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G.R. No. 89114. December 2, 1991.

*
FRANCISCO S. TANTUICO, JR., petitioner, vs. REPUBLIC OF
THE PHILIPPINES, PRESIDENTIAL COMMISSION ON GOOD
GOVERNMENT,
MATEO
A.T.
CAPARAS,
AND
THE
SANDIGANBAYAN, respondents.
Remedial Law; Pleadings and Practices; Nature of a
complaint.A complaint is defined as a concise statement of
the ultimate facts constituting the plaintiff s cause or causes
of action. Like all other pleadings allowed by the Rules of
Court, the complaint shall contain in a methodical and logical
form a plain, concise and direct statement of the ultimate
facts on which the plaintiff relies for his claim, omitting the
statement of mere evidentiary facts. Its office, purpose or
function is to inform the defendant clearly and definitely of
the claims made against him so that he may be prepared to
meet the issues at the trial. The complaint should inform the
defendant of all the material facts on which the plaintiff relies
to support his demand; it should state the theory of a cause
of action which forms the bases of the plaintiffs claim of
liability.
Same; Same; Same; Rules on pleading speak of two kinds of
facts, the ultimate facts and the evidentiary facts.The rules
on pleading speak of two (2) kinds of facts: the first, the
ultimate facts, and the second, the evidentiary facts.
Same; Same; Same; Same; Ultimate facts and evidentiary
facts defined."The term ultimate facts as used in Sec. 3,
Rule 3 of the Rules of Court, means the essential facts
constituting the plaintiffs cause of action. A fact is essential if
it cannot be stricken out, without leaving the statement of
the cause of action insufficient, x x x, (Moran, Rules of
Court, Vol. 1,1963 ed., p. 213). Ultimate facts are important
and substantial facts which either directly form the basis of
the primary right and duty, or which directly make up the
wrongful acts or omissions of the defendant. The term does
not refer to the details of probative matter or particulars of
evidence by which these material elements are to be
established. It refers to principal, determinate, constitutive
facts, upon the existence of which, the entire cause of action
rests. while the term evidentiary fact has been denned in

the following tenor: Those facts which are necessary for


determination of the ultimate facts; they are the premises
upon which conclusions of ultimate facts are based. Womack
v. Industrial Comm., 168 Colo. 364, 451 P.2d 761, 764. Facts
which furnish evidence of existence of some other fact.
Same; Same; Same; Bill of Particulars; Where the allegations
of the complaint are vague, indefinite or in the form of
conclusions, the proper recourse would be not a motion to
dismiss but a motion for a bill of particulars.Where the
complaint states ultimate facts that constitute the three (3)
essential elements of a cause of action, namely: (1) the legal
right of the plaintiff, (2) the correlative obligation of the
defendant, and (3) the act or omission of the defendant in
violation of said legal right, the complaint states a cause of
action, otherwise, the complaint must succumb to a motion
to dismiss on that ground of failure to state a cause of action.
However, where the allegations of the complaint are vague,
indefinite, or in the form of conclusions, the proper recourse
would be, not a motion to dismiss, but a motion for a bill of
particulars.
Same; Same; Same; Same; Allegations in the complaint are
deficient in that they merely articulate conclusions of law and
presumptions unsupported by factual premises.The
allegations in the complaint, above-referred to, pertaining to
petitioner are, therefore, deficient in that they merely
articulate conclusions of law and presumptions unsupported
by factual premises. Hence, without the particulars prayed
for in petitioners motion for a bill of particulars, it can be
said the petitioner can not intelligently prepare his
responsive pleading and for trial.
Same; Same; Same; Same; Same; The particulars prayed for
are not evidentiary in nature.Furthermore, the particulars
prayed for, such as, names of persons, names of
corporations, dates, amounts involved, a specification of
property
for
identification
purposes,
the
particular
transactions involving withdrawals and disbursements, and a
statement of other material facts as would support the
conclusions and inferences in the complaint, are not
evidentiary in nature. On the contrary, those particulars are

material facts that should be clearly and definitely averred in


the complaint in order that the defendant may, in fairness, be
informed of the claims made against him to the end that he
may be prepared to meet the issues at the trial.
Same; Same; Same; Same; Purpose or object of a bill of
particulars.Thus, it has been held that the purpose or
object of a bill of particulars is"x x x to amplify or limit a
pleading, specify more minutely and particularly a claim or
defense set up and pleaded in general terms, give
information, not contained in the pleading, to the opposite
party and the court as to the precise nature, character,
scope, and extent of the cause of action or defense relied on
by the pleader, and apprise the opposite party of the case
which he has to meet, to the end that the proof at the trial
may be limited to the matters specified, and in order that
surprise at, and needless preparation for, the trial may be
avoided, and that the opposite party may be aided in framing
his answering pleading and preparing for trial. It has also
been stated that it is the function or purpose of a bill of
particulars to define, clarify, particularize, and limit or
circumscribe the issues in the case, to expedite the trial, and
assist the court. A general function or purpose of a bill of
particulars is to prevent injustice or do justice in the case
when that cannot be accomplished without the aid of such a
bill.
Same; Same; Same; Same; In a motion for a bill of particulars
the only question to be resolved is whether or not the
allegations of the complaint are averred with sufficient
definiteness or particularity to enable the movant properly to
prepare his responsive pleading and to prepare for trial.
Anent the contention of the Solicitor General that the
petitioner is not entitled to a bill of particulars because the
ultimate facts constituting the three (3) essential elements of
a cause of action for recovery of ill-gotten wealth have been
sufficiently alleged in the complaint, it would suffice to state
that in a motion for a bill of particulars, the only question to
be resolved is whether or not the allegations of the complaint
are averred with sufficient definiteness or particularity to

enable the movant properly to prepare his responsive


pleading and to prepare for trial.
PETITION for certiorari, mandamus and prohibition to review
the resolution of the Sandiganbayan.
The facts are stated in the opinion of the Court.
Kenny H. Tantuico for petitioner.
PADILLA, J.:
In this petition for certiorari, mandamus and prohibition with
a prayer for the issuance of a writ of preliminary injunction
and/or restraining order, the petitioner seeks to annul and set
aside the resolution of the Sandiganbayan, dated 21 April
1989, denying his motion for a bill of particulars as well as its
resolution, dated 29 May 1989, which denied his motion for
reconsideration; to compel the respondent PCGG to prepare
and file a bill of particulars, or that said respondent be
ordered to exclude petitioner as defendant in Civil Case No.
0035 should they fail to submit the said bill of particulars;
and to enjoin the respondent Sandiganbayan from further
proceeding against petitioner until the bill of particulars is
submitted, claiming that the respondent Sandiganbayan
acted with grave abuse of discre-tion amounting to lack of
jurisdiction in promulgating the aforesaid resolutions and that
there is no appeal, nor any plain, speedy and adequate
remedy for him in the ordinary course of law other than the
present petition.
As prayed for, this Court issued on 1 August 1989 a
temporary restraining order effective immediately and
continuing until further orders from this Court, ordering the
respondent Sandiganbayan to CEASE and DESIST from
further proceeding in Civil Case No. 0035 (PCGG 35), entitled
Republic of the Philippines vs. Benjamin (Kokoy) Romualdez,
et al. pending before it.1
The antecedents are as follows:
On 31 July 1987, the Republic of the Philippines, represented
by the PCGG, and assisted by the Office of the Solicitor
General, filed with the Sandiganbayan Civil Case No. 0035,

entitled Republic of the Philippines vs. Benjamin (Kokoy)


Romualdez, et al. for reconveyance, reversion, accounting,
restitution and damages.2
The principal defendants in the said Civil Case No. 0035 are
Benjamin (Kokoy) Romualdez, Ferdinand E. Marcos and
Imelda R. Marcos.
Petitioner Francisco S. Tantuico, Jr. was included as defendant
in Civil Case No. 0035 on the theory that: (1) he acted in
unlawful concert with the principal defendants in the
misappropriation and theft of public funds, plunder of the
nations wealth, extortion, blackmail, bribery, embezzlement
and other acts of corruption, betrayal of public trust and
brazen abuse of power;3 (2) he acted as dummy, nominee or
agent, by allowing himself to be incorporator, director, board
member and/or stockholder of corporations beneficially held
and/or controlled by the principal defendants;4 (3) he acted
singly or collectively, and/or in unlawful concert with one
another, in flagrant breach of public trust and of their
fiduciary obligations as public officers, with gross and
scandalous abuse of right and power and in brazen violation
of the Constitution and laws of the Philippines, embarked
upon a systematic plan to accumulate ill-gotten wealth;5 (4)
he (petitioner) taking undue advantage of his position as
Chairman of the Commission on Audit and with grave failure
to perform his constitutional duties as such Chairman, acting
in concert with defendants Ferdinand E. Marcos and Imelda R.
Marcos, facilitated and made possible the withdrawals,
disbursements and questionable use of government funds;6
and (5) he acted as dummy, nominee and/or agent by
allowing himself to be used as instrument in accumulating illgotten wealth through government concessions, orders
and/or policies prejudicial to plaintiff, or to be incorporator,
director, or member of corporations beneficially held and/or
controlled by defendants Ferdinand E. Marcos, Imelda R.
Marcos, Benjamin (Kokoy) Romualdez and Juliette Gomez
Romualdez in order to conceal and prevent recovery of
assets illegally obtained.7
On 11 April 1988, after his motion for production and
inspection of documents8 was denied by respondent court in

