII

The only instrument signed by the plaintiff SIM in favor of the defendant
DBP is a mortgage dated November 8, 1984, which does not provide
extrajudicial and forcible taking over of the mortgaged properties by
defendant DBP, a copy of which is hereto attached as Annex C and made
an integral part hereof;

VIII

The forcible and extrajudicial taking over possession of the Magallanes

plant of the plaintiff SIM is null and void ab initio and unlawful,
considering inter alia:

a) There is no written contract, authorization, deed or instrument

authorizing defendant DBP to extrajudicially possess and take over the
said plant; Sc

b) The forcible taking over of the said plant by the defendant DBP
constitutes a pactum commissorium for it amounts to an appropriation by
defendant DBP of the mortgaged properties without any foreclosure
thereof;

c) The said extrajudicial taking over of possession also constitute a

disobedience of the writ of preliminary injunction issued by this Honorable
Court;

d) Defendant DBP can not immediately take over possession without any
writ of possession being issued by any court under Act 3135, as amended
by Act 4118, because even after the foreclosure of the mortgagee, the
mortgagor is still entitled to retain possession within one year from the
registration of the certificate of sale, unless the court issues a writ of
possession upon the mortgage putting up the corresponding bond and
after hearing the mortgagor, which situations has not yet arisen in the
case at bar;

e) The plaintiff SIM has been required by defendant DBP to secure

additional logging concessions to supplement its forest resources as a
basic condition to restructure its loan, with assurance by defendant DBP
that said loan would be restructured, and plaintiff has acquired Basey
Wood Industries, Inc. from a P20M loan extended by Far East Bank &
Trust Co. with a current floating rate of interest, and this investment
stands to be lost totally by the plaintiff;

f) The defendant DBP is imposing surcharges, penalties, and exorbitant

and unconscionable rates of interest in spite of the fact that plaintiff SIM
is prevented by fortuitous event from complying therewith, such as, but
not limited to the default of the Republic of the Philippines in the payment
of its worl(sic) loan, which has produced serious repercussions and legal
complications to plaintiff SIM; Scmis

g) The said impositions are not warranted by any promissory note or

mortgage;

h) The said taking over of possession and foreclosure would paralyze the
business operation of the plaintiff SIM, since the plaintiff is prevented
from bringing out any property or equipment;

i) This will also panic creditors and suppliers of plaintiff SIM, and invite
several judicial or extrajudicial actions to take over the assets of the
company;
 j) The said acts will also result in legal and commercial complications with
the foreign buyers of the plaintiff SIM, who have made cash advances for
products to be produced and delivered to them by plaintiff SIM;

k) The disruption of the operation of the plant would result in rendering

jobless 2,300 employees of the plaintiff SIM, and in the looting of
company properties, theft and/or destruction of its assets, etc.; Missc

xxx xxx xxx."[36]

In short, while private respondent SIM admits that it had entered into a mortgage
contract with DBP involving the Agusan del Sur plant, SIM denies that the contract
has a power of attorney authorizing the DBP to take possession of the Agusan del
Sur plant. In the same breadth, it asserts that the DBPs "taking over" of possession
of the plant, apparently in pursuance of the mortgage contract, would irretrievably
damage the plants operation and that such occurrence would warrant a declaration
that the DBP "is not entitled to foreclose the mortgage." Notably, the supplemental
complaint cleverly intertwines the issue of the validity of the mortgage of November
8, 1984 with the enforcement of the preliminary injunction issued in Civil Case No.
10387 that prevented the DBPs pursuit of the deficiency resulting from the
foreclosure sale in June 1984.

However, such ingenious attempt may not efface the fact that the ultimate goal of
the supplemental complaint is two-pronged: (a) to retake possession of the plant,
and (b) to abrogate the provisions of the mortgage contract or to nullify it, for its
own survival. A prayer for the nullification of the mortgage is a prayer affecting real
property and hence, it is a real action. Verily, as this Court held in Fortune Motors
(Phils.), Inc. v. Court of Appeals, a motion to dismiss an action filed in Manila to
annul an extrajudicial foreclosure sale of real property located in Makati on the
ground of improper venue should be granted as the action was a real action affecting
real property.[37] Hence, the supplemental complaint should have been filed as a
separate action in Agusan del Sur in accordance with the following provision of Rule
4 of the Rules of Court:

"Sec. 2. Venue in Courts of First Instance (now Regional Trial Courts).-

Actions affecting title to, or for recovery of possession, or for partition or
condemnation of, or foreclosure of mortgage on, real property, shall be
commenced and tried in the province where the property or any part
thereof lies.