its resolution9 dated 9 March 1988, petitioner filed a Motion


for a Bill of Particulars,10 alleging inter alia that he is sued for
acts allegedly committed by him as (a) a public officerChairman of the Commission on Audit, (b) as a private
individual, and (c) in both capacities, in a complaint couched
in too general terms and shorn of particulars that would
inform him of the factual and legal basis thereof, and that to
enable him to understand and know with certainty the
particular acts allegedly committed by him and which he is
now charged with culpability, it is necessary that plaintiff
furnish him the particulars sought therein relative to the
averments in paragraphs 2, 9(a), 15, 7 and 17 of the Second
Amended Complaint so that he can intelligently prepare his
responsive pleading and prepare for trial. The particulars
sought for in the said motion are as follows:
a. Relative to the averments in paragraphs 2, 9(a) and 15 of
the Second Amended Complaint:
i) What are the dates of the resolutions (if on appeal) or the
acts (if otherwise) issued or performed by herein defendant
which allowed the facilitation of, and made possible the,
withdrawals, disbursements and questionable use of
government funds;
ii) What ministries or Departments, offices or agencies of the
government were involved in these questionable use of
government funds;
iii) What are the names of the auditors who had the original
audit jurisdiction over the said withdrawals, disbursements
and questionable use of government funds;
iv) How much government funds were involved in these
questionable-disbursements, individually and in totally?
v) Were the disbursements brought to herein defendant for
action on pre-audit, post-audit or otherwise or where they
initiated and/or allowed release by herein defendant alone,
without them undergoing usual governmental audit
procedures, or in violation thereof?
vi) What were herein defendants other acts or omission or
participation in the matter of allowing such disbursements
and questionable use of government funds, if any?

b. Relative to paragraphs 7 and 17 of the Second Amended


Complaint:
i) In what particular contract, dealing, transaction and/or
relationship of any nature of Ferdinand E. Marcos, Imelda R.
Marcos, Juliette Gomez Romualdez or Benjamin T. Romualdez
did herein defendant act as dummy, nominee or agent?
Please specify the dealings, the dates, the corporations or
entities involved, the government offices involved and the
private and public documents, if any, sho wing herein
defendants complicity, since he is not aware of any such
instance. More basically, please specify whether the
defendant is a dummy or nominee or agent and of which
corporation or transaction?
ii) What particular government concession, order and/or
policy obtained by Ferdinand E. Marcos, or Imelda R. Marcos,
or Juliette Gomez Romualdez and/or Benjamin T. Romualdez
allowed them either singly or jointly to accumulate ill-gotten
wealth by using herein defendant as instrument for their
accomplishment, Likewise please identify the nature of the
transactions, the dates and the document showing complicity
on the part of herein defendant; he is not aware of any such
instance.
iii) Please specify the name or denominate the particular
government concession, order and/or policy prejudicial to the
interest of the government which was obtained by either of
the above-named four defendants through the participation
of herein defendant as a dummy, nominee or agent of herein
defendant, Please likewise identify the government office
involved, the dates and other particulars, likewise defendant
is not aware of any such instance.
iv) Please name and specify the corporation whether stock or
non-stock, whether government or private, beneficially held
and/or controlled by either of the four above defendants,
where herein defendant is an incorporator, director or
member and where his inclusion as such incorporator,
director or member of the corporation was made in order to
conceal and prevent recovery of assets illegally obtained by
the aforementioned four defendants, how many shares are

involved and what are their values, how and when have they
been acquired.
The Solicitor General, for and in behalf of respondents
(except the respondent Sandiganbayan), opposed the
motion.11 After the petitioner had filed his reply12 thereto,
the respondent Sandiganbayan promulgated on 21 April 1990
a resolution13 denying the petitioners motion for a bill of
particulars on the ground that the particulars sought by
petitioner are evidentiary in nature, the pertinent part of
which resolution reads, as follows:
We are of the considered opinion that the allegations in the
Expanded Complaint are quite clear and sufficient enough for
defendant-movant to know the nature and scope of the
causes of action upon which plaintiff seeks relief. They
provide the factual scenario which, coupled with other
allegations set forth in the Common Averments and further
specified
in
the
Specific
Averments
of
herein
defendantmovant and his co-defendants illegal acts which
are within defendant-movants peculiar and intimate
knowledge as a government official and corporate executive,
will enable him to make the proper admission, denials or
qualifications, set out affirmative and/or special defenses and
thereafter prepare for trial. E videntiary facts or matters are
not essential in the pleading of the cause of action, nor to
details or probative value or particulars of evidence by which
these material evidence are to be established (Remitere vs.
Yulu, 6 SCRA 251). The matters which he seeks are
evidentiary in nature and, being within his intimate or
personal knowledge, may be denied or admitted by him or if
deemed necessary, be the subject of other forms of
discovery."14
Petitioner moved for reconsideration15 but this was denied
by respondent Sandiganbayan in its resolution16 dated 29
May 1990.
Hence, petitioner filed the present petition.
The principal issue to be resolved in the case at bar is
whether or not the respondent Sandiganbayan acted with
grave abuse of discretion in issuing the disputed resolutions.

Petitioner argues that the allegations of the Second Amended


Complaint in Civil Case No. 0035 (PCGG 35) pertaining to him
state only conclusions of fact and law, inferences of facts
from facts not pleaded and mere presumptions, not ultimate
facts as required by the Rules of Court.
On the other hand, the respondent Sandiganbayan, by and
through the Solicitor General, contends that the essential
elements of an action for recovery of ill-gotten wealth are: (1)
an accumulation of assets, properties and other possessions;
(2) of former President Ferdinand E. Marcos, Mrs. Imelda
Romualdez Marcos, their close relatives, subordinates,
business associates, dummies, agents, or nominees; and (3)
whose value is out of proportion to their known lawful
income, and that the ultimate facts establishing these three
(3) essential elements of an action for recovery of ill-gotten
wealth are sufficiently alleged in the complaint. Hence,
petitioner is not entitled to a bill of particulars.
A complaint is defined as a concise statement of the ultimate
facts constituting the plaintiff s cause or causes of action.17
Like all other pleadings allowed by the Rules of Court,18 the
complaint shall contain in a methodical and logical form a
plain, concise and direct statement of the ultimate facts on
which the plaintiff relies for his claim, omitting the statement
of mere evidentiary facts.19 Its office, purpose or function is
to inform the defendant clearly and definitely of the claims
made against him so that he may be prepared to meet the
issues at the trial. The complaint should inform the defendant
of all the material facts on which the plaintiff relies to support
his demand; it should state the theory of a cause of action
which forms the bases of the plaintiffs claim of liability.20
The rules on pleading speak of two (2) kinds of facts: the
first, the ultimate facts, and the second, the evidentiary
facts. In Remitere vs. Vda. de Yulo,21 the term ultimate
facts was defined and explained as follows:
The term ultimate facts as used in Sec. 3, Rule 3 of the
Rules of Court, means the essential facts constituting the
plaintiff s cause of action. A fact is essential if it cannot be
stricken out without leaving the statement of the cause of

action insufficient. x x x (Moran, Rules of Court, Vol. 1, 1963


ed., p. 213).
Ultimate facts are important and substantial facts which
either directly form the basis of the primary right and duty, or
which directly make up the wrongful acts or omissions of the
defendant. The term does not refer to the details of probative
matter or particulars of evidence by which these material
elements are to be established. It refers to principal,
determinate, constitutive facts, upon the existence of which,
the entire cause of action rests.
while the term evidentiary fact has been defined in the
follow-ing tenor:
Those facts which are necessary for determination of the
ultimate facts; they are the premises upon which conclusions
of ultimate facts are based. Womack v. Industrial Comm., 168
Colo. 364, 451 P.2d 761, 764. Facts which furnish evidence of
existence of some other fact."22
Where the complaint states ultimate facts that constitute the
three (3) essential elements of a cause of action, namely: (1)
the legal right of the plaintiff, (2) the correlative obligation of
the defendant, and (3) the act or omission of the defendant
in violation of said legal right, the complaint states a cause of
action, otherwise, the complaint must succumb to a motion
to dismiss on that ground of failure to state a cause of
action.23 However, where the allegations of the complaint
are vague, indefinite, or in the form of conclusions, the
proper recourse would be, not a motion to dismiss, but a
motion for a bill of particulars.24 Thus, Section 1, Rule 12 of
the Rules of Court provides:
Before responding to a pleading or, if no responsive
pleading is permitted by these rules, within ten (10) days
after service of the pleading upon him, a party may move for
a more definite statement or for a bill of particulars of any
matter which is not averred with sufficient definiteness or
particularity to enable him properly to prepare his responsive
pleading or to prepare for trial. Such motion shall point out
the defects complained of and the details desired.