xxx xxx xxx." Misspped

The trial court also incorrectly relied upon the ruling in De la Rama Steamship Co.,
Inc. v. National Development Company.[38] In its Order of August 20, 1985, the trial
court stated that in the De la Rama case, this Court "implicitly recognized the
propriety of admitting a supplemental pleading although the causes therein
mentioned are not in any way relevant and material to the action originally pleaded
as a means of serving the ends of speedy administration of justice or a prompt
dispatch of cases."[39] The De la Rama ruling should be understood in its proper
context. In that case, the original action and the supplemental pleading stemmed
from one and the same contract, i.e., the management agreement dated October 26,
1949 between De la Rama Steamship Co. and the NDC. Thus, the joinder of causes
of action would still have been in accord with the Rules. Since the supplemental
pleading was filed after the original action was decided, this Court ordered that it "be
enrolled in the court below as a new action." There is thus a marked difference
between the facts of the case at bar and those obtaining in De la Rama.

Multiplicity of suits should be avoided if the filing of a separate and independent

action to recover a claim would entail proving exactly the same claim in an existing
action.[40] It can not however, be avoided when the cause of action in the two
complaints are distinct and separate from each other.

With respect to the validity of the restraining order issued on June 14, 1985 and the
trial courts directive enjoining the parties to maintain the status quo ante litem,
petitioner contends that these are contrary to P.D. 385 [41] and Sec. 5, Rule 59 of the
Rules of Court, as amended by B.P. Blg. 224, [42] as well as this Courts Circular No. 13
dated May 17, 1984.[43]

That issue has been mooted by the invalidity of the order admitting the supplemental
complaint. "A temporary restraining order is merely an ancillary process to an action
owing its existence entirely and exclusively from the latter. It cannot survive the
main case which it was but an incident."[44]

It should be stressed, moreover, that P.D. 385 should only be invoked after the
factual basis for its application has been laid through the presentation of evidence in
a trial on the merits. It cannot be applied automatically. [45] It is noteworthy, too, that
the TRO was issued on June 14, 1985, the same day the motion to admit the
supplemental pleading was filed, while the directive to maintain the status quo ante
litem was incorporated in the order of August 20, 1985 or more than two (2) months
after the issuance of the restraining order. By force of law, the TRO expired on the
20th day after notice of the June 14, 1985 TRO. It is evident therefore that
respondent judge acted with grave abuse of discretion in extending the lifetime of
the restraining order that had in the meantime expired, by issuing another order in
violation of B.P. Blg. 224. As such, the second order of August 20, 1985 as far as it
ordered the return to the status quo ante litem is concerned, is a "patent
nullity"[46] because the 20-day lifetime of a restraining order is non-extendible. [47] The
court is without discretion to extend such period considering the mandatory tenor of
the Rule.[48]

On the issue of whether or not the transfer of private respondent SIMs assets to APT
warrants the dismissal of this petition, the Court of Appeals erred in holding that
petitioner which should pursue the claim against SIM is no longer the real party-in-
interest and therefore, the instant case for certiorari should be dismissed.[49] Transfer
of interest from a litigant to another person or entity is a reason for substitution of
the former in a case. It is not a ground for dismissal of the case or petition. Thus, in
the Resolution of March 26, 1990,[50] this Court ordered the substitution of the
original petitioner by Asset Privatization Trust "pursuant to Sec. 20, Rule 3 of the
Rules of Court,"[51] now Sec. 19 of Rule 3 of the 1997 Rules of Civil Procedure. Spped

WHEREFORE, the Resolutions of August 25, 1987 and November 25, 1987 of the
Court of Appeals are SET ASIDE and the Decision of February 18, 1987 of the same
appellate court is REINSTATED and AFFIRMED. No pronouncement as to costs. SO
ORDERED.
G.R. No. 80001 February 27, 1989

CARLOS LEOBRERA, petitioner 
vs.
THE COURT OF APPEALS and BANK OF THE PHILIPPINE
ISLANDS, respondents.

Bengzon, Zarraga, Narciso, Cudala, Pescon & Bengson for petitioner.

Leoner, Ramirez & Associates for respondent BPI.

CORTES,  J.:

The crux of the present petition for review on certiorari is the propriety of the
admission by the trial court of a supplemental complaint filed by petitioner.

The undisputed facts of the case are as follows:

Sometime in 1980, petitioner Carlos Leobrera (Leobrera for short) was granted an P
800,000.00 credit facility by private respondent Bank of the Philippine Islands (BPI
for short) consisting of the following: (a) P 200,000.00 revolving promissory note
line at 10% interest p.a.; (b) P 100,000.00 export advance line at 12% interest p.a.;
and, (c) P 500,000.00 Industrial Guarantee Loan Fund (IGLF) loan at 12% interest
p.a. The facility was granted as part of an amicable settlement between BPI and
Leobrera wherein the latter agreed to drop his claims for damages against the former
for its alleged failure to deliver on time three export letters of credit opened in
Leobrera's favor [Record, pp. 79 and 92.] The credit facility granted was secured by
two real estate mortgages dated 20 November 1976 and 8 February 1980. In 1984,
the facility was entirely converted into a revolving promissory note line at 26%
interest p.a. and set on a floating rate basis the year after. The line was last renewed
on 21 March 1986 evidenced by two 90-day promissory notes numbered 017-
86/0233-0 and 017-86/ 0234-8 for P 500,000.00 and P 300,000.00 respectively
[Rollo, pp. 67-68.]

Aside from the abovementioned credit facility, Leobrera also obtained from BPI a
separate three-year term loan in the amount of P 500,000.00 evidenced by
Promissory Note No. 01785/0224-0 dated 15 November 1985 [Rollo, p. 66.] This
three-year term loan was secured by a third real estate mortgage dated 23 October
1985.

Upon maturity of the 90-day notes [Rollo pp. 67-681 BPI and Leobrera negotiated,
albeit unsuccessfully, on the terms of their renewal. No agreement having been
reached by them, BPI demanded the full payment of the loan. Leobrera failed to
settle his loan account thus BPI prepared to foreclose the real estate mortgages
securing the same. Before BPI could institute foreclosure proceedings however,
Leobrera filed on 6 January 1987 a complaint for damages with a prayer for the
issuance of a writ of preliminary injunction seeking to enjoin BPI from foreclosing the
mortgages, docketed as Civil Case No. 15644 of the Regional Trial Court of Makati,
Metro Manila, Branch CXLV.

The trial court issued an order restraining BPI from foreclosing the real estate
mortgages securing the 90 day loans and, after hearing, issued a writ of preliminary
injunction.

Meanwhile, on 9 February 1987, the bank wrote Leobrera claiming that he failed to
pay the amortization due on the three-year term loan, as a result of which, BPI
opted to accelarate the maturity of the loan and called the entire loan due and
demandable. Leobrera likewise failed to remit the amount due and BPI thus
threatened to foreclose the real estate mortgage securing the loan.
Before BPI could foreclose the mortgage, petitioner filed with the trial court on 11
March 1987 a "Motion to File Supplemental Complaint," attaching thereto the
supplemental complaint which prayed for the issuance of an injunction to restrain
BPI from foreclosing the third mortgage. The next day, 12 March 1987, the trial
court granted Leobrera's motion to file the supplemental complaint and issued a
restraining order enjoining BPI from proceeding with any "Legal, court or other
action" arising from the promissory note evidencing the three-year term loan. That
order was served on BPI on 13 March 1987 [Rollo, p. 58.]

Contesting the validity of the 12 March 1987 order, BPI filed a motion to set it aside
but the motion was denied by the trial court on 31 March 1987.

BPI then filed a petition for certiorari and prohibition with a prayer for preliminary
injunction with the Court of Appeals, seeking to annul the 12 March 1987 court order
issued by the trial court and asking that the latter be prohibited from hearing the
petition for injunction prayed for in the supplemental complaint.

Before the Court of Appeals could act on BPI's petition however, the trial court
granted the injunction prayed for.

On 23 June 1987, the Court of Appeals gave due course to BPI's petition and
enjoined the trial judge from enforcing his order dated 12 March 1987. On 29 July
1987, the Court of Appeals issued a writ of preliminary injunction in favor of BPI.

On 21 September 1987, the Court of Appeals rendered a decision in favor of BPI, the
dispositive portion of which reads as follows:

WHEREFORE, the petition is hereby granted. The order of the respondent

Judge dated March 12, 1987 is declared null and void and set aside.

Let the records of this case be remanded to the Court for further
proceedings on the original complaint in Civil Case No. l5644.

Costs against the private respondents.

SO ORDERED. [Rollo, p. 25.]

From the foregoing decision of the Court of Appeals, Leobrera filed the instant
petition for review with prayer for the issuance of a writ of preliminary injunction.

On 28 October 1987, the Court issued a temporary restraining order enjoining BPI
"from foreclosing the three (3) properties of the petitioner herein ... [Rollo, p. 41.]
However, by this time, BPI had already foreclosed two of the properties [Rollo, p.
45.] On 24 February 1988 the Court gave due course to the petition and the parties
submitted their respective memoranda. Petitioner filed two motions asking for the
extension of suspension of the period to redeem the properties but the Court in a
resolution dated 21 October 1988 denied said motions as well as petitioner's motion
for reconsideration on 23 January 1989. The Court merely noted a subsequent
manifestation and motion praying that the foreclosure be declared null and void, as it
was in effect a second motion for reconsideration.