In this connection, the following allegations have been held


as mere conclusions of law, inferences from facts not alleged
or opinion of the pleader: (a) the allegations that
defendantsappellees were actuated by ulterior motives,
contrary to law and morals, with abuse of their advantageous
position as employers, in gross and evident bad faith and
without giving plaintiff. . . his due, wilfully, maliciously,
unlawfully, and in summary and arbitrary manner, are
conclusions of law, inferences from facts not alleged and
expressions of opinion unsupported by factual premises;25
(b) an allegation of duty in terms unaccompanied by a
statement of 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;26 (c) an averment . . .
that an act was unlawful or wrongful is a mere legal
conclusion or opinion of the pleader;27 (d) the allegation that
there was a violation of trust 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 a fact";28 (e) an allegation
that a contract is valid or void, is a mere conclusion of law;29
(f) the averment in the complaint that defendant usurped
the office of Senator of the Philippines is a conclusion of law
not a statement of factinasmuch as the particular facts
on which the alleged usurpation is predicated are not set
forth therein;30 and (g) the averment that with intent of
circumventing the constitutional prohibition that no officer or
employee in the civil service shall be removed or suspended
except for cause as provided by law, respondents
maliciously and illegally for the purpose of political
persecution and political vengeance, reverted the fund of the
salary item x x x and furthermore eliminated or abolished the
said position effective 1 July 1960" is a mere conclusion of
law unsupported by factual premises.31
Bearing in mind the foregoing rules on pleading and case
law, let us now examine the allegations of the Second
Amended Complaint against the petitioner to determine
whether or not they were averred with sufficient definiteness
or particularity to enable him properly to prepare his

responsive pleading or to prepare for trial. If the allegations


of the said complaint are vague, indefinite or in the form of
conclusions, then petitioner is entitled to a bill of particulars.
The allegations in the complaint pertaining to the alleged
culpable and unlawful acts of herein petitioner are quoted
hereunder as follows:
GENERAL AVERMENTS
OF
DEFENDANTS' ILLEGAL ACTS
9. (a) From the early years of his presidency, Defendant
Ferdinand E. Marcos took undue advantage of his powers as
President. All throughout the period from September 21,
1972 to February 25, 1986, he gravely abused his powers
under martial law and ruled as Dictator under the 1973
Marcos-promulgated Constitution. Defendant Ferdinand E.
Marcos, together with other Defendants, acting singly or
collectively, and/or in unlawful concert with one another, in
flagrant breach of public trust and of their fiduciary
obligations as public officers, with gross and scandalous
abuse of right and power and in brazen violation of the
Constitution and laws of the Philippines, embarked upon a
systematic plan to accumulate ill-gotten wealth;
(b) Upon his unfettered discretion, and sole authority, for the
purpose of implementing the plan referred to above,
Defendant Ferdinand E. Marcos ordered and caused, among
others:
(b-i) the massive and unlawful withdrawal of funds,
securities, reserves and other assets and property from the
National Treasury, the Central Bank, the other financial
institutions and depositories of Plaintiff;
(b-ii) the transfer of such funds, securities, reserves and
other assets and property to payees or transferees of his
choice and whether and in what manner such transactions
should be recorded in the books and records of these
institutions and other depositories of Plaintiff;
10. Among others, in furtherance of the plan and acting in
the manner referred to above, in unlawful concerted with one

another and with gross abuse of power and authority,


Defendants Ferdinand E. Marcos and Imelda R. Marcos;
xxx
xxx
b. Converted government-owned and controlled corporations
into private enterprises and appropriated them and/or their
assets for their own benefit and enrichment;
c. Awarded contracts with the Government to their relatives,
business associates, dummies, nominees, agents or persons
who were beholden to said Defendants, under terms and
conditions grossly and manifestly disadvantageous to the
Government;
d. Misappropriated, embezzled and/or converted to their own
use funds of Government financial institutions, particularly
those allocated to the Office of the President and other
ministries and agencies of the Government including, those
conveniently denominated as intelligence or counterinsurgency funds, as well as funds provided to Plaintiff by
foreign countries, multinationals, public and private financial
institutions;
e. Raided Government financial and banking institutions of
billions of pesos in loans, guarantees and other types of
financial accommodations to finance dubious and/or
overpriced projects of favored corporations or individuals and
misused and/or converted to their own use and benefit
deposits found therein to the financial ruin of Plaintiff and the
Filipino people;
xxx
xxx
h. Sold, conveyed and/or transferred Government property,
real and/or personal, to corporations beneficially held and/ or
controlled by them or through third persons, under such
terms and conditions grossly and manifestly disadvantageous
to the Government;
i. Engaged in other illegal and improper acts and practices
designed to defraud Plaintiff and the Filipino people, or
otherwise misappropriated and converted to their own use,
benefit and enrichment the lawful patrimony and revenues of
Plaintiff and the Filipino people.

11.Among the assets acquired by Defendants in the manner


above-described and discovered by the Commission in the
exercise of its official responsibilities are funds and other
property listed in Annex A' hereof and made an integral part
of this Complaint.
12.Defendants, acting singly or collectively, and/or in
unlawful concert with one another, for the purpose of
preventing disclosure and avoiding discovery of their
unmitigated plunder of the National Treasury and of their
other illegal acts, and employing the services of prominent
lawyers, accountants, financial experts, businessmen and
other persons, deposited, kept and invested funds, securities
and other assets estimated at billions of US dollars in various
banks, financial institutions, trust or investment companies
and with persons here and abroad.
V
SPECIFIC AVERMENTS
OF
DEFENDANTS' ILLEGAL ACTS
xxx
xxx
14. Defendants Benjamin (Kokoy) Romualdez and Juliette
Gomez Romualdez, acting by themselves and/or in unlawful
concert with Defendants Ferdinand E. Marcos and Imelda R.
Marcos, and taking undue advantage of their relationship,
influence and connection with the latter Defendant spouses,
engaged in devices, schemes and strategems to urjustly
enrich themselves at the expense of Plaintiff and the Filipino
people, among others:
(a) obtained, with the active collaboration of Defendants
Senen J. Gabaldon, Mario D. Camacho, Mamerto
Nepomuceno, Carlos J. Valdes, Delia Tantuico, Jovencio F.
Cinco, Cesar C. Zalamea and Francisco Tantuico, control of
some of the biggest business enterprises in the Philippines,
such as, the Manila Electric Company (MERALCO), Benguet
Consolidated Mining Corporation (BENGUET) and the Pilipinas
Shell Corporation, by employing devious financial schemes
and techniques calculated to require the massive infusion

and hemmorrhage of government funds with minimum or


negligible cashout from Defendant Benjamin Romualdez.
The following are the general features of a classic take-over
bid by Defendant Benjamin Romualdez:
xxx
xxx
(ii) The shares were held in the name of corporations which
were organized soldely (sic) for the purpose of holding title to
them. These corporations did not have any operating history
nor any financial track record. Projected cash flow consisted
almost solely of future and contingent dividends on the
shares held. In spite of these limitations, these companies
enjoyed excellent credit lines from banks and other financial
institutions, as evidenced by the millions of pesos in loan and
guarantees outstanding in their books;
(iii) The seed money used to wrest control came from
government and taxpayers money in the form of millions of
pesos in loans, guarantees and standby L/Cs from
government financial institutions, notably the DBP and PNB,
which were in turn rediscounted with the Central Bank;
(iv) Additional funding was provided from the related
interests; and
(v) This instricate (sic) skein of inter-corporate dealings was
controlled and administered by an exclusive and closely knit
group of interlocking directorate and officership.
xxx
xxx
(g) Secured, in a veiled attempt to justify MERALCOs
anomalous acquisition of the electric cooperatives, with the
active collaborations of Defendants Cesar E.A. Virata, Juanito
R. Remulla, Isidro Rodriguez, Jose C. Hernandez, Pedro
Dumol, Ricardo C. Galing, Fran-cisco C. Gatmaitan, Mario D.
Camacho and the rest of the Defendants, the approval by
Defendant Ferdinand E. Marcos and his cabinet of the socalled Three-Year Program for the Extension of MERALCOs
Services to Areas Within The 60-Kilometer Radius of Manila,
which required government capital investment amounting to
millions of pesos;
xxx
xxx