In assailing the decision of the Court of Appeals, petitioner assigns as errors the
following:

THE HONORABLE COURT OF APPEALS ERRED IN STATING THAT THE MOTION TO

ADMIT SUPPLEMENTAL COMPLAINT FILED BY HEREIN PETITIONER DID NOT
CONTAIN A NOTICE OF HEARING OR THAT THE SAME IS DEFECTIVE.
 II

THAT THE COURT OF APPEALS ERRED IN CONSIDERING THAT THE SUPPLEMENTAL

COMPLAINT INVOLVES A NEW OR DISTINCT MATTER WHICH CANNOT BE JOINED
WITH THE ORIGINAL COMPLAINT.

III

THAT THE COURT OF APPEALS ERRED IN ISSUING THE INJUNCTION PRAYED FOR BY
RESPONDENTS AND CONSEQUENTLY, GRAVE AND IRREPARABLE INJURY RESULTED
TO THE DAMAGE AND PREJUDICE OF HEREIN PETITIONER. [Rollo, p. 6.]

The main issue here is whether or not the Court of Appeals erred in holding that the
trial court abused its discretion in admitting the supplemental complaint. Section 6 of
Rule 10 of the Rules of Court governing the admission of supplemental pleadings
states:

Section 6. Matters subject of supplemental pleadings. - Upon motion of a

party the court may, upon reasonable notice and upon such terms as are
just, permit him to serve a supplemental pleading setting forth
transactions, occurrences or events which happened since the date of the
pleading sought to be supplemented. If the court deems it advisable that
the adverse party should plead thereto, it shall so order, specifying the
time therefor.

The above rule expressly provides that the Court may allow a party upon motion to
serve a supplemental pleading after reasonable notice has been given the other
party. The question here then is whether that requirement of a "reasonable notice"
has been complied with.

The Court of Appeals found, undisputed by petitioner, that petitioner filed the
"Motion to File the Supplemental Complaint" on 11 March 1987 attaching thereto a
copy of the supplemental complaint. A copy of the motion was sent to BPI by
registered mail on the same day but was received by the latter only on 13 March
1987 [Record, p. 271.] A day earlier however, 12 March 1987, the trial court had
already issued an order granting the motion and admitted the supplemental
complaint "in the interest of sound administration of justice" [Rollo, p. 69.] The trial
judge likewise issued a temporary restraining order to enjoin BPI from proceeding
with "Any legal, court or other action against plaintiff (Leobrera) arising from
Promissory Note No. 017-224-0" [Ibid.]

It is difficult to ascribe as "reasonable' the above described manner in which BPI was
apprised of the proceedings relative to the supplemental complaint. The undue haste
which characterized the trial courts admission of the supplemental complaint is at
once apparent as no notice had as yet been received by BPI when the trial court
issued the 12 March 1987 order granting the motion to file the supplemental
complaint and restraining BPI from foreclosing the mortgage. BPI learned of the
existence of the motion and the order granting it only on 13 March 1987. By then it
was too late for it to contest the motion.

The arbitrariness of the trial court's admission of the supplemental complaint is

brought to the fore when it is considered that the motion to file the supplemental
complaint contained an invalid notice of hearing and lacked proof of its service as
required by Section 4, 5 and 6 of Rule 15 of the Revised Rules of Court. This is
apparent from a cursory reading of said "Notice of Hearing" to wit:

NOTICE OF HEARING

The Clerk of Court

 GREETINGS:

Please submit the foregoing motion to the Honorable Court immediately

upon receipt thereof for its due consideration and approval.

(Sgd.) ISIDRO C. ZARRAGA

Copy furnished:

Atty. Alfonso B. Verzosa 

Counsel for the Defendant
15th Floor, BPI Family Bank Center 
8753 Paseo de Roxas 
Makati, Metro Manila

[Rollo, p. 73.]

The notice of hearing is intended to prevent surprise and to afford the adverse party
a chance to be heard before the motion is resolved by the trial court. While the court
has said that a literal observance of the notice requirements in Sections 4, 5 and 6 of
Rule 15 is not necessary, a seasonable service of a copy of the motion on adverse
party or counsel with a notice of hearing indicating the time and place of hearing of
the motion are mandatory requirements that cannot be dispensed with as these are
the minimum requirements of procedural due process [Ibasan v. Republic, G.R. No.
48528, April 25, 1980, 97 SCRA 101; Estipona v. Navarro, G.R. No. L- 41825,
January 30, 1976, 69 SCRA 285; Manila Surety and Fidelity Co., Inc., v. Bath
Construction and Co., G.R. No. 16636, June 24, 1965, 14 SCRA 435.]