(1) Caused the National Investment and Development


Corporation (NIDC) to dispose of its interest in the oil plants
located in Tanauan, Leyte, which were owned and operated
by its subsidiary, the NIDC Oil Mills, Inc., in favor of the
SOLOIL, Inc., a corporation beneficially held and controlled by
Defendant Benjamin Romualdez, with the active collaboration
of Defendants Jose Sandejas, Francisco Tantuico and
Dominador G. Ingco, under terms and conditions grossly
disadvantageous to NIDC, to the grave and irreparable
damage of Plaintiff and the Filipino people.
15. Defendant Francisco Tantuico, taking undue advantage of
his position as Chairman of the Commission on Audit and
with grave failure to perform his constitutional duties as such
Chairman, acting in concert with Defendants Ferdinand E.
Marcos and Imelda R. Marcos, facilitated and made possible
the withdrawals, disbursements and questionable use of
government funds as stated in the foregoing paragraphs to
the grave and irreparable damage and injury of Plaintiff and
the entire Filipino people.
xxx
xxx
17. The following Defendants acted as dummies, nominees
and/ or agents by allowing themselves (i) to be used as
instruments in accumulating ill-gotten wealth through
government concessions, orders and/or policies prejudicial to
Plaintiff, or (ii) to be incorporators, directors, or members of
corporations held and/or controlled by Defendants Ferdinand
E. Marcos, Imelda R. Marcos, Benjamin (Kokoy) Romualdez,
and Juliette Gomez Romualdez in order conceal (sic) and
prevent recovery of assets illegally obtained; Francisco
Tantuico x x x.
17.a. THE NAMES OF SOME OF THE CORPORATIONS
BENEFICALLY
HELD
AND/OR
CONTROLLED
BY
THE
DEFENDANTS BENJAMIN (KOKOY) ROMUALDEZ, FERDINAND E.
MARCOS
AND
IMELDA
R.
MARCOS
WHERE
THE
POSITIONS/PARTICIPATIONS AND/OR INVOLVEMENTS OF SOME
OF THE DEFENDANTS AS DUMMIES, NOMINEES AND/OR
AGENTS ARE INDICATED ARE LISTED IN ANNEX B' HEREOF
AND MADE AN INTEGRAL PART OF THIS COMPLAINT. x x x
xxx

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


un-lawful concert with one another, constitute gross abuse of
official position and authority, flagrant breach of public trust
and fiduciary obligations, acquisition of unexplained wealth,
brazen abuse of official position and authority, flagrant
breach of public trust and fiduciary obligations, acquisition of
unexplained wealth, brazen abuse of right and power, unjust
enrichment, violation of the Constitution and laws of the
Republic of the Philippines, to the grave and irreparable
damage of Plaintiff and the Filipino people. (Italics supplied)
Let us now analyze and discuss the allegations of the
complaint in relation to which the petitioner pleads for a bill
of particulars.
As quoted above, paragraph 9(a) of the complaint alleges
that Defendant Ferdinand E. Marcos, together with other
Defendants, acting singly or collectively, and/or in unlawful
concert with one another, in flagrant breach of public trust
and of their fiduciary obligations as public officers, with gross
and scandalous abuse of right and power and in brazen
violation of the Constitution and laws of the Philippines,
embarked upon a systematic plan to accumulate ill-gotten
wealth. In the light of the rules on pleading and case law
cited above, the allegations that defendant Ferdinand E.
Marcos, together with the other defendants embarked upon
a systematic plan to accumulate ill-gotten wealth and that
said defendants acted in flagrant breach of public trust and
of their fiduciary obligations as public officers, with gross and
scandalous abuse of right and in brazen violation of the
Constitution and laws of the Philippines, are conclusions of
law unsupported by factual premises.
Nothing is said in the complaint about the petitioners acts in
execution of the alleged systematic plan to accumulate
illgotten wealth, or which are supposed to constitute
flagrant breach of public trust, gross and scandalous
abuse of right and power, and violations of the Constitution
and laws of the Philippines. The complaint does not even
allege what duties the petitioner failed to perform, or the
particular rights he abused.

Likewise, paragraph 15 avers that defendant Francisco


Tantuico, taking undue advantage of his position as Chairman
of the Commission on Audit and with grave failure to perform
his constitutional duties as such Chairman, acting in concert
with Defendants Ferdinand E. Marcos and Imelda R. Marcos
facilitated and made possible the withdrawals, disbursements
and questionable use of government funds as stated in the
foregoing paragraphs to the grave and irreparable damage
and injury of Plaintiff and the entire Filipino people. In like
manner, the allegation that petitioner took undue
advantage of his position as Chairman of the Commission on
Audit, that he failed to perform his constitutional duties as
such Chairman, and acting in concert with Ferdinand E.
Marcos and Imelda R. Marcos, facilitated and made possible
the withdrawals, disbursements, and questionable use of
government funds as stated in the foregoing paragraphs, to
the grave and irreparable damage and injury of plaintiff and
the entire Filipino people, are mere conclusions of law,
Nowhere in the complaint is there any allegation as to how
such duty came about, or what petitioners duties were, with
respect to the alleged withdrawals and disbursements or how
petitioner facilitated the alleged withdrawals, disbursements,
or conversion of public funds and properties, nor an
allegation from where the withdrawals and disbursements
came from, except for a general allegation that they came
from the national treasury. On top of that, the complaint does
not even contain any factual allegation which would show
that whatever withdrawals, disbursements, or conversions
were made, were indeed subject to audit by the COA.
In this connection, it may well be stated that the Commission
on Audit (COA) is an independent, constitutional commission,
which has no power or authority to withdraw, disburse, or use
funds and property pertaining to other government offices or
agencies. This is done by the agency or office itself, the chief
or head of which is primarily and directly responsible for the
funds and property pertaining to such office or agency.32 The
COA is merely authorized to audit, examine and settle
accounts of the various government offices or agencies, and
this task is performed not by the Chairman of the COA but by

the COA auditors assigned to the government office or


agency subject to COA audit.
Thus, in each agency of the government there is an auditing
unit headed by an auditor, whose duty is to audit and settle
the accounts, funds, financial transactions, and resources of
the agency under his audit jurisdiction.33 The decision of the
auditor is appealable to the Regional Director,34 whose
decision, is in turn, appealable to the COA Manager.35 Any
party dissatisfied with the decision of the COA Manager may
bring the matter on appeal to the Commission proper, a
collegiate body exercising quasi-judicial functions, composed
of three (3) COA Commissioners, with the COA Chairman as
presiding officer.36 It is only at this stage that the COA
Chairman would come to know of the matter and be called
upon to act on the same, and only if an aggrieved party
brings the matter on appeal.
In other words, the Chairman of the COA does not participate
in or personally audit all disbursements and withdrawals of
government funds, as well as transactions involving
government property. The averments in the particular
paragraph of the complaint merely assume that petitioner
participated in or personally audited all disbursements and
withdrawals of government funds, and all transactions
involving government property. Hence, the alleged
withdrawals, disbursements and questionable use of
government funds could not have been, as held by
respondent Sandiganbayan, within the peculiar and intimate
knowledge of petitioner as Chairman of the COA."
The complaint further avers in paragraph 17 that "(t)he
following Defendants acted as dummies, nominees and/or
agents by allowing themselves (i) to be instruments in
accumulating
ill-gotten
wealth
through
government
concessions, order and/or policies prejudicial to Plaintiff, or
(ii) to be incorporators, directors, or members of corporations
beneficially held and/or controlled by Defendant Ferdinand E.
Marcos, Imelda R. Marcos, Benjamin (Kokoy) T. Romualdez
and Juliette Gomez Romualdez in order to conceal and
prevent recovery of assets illegally obtained: Francisco
Tantuico x x x."37 Again, the allegation that petitioner acted

as dummy, nominee, or agent by allowing himself to be


used as instrument in accumulating ill-gotten wealth through
government concessions, orders and/or policies prejudicial to
Plaintiff or to be (an) incorporator, director, or member of
corporations beneficially held and/or controlled by the
Marcoses and Romualdezes, is a conclusion of law without
factual basis.
The complaint does not contain any allegation as to how
petitioner became, or why he is perceived to be, a dummy,
nominee or agent. Besides, there is no averment in the
complaint how petitioner allowed himself to be used as
instrument in the accumulation of ill-gotten wealth, what the
concessions, orders and/or policies prejudicial to plaintiff are,
why they are prejudicial, and what petitioner had to do with
the granting, issuance, and or formulation of such
concessions, orders, and/or policies. Moreover, Annex A" of
the complaint lists down sixty-one (61) corporations which
are supposed to be beneficially owned or controlled by the
Marcoses and Romualdezes. However, the complaint does
not state which corporations petitioner is supposed to be a
stockholder, director, member, dummy, nominee and/or
agent, More significantly, the petitioners name does not
even appear in Annex B" of the complaint, which is a listing
of the alleged Positions and Participations of Some
Defendants.
The allegations in the complaint, above-referred to,
pertaining to petitioner are, therefore, deficient in that they
merely articulate conclusions of law and presumptions
unsupported by factual premises. Hence, without the
particulars prayed for in petitioners motion for a bill of
particulars, it can be said the petitioner can not intelligently
prepare his responsive pleading and for trial.
Furthermore, the particulars prayed for, such as, names of
persons, names of corporations, dates, amounts involved, a
specification of property for identification purposes, the
particular
transactions
involving
withdrawals
and
disbursements, and a statement of other material facts as
would support the conclusions and inferences in the
complaint, are not evidentiary in nature. On the contrary,