It is evident from the notice that no time and place of hearing of the motion is
indicated. Neither does the record reveal that there was proof of service attached to
the motion. The minimum requirements of procedural due process not having been
satisfied by the notice, the motion to which it was attached is thus a mere scrap of
paper not entitled to any cognizance by the trial court. The Court of Appeals thus
committed no reversible error in annulling the 12 March 1987 order of the trial court
tainted as it was with clear grave abuse of discretion.

As to the supplemental complaint, what likewise militates against its admission is the
fact that the matters involved therein are entirely different from the causes of action
mentioned in the original complaint.

A supplemental complaint should, as the name implies, supply only deficiencies in

aid of an original complaint [British Traders Insurance Company v. Commissioner of
Internal Revenue, G.R. No. L-20501, April 30,1965,13 SCRA 728.] It should contain
only causes of action relevant and material to the plaintiff's right and which help or
aid the plaintiff's right or defense [De la Rama Steamship Co., Inc. v. National
Development Company, G.R. No. L-15659, November 30,1962,6 SCRA 775.] The
supplemental complaint must be based on matters arising subsequent to the original
complaint related to the claim or defense presented therein, and founded on the
same cause of action. It cannot be used to try a new matter or a new cause of action
[See Randolph v. Missouri-Kansas-Texas R Co., D.C. Mo. 1948, 78 F. Supp. 727,
Berssenbrugge v. Luce Mfg. Co., D.C. Mo. 1939,30 F. Supp. 101.]

While petitioner would persuade this Court that the causes of action are interrelated,
the record reveals otherwise. The record shows that petitioner's main cause of action
in the original complaint filed in Civil Case No. 15644 concerned BPI's threat to
foreclose two real estate mortgages securing the two 90 day promissory notes
executed by petitioner in 1986. Petitioner alleges that this threatened foreclosure
violated the terms of the 1980 amicable settlement between BPI and petitioner.
The supplemental complaint on the other hand alleged acts of harassment committed
by BPI in unreasonably opting to declare petitioner in default and in demanding full
liquidation of the 1985 three-year term loan. This three-year term loan, as
previously mentioned, was entirely distinct and separate from the two promissory
notes. It was independent of the 1980 amicable settlement between petitioner and
BPI which gave rise to the credit facility subject of the original complaint. Although
there is Identity in the remedies asked for in the original and supplemental
complaints, i.e. injunction, petitioner's subsequent cause of action giving rise to the
claim for damages in the supplemental complaint is unrelated to the amicable
settlement which brought about the grant of the credit facilities, the breach of which
settlement is alleged to be the basis of the original complaint. Petitioner himself in
his supplemental complaint admits this. The supplemental complaint states inter
alia:

xxx xxx xxx

2. That aside from the loan of P 800,000.00 which is part and parcel of
the amicable settlement entered into by defendant for its gross
negligence and bad faith in failing to notify the plaintiff of at least three
letters of credit which as a result expired without having been served by
the plaintiff, the plaintiff obtained from the defendant another loan of P
500,000.00 covered by PN 17-85/0224-0 which was executed on or
about November 15, 1985 payable within a period of three years from the
date of execution with a monthly amortization of P 41,666.66....

xxx xxx xxx

4. That on or about February 12, 1987, the plaintiff received a letter from
defendant advising the former that because of the plaintiffs alleged
failure to meet the amortization due on February 9, 1987, of PN 017-
0224-0 for P 500,000.00 defendant had exercised its option to accelerate
the maturity of the account and demanded the full liquidation of the
balance of the account which was P 333,333.32 plus interest and
penalties on or before February 27, 1987.

xxx xxx xxx

6. That on November 12, 1986, Darlene Shells made a remittance to the

defendant in the amount of $ 8,350.94 with the plaintiff as beneficiary
which said amount if credited to the plaintiff's bank account with the
defendant would have meant an additional P 160,000.00, more or less in
said plaintiff's account with the defendant bank and would have been
more that sufficient to pay off the P 54,000.00 amortization due on
February 9, 1987;

7. That the defendant, however, refused to accept the remittance on the

flimsy excuse that the name of the beneficiary in the remittance was not
Carfel Shell Export but Car Sales Shell Export and made an empty motion
of trying to verify who was the supposed beneficiary when the defendant
could very well have known and found out that the beneficiary was
indeed Carfel Shell Export since plaintiff bad export business transaction
with defendant for ten or so years and plaintiff had been asking the
defendant bank of said remittance of Darlene Shells many times;

8. That had the defendant accepted said amount of $ 8,350.94 plaintiffs

account would have increased by P 190,000.00 as of November 13, 1986
which would have been more that enough to cover the 54,000.00 due on
February 9, 1987;
 9. That the defendant thru malicious acts and bad faith refused to accept
the $ 8,350.94 for the reason adverted to above.

xxx xxx xxx

[Rollo, pp. 74-76.]