those particulars are material facts that should be clearly and


definitely averred in the complaint in order that the
defendant may, in fairness, be informed of the claims made
against him to the end that he may be prepared to meet the
issues at the trial.
Thus, it has been held that the purpose or object of a bill of
particulars is
x x x to amplify or limit a pleading, specify more minutely
and particularly a claim or defense set up and pleaded in
general terms, give information, not contained in the
pleading, to the opposite party and the court as to the
precise nature, character, scope, and extent of the cause of
action or defense relied on by the pleader, and apprise the
opposite party of the case which he has to meet, to the end
that the proof at the trial may be limited to the matters
specified, and in order that surprise at, and needless
preparation for, the trial may be avoided, and that the
opposite party may be aided in framing his answering
pleading and preparing for trial. It has also been stated that it
is the function or purpose of a bill of particulars to define,
clarify, particular-ize, and limit or circumscribe the issues in
the case, to expedite the trial, and assist the court. A general
function or purpose of a bill of particulars is to prevent
injustice or do justice in the case when that cannot be
accomplished without the aid of such a bill."38
Anent the contention of the Solicitor General that the
petitioner is not entitled to a bill of particulars because the
ultimate facts constituting the three (3) essential elements of
a cause of action for recovery of ill-gotten wealth have been
sufficiently alleged in the complaint, it would suffice to state
that in a motion for a bill of particulars, the only question to
be resolved is whether or not the allegations of the complaint
are averred with sufficient definiteness or particularity to
enable the movant properly to prepare his responsive
pleading and to prepare for trial. As already discussed, the
allegations of the complaint pertaining to the herein
petitioner are deficient because the averments therein are
mere conclusions of law or presumptions, unsupported by
factual premises.

In the light of the foregoing, the respondent Sandiganbayan


acted with grave abuse of discretion amounting to lack or
excess of jurisdiction in promulgating the questioned
resolutions.
WHEREFORE, the petition is GRANTED and the resolutions
dated 21 April 1989 and 29 May 1989 are hereby ANNULLED
and SET ASIDE. The respondents are hereby ordered to
PREPARE and FILE a Bill of Particulars containing the facts
prayed for by petitioner within TWENTY (20) DAYS from
notice, and should they fail to submit the said Bill of
Particulars, respondent Sandiganbayan is ordered TO
EXCLUDE the herein petitioner as defendant in Civil Case No.
0035.
SO ORDERED.
Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras,
Feliciano, Bidin, Grio-Aquino, Medialdea, Regalado and
Davide, Jr., JJ., concur.
Fernan (C.J.), On leave.
Romero, J., No part. Related to a PCGG Commissioner.
Petition granted. Resolutions annulled and set aside.

Hydro Resources Contractors Corp. vs. Court of Appeals


G.R. No. 85714. November 29, 1991.*
HYDRO
RESOURCES
CONTRACTORS
CORPORATION,
petitioner, vs. THE COURT OF APPEALS, THE PROVINCIAL
GOVERNMENT OF ISABELA, THE MUNICIPALITY OF RAMON,
ISABELA and THE NATIONAL IRRIGATION ADMINISTRATION,
respondents.
Civil Procedure; Appeals; Court can review matters not
assigned as error.It is to be observed that while the
complaint in the case at bar is admittedly one for collection
of realty taxes over certain real properties, filed against the
petitioner, the complaint, however, does not allege the
amount of taxes which the plaintiffs seek to collect from
petitioner. There is thus a need to determine the effect of
such failure of the complaint to state the aforesaid amount
vis-a-vis plaintiffs cause of action. Although this issue is not
raised in the present petition, it is basic that the Court can
review matters not assigned as an error in the appeal.
Same; Action for collection of sum of money; Effect of failure
to state amount collectible.While it may be true that
petitioner-defendant did not move to question the failure of
the complaint to plead the amount of tax sought to be
collected, the court a quo, upon its own motion, may dismiss
the complaint for failure of the plaintiffs to comply with
Section 3, Rule 6 of the Rules of Court in relation to Section 3,
Rule 17 thereof which provides that the action may be
dismissed for failure to comply with the rules. This dismissal
the court a quo did not order. The complaint being fatally
defective, the questioned order, dated 6 August 1983, .* hich
derived its life from the said complaint, is also without effect.
Same; Judgments; Interlocutory orders distinguished from
final judgments.The dispositive part of said order states
that petitionerdefendant is liable for the payment of real
property taxes, but, it adds, further proceedings shall be held
to determine the amount of real property taxes to be paid by
petitioner-defendant. xxx As held in De la Cruz vs. Paras, a
court order is final in character if it puts an end to the

particular matter resolved or settles definitely the matter


therein disposed of, such that no further questions can come
before the court except the execution of the order; that on
the other hand, a court order is merely interlocutory in
character if it is provisional and leaves substantial
proceeding to be had in connection with its subject. Clearly,
the order of 6 August 1983 is interlocutory. We fail to see how
it could or did put an end to the controversy when the court a
quo still had to determine the amount of realty taxes to be
collected by plaintiffs from petitioner-defendant, and to make
findings of fact on certain issues, which could still affect the
very liability to pay such taxes.
PETlTlON for review on certiorari of the decision of the Court
of Appeals. Elbinias, J.
The facts are stated in the opinion of the Court.
G.E. Aragones & Associates for petitioner.
PADILLA, J.:
This is a petition for certiorari, treated as a petition for review
on certiorari of the decision** of the Court of Appeals, dated
30 October 1987, in CA-G.R. SP Case No. 09196, affirming the
Order dated 6 August 1983 of the Regional Trial Court of
Echague, Isabela, Branch 24, in CV No. XXIV-0106 (redocketed as Civil Case No. 0093, before the Regional Trial
Court, Santiago, Isabela, Branch XXI).***
Public respondent National Irrigation Administration (or NIA")
and petitioner Hydro Resources Contractors Corporation (or
Hydro) entered into a contract whereby the latter
undertook to construct for the former the Magat River
MultiPurpose Project situated at Ramon, Isabela.1
In June 1982, the Provincial Government of Isabela, its
provincial treasurer, the Municipality of Ramon, Isabela, and
its assistant treasurer, as plaintiffs, filed a civil case against
herein petitioner Hydro, docketed as Civil Case No. XXIV0106, with the Regional Trial Court of Echague, Isabela,
Branch 24, for collection of taxes over certain real properties
which Hydro allegedly acquired, possessed and used in

connection with the construction of the said Magat River


Multi-Purpose Project.2
After hearing, the Regional Trial Court, Echague, Br. 24, on 6
August 1983, issued an order in favor of the plaintiffs, finding
defendant Hydro (now petitioner) liable to pay realty taxes
over the properties it had constructed in connection with the
Magat River Multi-Purpose Project, but that the amount
thereof was to be determined in further proceedings of the
court a quo, dispositive part of which order reads:
WHEREFORE, in the light of the foregoing considerations,
the court finds and so rules that under the pertinent
provisions of Presidential Decree No. 464 as amended, the
defendant, Hydro Resources Contractors Corporation, is liable
to the payment of realty taxes over the real properties it
constructed relative to the prosecution of the Magat River
Multi-Purpose Project (MRMP) at Barangay Aguinaldo, Ramon,
Isabela.
Accordingly, it is hereby ordered that further proceedings
shall be held to determine the amount of real property taxes
to be paid by the defendant corporation to the plaintiffs in
accordance with this Order and to receive evidence on the
questions of facts raised by the former.
However, by reason of the fact that pursuant to
Administrative Order No. 7, dated February 11, 1983, of the
Honorable Supreme Court, implementing the provisions of
Section 18 of Batas Pambansa Blg. 129, cases which arise in
the Municipality of Ramon, Isabela, among other
municipalities, now fall within the administrative jurisdiction
of the newly-created Regional Trial Court, Branch XXI,
Santiago, Isabela and it appearing that this case is a proper
case for transfer to said Branch XXI since its venue is the
Municipality of Ramon, let the record of this case, consisting
of 70 pages, be dropped from the civil docket of this Court
and the same be forwarded to the Regional Trial Court,
Branch XXI, Santiago, Isabela for further proceedings. x x x
(Italics supplied)3