As the allegations reveal, the P 500,000.00 three-year term loan is a transaction

independent of the P 800,000.00 credit facility and BPI's questioned act of
threatening to foreclose the properties securing said loan was the result of an alleged
default by petitioner in the payment of the amortization due for 9 February 1987 and
not because of any circumstance related to the 1980 amicable settlement.

The two causes of action being entirely different, the latter one could not be
successfully pleaded by supplemental complaint.

WHEREFORE, in view of the foregoing, the petition is hereby DENIED. The temporary
restraining order issued on 28 October 1987 is hereby LIFTED. SO ORDERED.
G.R. No. 107824 July 5, 1996

SUPERCLEAN SERVICES CORPORATION, petitioner, 

vs.
COURT OF APPEALS and HOME DEVELOPMENT MUTUAL FUND, respondents. 

MENDOZA, J.:p

The question in this case is the propriety of filing a Supplemental Complaint in order
to seek a different relief in view of developments rendering the original relief
impossible of attainment.

The facts are as follows:

On November 8, 1989, petitioner Superclean Services filed with the Regional Trial
Court of Manila a complaint for Mandamus/Certiorari with Preliminary Injunction
And/Or Restraining Order against private respondent Home Development and Mutual
Fund. Petitioner alleged that at the public bidding for janitorial services for the year
1990 it was the "lowest or best bidder," but private respondent refused without just
cause to award the contract to it and instead caused the publication on October 23,
1989 of a Notice of Rebidding to be held on November 9, 1989.

In its answer private respondent defended its action on the ground that not a single
bid submitted complied with the terms and conditions agreed upon in the pre-bidding
conference held on September 6, 1989.

The trial court thereafter set petitioner's application for preliminary injunction for
hearing and in the meantime ordered private respondent to desist from conducting a
rebidding. At the same time, the court granted leave to private respondent on
January 4, 1990 to hire janitorial services on a month-to-month basis to insure the
maintenance of its offices.

On July 24, 1991, petitioner moved for the admission of a "Supplemental

Complaint."1 Petitioner alleged that because the contract of services was for the
furnishing of janitorial service for the previous year 1990, the delay in the decision of
the case had rendered the case moot and academic "without [petitioner] obtaining
complete relief to redress the wrong committed against it by [private respondent],
which relief consists in unrealized profits, exemplary damages and attorney's fees."
Accordingly, instead of pursuing its prayer for a writ of mandamus, petitioner sought
the payment of damages to it.

On August 23, 1991, the trial court denied petitioner's motion, finding "no merit in
and no basis supporting it" and set the continuation of the trial on September 19,
1991.

Petitioner filed a motion for reconsideration, but its motion was likewise denied. In
its order dated November 25, 1991, the trial court said that admission of the
"Supplemental Complaint" would "not only radically but substantially [change] the
issues" by "materially var[ying] the grounds of relief, and would operate unjustly to
the prejudice of the rights of [private respondent]."

Petitioner filed a petition for certiorari in the Court of Appeals which, on August 5,

1992, rendered a decision, finding no grave abuse of discretion to have been
committed by the trial court in not admitting petitioner's "Supplemental Complaint"
and denying the motion for reconsideration of its order. Its ruling was based on the
fact that the relief sought in the "Supplemental Complaint" was different from that
contained in the original complaint which sought to compel private respondent to
recognize petitioner as the lowest qualifying bidder. In addition, the appellate court
held that the original complaint had been rendered moot and academic by
supervening events and that a supplemental complaint was inappropriate since
"supplemental pleadings are meant to supply the deficiency in aid of the original
pleading, not to entirely substitute the latter."

Petitioner moved for a reconsideration, but its motion was denied in a resolution of
the Court of Appeals dated October 30, 1992. Hence, this petition for review
on certiorari.

First. The "Supplemental Complaint" appears to have been filed under Rule 10 of the
Rules of Court which provides:

§6 Matters Subject of Supplemental Pleadings. -- Upon motion of a party

the court may, upon reasonable notice and upon such terms as are just,
permit him to serve a supplemental pleading setting forth transactions,
occurrence or events which have happened since the date of the pleading
sought to be supplemented. If the court deems it advisable that the
adverse party should plead thereto, it shall so order, specifying the time
therefor.