Civil Case No. XXIV-0106 was thereafter transferred to the


Regional Trial Court, Branch XXI, of Santiago, Isabela, and
redocketed as Civil Case No. 0093.
On 4 November 1983, now before the Regional Trial Court of
Santiago, Isabela, Br. XXI, Hydro through counsel filed a
motion for leave to file third-party complaint, dated 21
October 1983, against NIA, attaching to the motion the
proposed thirdparty complaint (for reimbursement from the
NIA); and a motion to admit amended answer, accompanying
the same with the proposed amended answer.4 On the same
date (4 November 1983), the Regional Trial Court, Santiago,
Isabela admitted Hydros third-party complaint; however, as
to its motion for leave to file amended answer, plaintiffs were
given ten (10) days to file their opposition and Hydro was
also given ten (10) days from receipt of such opposition to
file its reply.5
On 12 December 1983, before the court a quo could resolve
Hydros motion for leave to file amended answer, plaintiffs
filed their reply to Hydros amended answer.6 NIA also filed
its answer to Hydros third-party complaint.7
In an order of 7 February 1983, the court a quo then ordered
the parties to file their respective memorandum, in this wise:
After several arguments made by counsels, three issues
were submitted, namely:
1. Whether or not the Order of this Court dated 6 August
1983 was abandoned by the filing of the Amended Answer by
the defendant;
2. Whether the Hydro Resources or the NIA is the beneficial
user of the land under question and therefore the beneficial
user will pay the taxes; and
3. Whether it is proper for the plaintiff to avoid multiplicity of
suit, to amend its complaint and plead thereto the amount of
P338,750.00 which was not included in the original complaint
but was included in the third party complaint against the
third party defendant.
This Court directed counsels of the parties to file their
memoranda in support of their respective position
simultaneously within thirty (30) days from today, after which

the court, with or without the said memoranda will resolve


the issues aforecited. (italics supplied)8
The parties did not file their memoranda except Hydro which
complied.9 On 20 May 1985, the court a quo ruled that the
order dated 6 August 1983 (issued by the Regional Trial
Court, Echague, Isabela) was final and executory, disposing
that:
WHEREFORE, the Court hereby rules the Order of this Court
dated August 6, 1983 to be final and executory. The Orders of
the Court dated October 14, 198310 and November 4, 1983,
being devoid of legal basis are hereby SET aside and the
Third-party Complaint dated October 21, 1983 filed against
the National Irrigation Administration is hereby DISMISSED."
(Italics supplied)11
On 14 October 1985, the court a quo denied Hydros motion
for reconsideration of the order dated 20 May 1985:12
WHEREFORE, for lack of merit, defendant and third-party
plaintiffs motion for reconsideration is hereby Denied.
Defendant and third-party plaintiff is granted a period of
twenty (20) days from receipt of this order within which to
file whatever pleading it may deem appropriate under the
circumstances.
On 16 January 1986, Hydro filed with the Supreme Court a
Petition, docketed G.R. No. 72849,13 which (petition) was
referred by this Court (First Division) to the Court of Appeals
for proper action and disposition. In a resolution dated 21
May 198614 said petition was re-docketed in the Court of
Appeals as CA-G.R. SP No. 09196.
On 30 October 1987, the Court of Appeals rendered a
decision (now assailed) denying (dismissing) the petition,
dispositive portion of which reads:
WHEREFORE, the writ of certiorari prayed for by petitioner is
denied; and the court a quo is hereby ordered to receive
evidence only for the purpose of determining the amount of
realty taxes which petitioner was adjudged liable to pay
respondents Provincial Government of Isabela and
Municipality of Ramon, Isabela, pursuant to the order dated
August 6, 1983 issued by the Regional Trial Court, Branch

XXIV, Echague. Isabela in Civil Case No. XXIV-0106, where


said respondents were the plaintiffs and petitioner was the
defendant, prior to the transfer of the case to the Regional
Trial Court, Branch XIV (sic,) Santiago Isabela, and there redocketed as Civil Case No. Br. XIV-0093, the same being the
court and case a quo in this petition. Costs against
petitioner."15
On 2 November 1988, the Court of Appeals denied
petitioners motion for reconsideration of the said decision.
Hence, the present petition for review, raising the following
issues:
I. Whether or not the appellate court has acted without or in
excess of its jurisdiction or with grave abuse of discretion in
not finding that the order issued by the court a quo on
August 6, 1983 is merely interlocutory and/or provisional in
character and could not be considered as a final
determination of the merits of Civil Case No. 0093.
II. Whether or not the appellate court has acted without or in
excess of its jurisdiction or with grave abuse of discretion in
not finding that the said order of August 6, 1983 was
abandoned or set aside through the issuance of the order of
November 4, 1983 which admitted herein petitioners thirdparty complaint against respondent NIA.
III. Whether or not the appellate court has acted without or in
excess of its jurisdiction or with grave abuse of discretion in
not finding that the court a quo, in issuing the order of May
20, 1985 went beyond the issues presented by the parties,
which act is legally impermissible, irregular and invalid."16
We grant the petition.
Both the petitioner and the respondents agree that the main
issue in the case at bar is whether or not the assailed order
of the court a quo, dated 6 August 1983, is interlocutory in
nature or a final judgment.
It is to be observed that while the complaint in the case at
bar is admittedly one for collection of realty taxes over
certain real properties,17 filed against the petitioner, the
complaint, however, does not allege the amount of taxes
which the plaintiffs seek to collect from petitioner.18 There is

thus a need to determine the effect of such failure of the


complaint to state the aforesaid amount vis-a-vis plaintiffs
cause of action. Although this issue is not raised in the
present petition, it is basic that the Court can review matters
not assigned as an error in the appeal.19
We hold that the complaint at bar has failed to state the
ultimate facts,20 which failure is violative of Section 3, Rule
17 of the Rules of Court.21
As admitted by the respondents, this case is one for
collection of realty taxes. Section 82 of the Presidential
Decree No. 464 (Real Property Tax Code) states that the
delinquent real property tax shall constitute a lawful
indebtedness of the taxpayer to the province or city. Under
P.D. 464, the process of collecting real property taxes involve
the acts or methods of appraisal and assessment of the real
property subject to tax;22 the imposition of real property
tax23 and the collection thereof.24
The amount of taxes sought to be collected is therefore
determinable, yet, the complaint at bar did not plead the
same. In the order of the court a quo, dated 7 February 1984,
one of the issues submitted was whether it was proper for
the plaintiffs to amend their complaint and plead therein the
amount of tax sought to be collected.25 But this issue was
deemed abandoned when the court a quo issued an order
dated 20 May 1985, which held that the order dated 6 August
1983 was final and executory.
As in any case for collection of a sum of money, stating the
amount of tax sought to be collected in a complaint for
collection of realty taxes is part of the ultimate facts
constituting the plaintiffs cause of action, as provided under
Section 3, Rule 6 of the Rules of Court, supra. In the instant
case, there is failure to state in the complaint the ultimate
facts because the amount of tax sought to be collected is not
pleaded or alleged.
It can not be overlooked that the subject matter26 of the
complaint filed before the court a quo is the amount of the
real estate taxes to be collected. Section 82 of P.D. 464
provides that the collection of delinquent real property taxes

may be enforced in any court of competent jurisdiction. In


the present case, as the complaint did not plead the amount
of tax intended to be collected, how could the court a quo
ascertain, in the first place, in relation to the amount of the
demand, whether it was the proper forum to try the case?27
The fact that the third party complaint filed by petitionerdefendant against the National Irrigation Administration
pleaded the amount of P338,750.00 as reimbursible to it by
the latter, is of no moment now, as the said third-party
complaint was also ordered dismissed in the order of 20 May
1985.28 Hence, it can be said that the complaint (in chief)
was never amended.
While it may be true that petitioner-defendant did not move
to question the failure of the complaint to plead the amount
of tax sought to be collected, the court a quo, upon its own
motion, may dismiss the complaint for failure of the plaintiffs
to comply with Section 3, Rule 6 of the Rules of Court in
relation to Section 3, Rule 17 thereof29 which provides that
the action may be dismissed for failure to comply with the
rules. This dismissal the court a quo did not order.
The complaint being fatally defective, the questioned order,
dated 6 August 1983, which derived its life from the said
complaint, is also without effect. But assuming arguendo that
the filing of the complaint at bar complied with the rules
thereby making the order of 6 August 1983 valid, the nature
of said order is interlocutory. It is not a final judgment.
The dispositive part of said order states that petitionerdefendant is liable for the payment of real property taxes,
but, it adds, further proceedings shall be held to determine
the amount of real property taxes to be paid by petitionerdefendant. Furthermore, the same order of 6 August 1983
states:
The defendant corporation also invoked the ground of no
cause of action in asking for the dismissal of the complaint.
In so doing. it adopted the stand that it was denied due
process by the fact that the notice of assessment was never
served upon it nor was it furnished copies of any Tax
Declarations Nos. 032101 to 032113 mentioned in the fifth
paragraph of the complaint and by the fact that it was never

served of any notice of delinquency in the payment of real


property tax nor was there any demand made upon it for
payment thereof. To the Court, these are matters or
questions of facts which necessitate presentation of evidence
to prove or disprove them. At this stage of the proceedings,
the Court can not resolve them one way or the other. (Italics
supplied.)" (Rollo, p. 12)
As held in De la Cruz vs. Paros,30 a court order is final in
character if it puts an end to the particular matter resolved or
settles definitely the matter therein disposed of, such that no
further questions can come before the court except the
execution of the order; that on the other hand, a court order
is merely interlocutory in character if it is provisional and
leaves substantial proceeding to be had in connection with its
subject.
Clearly, the order of 6 August 1983 is interlocutory. We fail to
see how it could or did put an end to the controversy when
the court a quo still had to determine the amount of realty
taxes to be collected by plaintiffs from petitioner-defendant,
and to make findings of fact on certain issues, which could
still affect the very liability to pay such taxes.
WHEREFORE, petition is GRANTED, the decision of the Court
of Appeals, dated 30 October 1987 in CA-G.R. SP. No. 09196
is hereby SET ASIDE, and a new one entered ordering the
complaint in Civil Case No. 0093 before the Regional Trial
Court of Santiago, Isabela, Branch XXI, DISMISSED without
prejudice. Without pronouncement as to costs.
SO ORDERED.
Paras and Regalado, JJ., concur.
Melencio-Herrera (Chairman), J., See separate opinion.
MELENCIO-HERRERA, J., Separate opinion
I concur with the legal aspects of the majority opinion
particularly with the conclusion that the Complaint is
defective as it failed to state ultimate facts.
However, considering that (1) the case has proceeded to trial
and judgment with no objection having been interposed by
petitioner-defendant to the absence of specification

regarding the amount of taxes; (2) petitioner-defendant has


been adjudged liable for the payment of realty taxes by the
Regional Trial Court of Echague, Isabela, Branch 24, on 6
August 1983, which judgment has been affirmed by the Court
of Appeals in CA-G.R. SP No. 09196; (3) the dismissal of the
case without prejudice would only result in multiplicity of
suits and the prolongation of the controversy, which has been
pending since 1982, it is my view that the judgment of the
Court of Appeals ordering the reception of evidence only for
the purpose of determining the amount of realty taxes which
petitioner was adjudged liable to pay respondents should be
affirmed. The practicality of the situation justifies a departure
from the strict mandate of procedural rules.
The Order of the Regional Trial Court of Echague, Isabela,
Branch 24, dismissing the Third-Party Complaint should also
be set aside and the said Complaint reinstated. The
determination of the liability of the NIA to reimburse HYDRO
for whatever taxes the latter would pay to respondents could
then be included in the proceedings to be conducted by the
Regional Trial Court of Santiago, Isabela, as decreed by the
Court of Appeals.
The foregoing procedure would settle all issues in one and
the same case and obviate the need for another litigation
with its corresponding inherent delays.
Petition granted. Decision set aside.
Note.An order is interlocutory when it does not terminate or
finally dispose of the case, because it leaves something to be
done by the Court before the case is finally decided on the
merit. (Nepomuceno vs. Salazar, 173 SCRA 366.) [Hydro
Resources Contractors Corp. vs. Court of Appeals, 204 SCRA
309(1991)]

SEA-LAND SERVICE, INC. petitioner, vs. COURT OF APPEALS


and
PHILIPPINE
HOME
ASSURANCE
CORPORATION,
respondents.
Remedial Law; Civil Procedure; Pleadings; Under the rules on
pleading, a party is not required to specify the provisions of
the law or contract relied upon by the pleader. The rules only
require the allegations of the ultimate facts.It is true that
petitioner did not specifically cite the provisions of Section 15
of the Bill of Lading (Exh. 1-D, Sea-Land) as the authority to
support its right to devan the insured cargo, but under the
rules on pleading, a party is not required to specify the
provisions of the law or contract relied upon by the pleader.
The rules only require the allegations of the ultimate facts.
The rules on appellate procedure do not even require the
parties to adhere to their position in minute detail but only to
abide by the general position adopted by them in the trial
court (Fisk v. Honario, 14 Ore, 29). Neither do the rules
prevent the parties from putting up additional grounds to
support their position (Sons v. Yangco Steamship Co., 34 Phil.
597).
Same; Same; Same; When issues not raised by the pleadings
are tried by express or implied consent of the parties, they
shall be treated in all respects, as if they had been raised in
the pleadings.Assuming arguendo that the issue of the
right of petitioner to devan was not raised by it in the trial
court, the fact remains that Assurance failed to object when
the Bill of Lading (Exhibit 1-D, See Land) was presented in
evidence. As a matter of fact, Assurance admitted the
genuineness and due execution of said document in the
partial stipulation of facts submitted to the trial court (Record
on Appeal, p. 50; Rollo, p. 37). Likewise, Assurance did not
object to the admissions of the evidence proving the steps
taken by petitioner before removing the cargo from the
container van. When issues not raised by the pleadings are
tried by express or implied consent of the parties, they shall
be treated in all respects, as if they had been raised in the
pleadings (Rule 10, Sec. 5, Revised Rules of Court; Lizarraga

Hermanos v. Yap Tico, 24 Phil. 504; Molina v. Somes, 24 Phil.


49).
PETITION for certiorari of the decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Sofronio A. Larcia for petitioner.
De Lara, De Luna & Associates for private respondent.
QUIASON, J.:
This is an appeal by certiorari under Rule 45 of the Revised
Rules of Court of the decision of the Court of Appeals in CAG.R. No. 64514-R, entitled Philippine Home Assurance
Corporation vs. Donmac Corporation (Rollo, pp. 10-36).
On June 7, 1975, private respondent Philippine Home
Assurance Corporation, (Assurance), filed an action in the
Court of First Instance of Manila (Civil Case No. 98127) as
subrogee of the assured-consignee, Republic Flour Mills
(RFM) to recover from the defendants, Donmac Corporation
(Donmac), E. Razon, Inc., (E. Razon), Reyma Brokerage,
Inc. (Reyma), and Sea-Land Services, Inc. (Sea-Land)
petitioner, herein, the sum of P66,289.29, which it paid to
RFM, after the defendants had refused to pay the claim for
the loss or damage suffered by REMs shipment, consisting of
three units of Smokehouse Airconditioning System and one
unit of Mepaco Smoke Generator (Record on Appeal, pp. 610, Rollo, p. 37).
Donmac was the carrier; Sea-Land, the ship agent of
Donmac; E. Razon, the arrastre contractor in the Port of
Manila; and Reyma, the consignees broker (Record on
Appeal, pp. 6-7, Rollo, p. 37). During the pendency of the
case in the trial court, the original claim was reduced to
P30,980.04 because some of the items claimed to have been
lost were found by the consignee and their value refunded to
the insurer (Brief for the Petitioner, p. 1; Rollo, p. 104).
After trial, the Court of First Instance rendered a decision, the
dispositive portion of which reads:
WHEREFORE, the Court hereby renders judgment as follows:

(a) Ordering the defendants Donmac Corporation and Sea


Land Services, Inc., jointly and severally, to pay the plaintiff
the sum of P20,253.36 with interest at the legal rate of 6%
per annum from the date of the filing of the complaint on
June 7, 1975 up to the date said amount is fully paid;
(b) Ordering the dismissal of the counterclaim of defendant
Sea Land Services, Inc.
(c) Without pronouncement as to costs:
SO ORDERED (Record on Appeal, pr-77; Rollo, p. 37).
Sea-Land appealed from the decision of the Court of First
Instance to the Court of Appeals (CA-G.R. No. 64514-R),
which affirmed the said decision but added cost against the
appellant (Rollo, pp. 40-64).
Hence, this petition.
The findings of fact of the trial court, adopted by the Court of
Appeals, are as follows:
On May 5, 1975 the Sea-Land Services, Inc. received at its
LVRR Elizabeth Terminal in New Jersey, U.S.A. one (1) H to H
container, marked SEAU 17605, STC 3 complete units food
processing machinery, with gross weight of 36,000
measuring 2097 cubic feet from the shipper, Julian
Engineering Co., thru its forwarding agent Interport Company
of Chicago, Illinois. On the same date, the Sea-Land Services
Inc. issued on board Bill of Lading No. 901-029162 covering
the said shipment (Exhibits B-plaintiff; 21 Sea-Land) and the
shipment was finally received by Sea-Land on May 8, 1974 in
apparent good order and condition (id. 1-B Sea-land). The
shipment has an invoice value of US$71,635.00 CLF Manila
and was sold to RFM Corporation (Meat Processing Division),
consignee, Rizal Philippines, which insured the said shipment
on May 14, 1974 with plaintiff Philippine Home Assurance
Corporation against all risk including wars and strikes for CAF
US$71,635.00 plus 2; MU Exchange Rate of P6.50 to $1.00 or
for P591,346.93 (Exhibit C). The shipment was loaded at the
Port of Oakland, U.S.A. on board the vessel TRADE or SS
SEALAND COMMERCE and subsequently transhipped at the
port of Hongkong by the SS Fairland, which was owned by
the defendant Donmac Corporation of Wilmington, Delaware,