The transaction, occurrence or event happening since the filing of the pleading,
which is sought to be supplemented, must be pleaded in aid of a party's right or
defense as the case may be.2 But in the case at bar, the supervening event is not
invoked for that purpose but to justify the new relief sought.

To begin with, what was alleged as a supervening event causing damage to

petitioner was the fact that the year for which the contract should have been made
had passed without the resolution of the case. Only incidentally was it claimed that
because of the award of a contract for janitorial services, on a month-to-month basis
to a third party, petitioner failed to realize profits. In its "Supplemental Complaint"
petitioner alleged:

1. Supervening events not attributable to anybody which consist in the

delay in the early disposition of the case within the one (1) year period
life span of the contract for janitorial services, have rendered the
case moot and academic, without plaintiff obtaining complete relief to
redress the wrong committed against it by defendant, which is the
unjustified and/or unlawful refusal of defendant to recognize plaintiff as
the lowest qualifying bidder for janitorial services for the year 1990;

2. By reason of the unjustified refusal of defendant to recognize the result

of the public bidding held in September 1989 and to award to plaintiff the
contract for janitorial services as the lowest qualifying bidder favorable
and advantageous to the defendant for the year 1990, and by hiring
another entity to perform janitorial services during the pendency of the
suit, plaintiff suffered unrealized profits in the sum of P158,117.28;

The supervening event was therefore cited not to reinforce or aid the original
demand, which was for the execution of a contract in petitioner's favor, but to say
that, precisely because of it, petitioner's demand could no longer be enforced, thus
justifying petitioner in changing the relief sought to one for recovery of damages.
This being the case, petitioner's remedy was not to supplement, but rather to amend
its complaint.

Indeed the new relief sought (payment of damages in lieu of an award of the
contract for janitorial services) is actually an alternative remedy to which petitioner
was entitled even before at the time of the filing of its original complaint. If petitioner
was entitled to the award of the contract, as it claimed it was, it could have asked
either for an award of the contract for janitorial services or for damages. The fact
that it opted for the first does not preclude it from subsequently claiming damages
because through no fault of its own, the year passed without an award in its favor,
with the result that it could no longer demand the execution of a contract in its favor
after that year.

Be that as it may, the so-called Supplemental Complaint filed by petitioner should

simply be treated as embodying amendments to the original complaint or petitioner
may be required to file an amended complaint.

Second. But, it is contended, such an amendment of the complaint would change the
theory of the case. Three reasons were cited by the Court of Appeals why it thought
the trial court correctly refused to admit the so-called Supplemental Complaint of
petitioner: (1) change in the reliefs prayed for; (2) change in the issues of the case;
and (3) prejudice to the rights of private respondent.

The contention has no merit. An amendment to change the relief sought does not
change the theory of a case. What is prohibited is a change in the cause of action.
Thus in Arches v. Villarruz,3 it was held:

The lower court denied the admission of the amended complaint on the
ground that the plaintiff therein has changed the action alleged in the
original complaint, but upon comparing the two complaints, we find that,
essentially, there was no change of action for, in both the original and the
amended complaints, the action was for the collection of the value of the
same promissory notes and the only difference between the original and
the amended complaints is with regard to the consideration of said
promissory notes, for while in the original complaint it was alleged that
these were executed by defendant Villarruz for money obtained from
plaintiff Arches and with which the former paid for labor and materials for
the construction and completion of the Ivisan Bridge, in the amended
complaint it was alleged that said promissory notes were executed for
materials supplied to William Villarruz and actually used in the
construction of the Ivisan Bridge. While the rule allowing amendments to
a pleading is subject to the general limitation that the cause of action
should not be substantially changed or that the theory of the case should
not be altered, in the furtherance of justice, amendments to a pleading
should be favored and the rules thereon should be liberally construed. In
the present case, we find justification for allowing the admission of the
amended complaint in order that the real question between the parties
may be properly and justly threshed out, in a single proceeding, and thus
avoid multiplicity of actions.

In Vda. de Villaruel v. Manila Motor Co., Inc.,4 plaintiffs, as lessors of a property,

filed an action for the rescission of the contract of lease for alleged refusal of
defendants to pay rentals. While the case was pending, the buildings leased were
destroyed by fire. Plaintiffs filed a supplemental complaint for the recovery of the
value of the burned buildings. In holding the supplemental complaint proper, this
Court held:

This action was inceptionally instituted for the rescission of the contract
of lease and for the recovery of unpaid rentals before and after liberation.
When the leased buildings were destroyed, the plaintiffs-lessors
demanded from the defendants-lessees, instead, the value of the burned
premises, basing their right to do so on defendants' alleged default in the
payment of post-liberation rentals (which was also their basis in formerly
seeking for rescission). This cannot be considered as already altering the
theory of the case which is merely a change in the relief prayed for,
brought about by circumstances occurring during the pendency of the
action, and is not improper. (Southern Pacific Co. vs. Conway, 115 F. 2d
746; Suburban Improvement Company vs. Scott Lumber Co., 87 A.L.R.
 555, 59 F. 2d 711). The filing of the supplemental complaint can well be
justified also under Section 2, Rule 17 of the Rules of Court (on
amendments) "to the end that the real matter in dispute and all matters
in the action in dispute between the parties may, as far as possible be
completely determined in a single proceeding". It is to be noted
furthermore, that the admission or rejection of this kind of pleadings is
within the sound discretion of the court that will not be disturbed on
appeal in the absence of abuse thereof (see Sec. 5, Rule 17, Rules of
Court), especially so, as in this case, where no substantial procedural
prejudice is caused to the adverse party.5

In this case, the original complaint for Mandamus/Certiorari With Preliminary

Injunction And/Or Restraining Order alleged, as cause of action, private respondent's
unjustifiable refusal to award the contract to petitioner despite the fact that the latter
was the "lowest and best qualifying bidder." On the basis of this allegation, it was
prayed that:

1. Upon filing [of] this Complaint, a restraining order be issued to enjoin

[private respondent] from implementing [or] proceeding with its Notice of
Rebidding which is scheduled on November 9, 1989 at 10:00 A.M.;

2. After trial on the merits, judgment be rendered —

a. ordering [private respondent] to recognize [petitioner] as

the lowest qualifying responsive bidder at the public bidding
held on September 22, 1989 and therefore its right to the
award of the contract for janitorial services;

b. declaring that [private respondent] in publishing its "Notice

of Rebidding" acted with grave abuse of discretion amounting
to excess and/or lack of jurisdiction;

c. declaring the restraining order or temporary writ of

injunction to be permanent; and

d. for costs of suit.

These same allegations constitute petitioner's cause of action for damages, to wit:

1. the sum of P158,117.28 as unrealized profits;

2. the sum of P50,000.00 as exemplary damages;

3. the sum equivalent to twenty-five (25%) percent of the total amount

due and demandable, plus P1,000.00 for every appearance of counsel in
court;

4. the costs of suit.

As already stated, the change in the relief sought was necessitated by a supervening
event which rendered the first relief sought impossible of attainment.

Because the cause of action on which the complaint for mandamus and injunction

and the so-called Supplemental Complaint are based is one and the same, the issue
raised is the same, namely, whether private respondent was justified in refusing to
award the contract for janitorial services to petitioner.

Nor would admission of the amended complaint prejudice the rights of private
respondent as defendant in the action below, as the Court of Appeals held. Indeed
neither the trial court nor the appellate court showed in what way the rights of
private respondent would be prejudiced by the allowance of the amendment in
question. There will be no unfairness or surprise to private respondent, because after
all private respondent will have a right to file an amended answer and present
evidence in support thereof.6

Third. The Court of Appeals also held that the action for mandamus and/or injunction
had become moot and academic and consequently there was no longer any
complaint to be supplemented. It is true that a supplemental or an amended
pleading presupposes the existence of a pleading. What was rendered moot and
academic, however, was not petitioner's cause of action but only its prayer for the
writ of mandamus. There was still an alternative remedy left to petitioner of seeking
damages in lieu of an award of the contract. The situation is similar to an action for
illegal dismissal in labor law. If reinstatement is no longer possible, because the
position has been abolished and there is no way the dismissed employee can be
reinstated to a comparable position, the employee's action is not thereby rendered
moot and academic. He can instead ask for separation pay.

Indeed, what is important is that, as already stated, the basic allegations of fact in
the original and in the amended complaints are the same, namely, that private
respondent, without justification, refused to award the contract of services to
petitioner. Through no fault of petitioner, the year for which janitorial services were
to be rendered expired without the resolution of petitioner's case. It would be to
exalt technicality over substance to require that petitioner file a new complaint. It
would best serve the interests of justice if the so-called Supplemental Complaint is
simply considered as embodying amendments to the original complaint. In fact it
appears that the court ordered a continuation of the trial on September 19, 1991,
despite petitioner's statement in its Supplemental Complaint that the original case
had become moot and academic.

WHEREFORE, the decision of the Court of Appeals is REVERSED and the case is
REMANDED to the trial court with instructions to admit the "Supplemental Complaint"
and to treat it as an amendment to the original complaint or to require petitioner to
file an amended complaint, merging the relevant allegations of its original complaint
and "Supplemental Complaint," and thereafter to allow private respondent to file an
answer. SO ORDERED.