U.S.S. per Lloyds Register of Ships, 1974-75 edition, page


1153, Identity No. 511160 (tsn., Nov. 15, 1976, p. 3). The SS
Fairland, which was the agency of Sea-Land Services, Inc.
(Exhibit O) arrived at and docked alongside Pier 3, Manila,
South Harbor, on June 6, 1974 under Customs Registry No.
935 (Exhibit 4, Sea-Land). On June 5, 1974 Sea-land (Phils.)
notified the consignee RFM Corporation that the latters
shipment aboard the S.S. Fairland would arrive at the port
of Manila on June 6, 1974, which notice was received by the
consignee on the same date (exhibit 8 Sea-Land). Cargo
Sea Van No. SEAU No. 17605, containing the shipment, was
discharged from the carrying vessel on June 6, 1974 in
apparent good order and condition, with its seal intact. Its
content, however, were not turned over to the arrastre
operator. The cargo sea van was brought to the container
terminal of Sea-Land at Pier 3. On July 1, 1974 defendant
Sea-Land notified the consignee in writing that if the
containerized shipment was not taken within 36 hours from
receipt of the notice, the container with its contents would be
brought to a bonded warehouse designated by the Bureau of
Customs (Exhibit 5 Sea-Land). This notice was received by
the consignee on the same date, July 1, 1974 (Exhibit 5-A
Sea-Land). As the consignee failed to pick up its
containerized shipment from the container terminal, Pier 3,
the same was transferred, after a clean gate pass was issued
on July 4, 1974 (Exhibit 1 Razon), to the bonded warehouse
of the Luzon Brokerage Corporation at Otis St., Paco, Manila,
(Exhibit 6 Sea-Land) but later transferred unopened to the
LBC bonded warehouse No. 2-A located at Shaw Boulevard,
Pasig, Rizal (Exhibit 4 Sea-Land)
On July 13, 1974, Domingo Javier, the checker of defendant
Sea-Land went to the LBC Compound at Shaw Boulevard,
Pasig, and without securing permission from Bureau of
Customs and the consignee, broke the seal of the container
in the presence of one in charge of the LBC compound. With
the help of the LBC stevedors, he removed the contents of
the container and checked them on July 13, and 14, 1974. His
checking and examinations are contained in five (5) Good
Order Tally sheets No. 8251 (Exhibit 7 Sea-Land), No. 8252

(Exhibit 7-A Sea-Land), No. 8255 (Exhibit 7-B Sea-Land),


No. 8256 (Exhibit 7-C Sea-Land), and No. 8259 (Exhibit 7D Sea-Land); and in one Bad Order Tally Sheet, No. 8258
(Exhibits 2 and 2-A Sea-Land). He found that all the
contents of the Good Order Tally Sheets were in good
condition with the exception of the radiator of the engine
which was dented in some parts (see Tally Sheet No. 8252)
and of the aluminum sheets which were dented in some parts
(see Tally Sheet No. 8256). One case (Bad Order Tally Sheet
No. 8258) contained various items in cartons and pieces. One
(1) carton of Browning (Big) was in bad order and so with two
(2) cartons of Browning (Small) as well as one (1) carton
containing 1 gallon Carbit Paint. All the rest were in good
order. No representative of the consignee or of the Bureau of
Customs was present during the checking.
The evidence of record does not disclose in what particular
place is the LBC Compound where the itemized pieces of the
shipment stored pending their transfer to the plant of the
consignee at Bo. Pulo, Cabuyao, Laguna. On July 24, 1974 the
defendant Reyma Brokerage, Inc. brought the itemized
contents of the van or container from the LBC compound to
the plant of the consignee at Cabuyao, Laguna and delivered
them to the consignee thereat (Exhs. K, K-1 and K-2).
Noted on the Delivery Receipt No. 15715 (Exhibit K-1) were
three (3) cartons which were water-damaged and in Delivery
Receipt No. 15716 (Exhibit K-2) was noted one (1) plywood
case which was in bad order.
On the same date, July 24, 1974, the Manila Adjusters and
Surveyors Co., on request of the consignee, sent its surveyor,
Jesus Victa, to the plant of the consignee at Cabuyao, Laguna
to survey the imported articles delivered thereat. The
Certified Adjusters, Inc., upon request of defendant Sea-Land
Services, Inc., also sent its surveyors, and they with the
surveyor of the Manila Adjusters and Surveyors Co.,
inventoried and checked the shipment. The findings of Victa,
which are contained in the Certificate of Survey dated August
29, 1974 submitted by the Manila Adjusters and Surveyors
Co. (Exhibit E), are as follows:

2 pcs. fresh air dampercut on one side approximately 3


long.
1 pc. coil support frame assembly for 1 blower casing BC-17
slightly dented/cut approximately 10" long x 4" wide.
3 pcs. duct sleeve SL-1not accounted for.
6 pcs. duct sleeve SL-2not accounted for.
3 pcs. steam coil, 42" x 50"not accounted for.
18 rolls block butyl rubber tapenot accounted for.
The surveyors of the Certified Adjusters, Inc. had the same
findings (Exhibit 4 Sea-Land). The rest of the items were
found in good order condition and accepted by the
consignee. The surveyors of the Manila Adjusters and
Surveyors Co. gave the opinion that the damages
sustained by the two (2) fresh air dampers and one (1) coil
support frame assembly apparently occurred while the
shipment was in transit from port of origin to destination.
However, the surveyors could not state where and when the
losses (not accounted for items) could have occurred
because they were not present during the stripping of the
container of its contents (Exhibit E, p. 4). The surveyors of
the Certified Adjusters, Inc. did state their opinion on the
cause and place of damage/loss. The Manila Adjusters and
Surveyors Co. computed the damages (dentings) and losses
(not accounted for items) to have a claimable value of
P66,289.29 (Exh. F). The consignee filed its claim for the
said amount with the defendants Sea-Land Services, Inc. and
E. Razon, Inc. but both defendants declined to pay the same,
alleging that they are not responsible for the damages/losses
suffered by the cargo (Exhibit G). The consignee thereupon
demanded payment from the plaintiff an insurer of the cargo
and the latter complied by issuing on June 5, 1975 a check in
favor of the consignee for the amount of P66,289.29. The
consignee signed and delivered to the plaintiff a subrogation
receipt dated June 5, 1975 for the amount of P66,289.29
(Exhibits M and N). The plaintiff as subrogee demanded
payment from defendants Sea-Land Services, Inc. and E.
Razon, Inc., but both refused to pay for, according to them,
they are not responsible for the damages/losses suffered by

the cargo (Exhibits I and J). On August 19, 1975 the


consignee returned the check in the amount of P66,289.29
issued to it by the plaintiff, informing the latter that the
unaccounted for items with a value of P35,909.25 were found
and accounted for, and therefore, the said amount should be
deducted from the original claim of P66,289.29, thus making
the corrected claim to be in the amount of P30,380.04
(Exhibit L). The plaintiff paid the consignee the said amount
of P30,380.04; and the plaintiff likewise reduced its claim
against the defendants from P66,289.29 to P36,380.04
(Partial Stipulation of Facts) (Decision, CA-G.R. No. 64514-R,
pp. 3-7, Rollo, pp. 42-46).
In the Court of Appeals, petitioner invoked the provisions of
Section 15 of the Bill of Lading, (Exh. 1-D, Sea-Land) in
support of its claim that there was a constructive delivery of
the shipment to the consignee and that it had been
discharged of its responsibility over the shipment before July
13, 1974 when it opened the sealed container van. The Court
of Appeals, however, dismissed this claim of petitioner on the
ground that it was raised for the first time on appeal;
therefore, it was considered as having been waived by
petitioner (Decision, p. 9; Rollo, p. 48).
In appellate procedure, parties are not allowed to change
theories or shift positions in the appellate court. On appeal,
the parties must keep within the issues stated in their
pleadings or the theories on which their causes of action in
the trial court were predicated (American Express Co. v.
Natividad, 46 Phil. 207; Toribio v. Decasa, 55 Phil. 461).
The complaint filed by Assurance as a subrogee in Civil Case
No. 98127 was to collect damages from the defendants
therein, including petitioner, for the short-landing of and
damages to the cargo while in the custody of the defendants
(Complaint, par. 6; Record on Appeal, p. 8; Rollo, p. 37). The
answer of petitioner claimed that the devanning of the
insured cargo in July 13 and 14, 1974 took place after due
notice was given to the consignee and only after the latter
failed to claim the cargo.
Paragraph 26 of the Answer of Sea-Land states: Despite
notice to consignee, the latter failed to take delivery of the

container for almost one (1) month. Consequently, the


subject container was transferred to the Luzon Brokerage
Customs Bonded Warehouse for devanning. The devanning
took place on July 13 and 14, 1974. Upon devanning, only
one case was found in bad condition. The box consisted of
149 packages, but only 4 packages were noted with
exceptions (Record on Appeal, pp. 31-32; Rollo, p. 37).
It is true that petitioner did not specifically cite the provisions
of Section 15 of the Bill of Lading (Exh. 1-D, Sea-Land) as the
authority to support its right to devan the insured cargo,
but under the rules on pleading, a party is not required to
specify the provisions of the law or contract relied upon by
the pleader. The rules only require the allegations of the
ultimate facts.
The rules on appellate procedure do not even require the
parties to adhere to their position in minute detail but only to
abide by the general position adopted by them in the trial
court (Fisk v. Honario, 14 Ore, 29). Neither do the rules
prevent the parties from putting up additional grounds to
support their position (Sons v. Yangco Steamship Co., 34 Phil.
597).
Assuming arguendo that the issue of the right of petitioner to
devan was not raised by it in the trial court, the fact
remains that Assurance failed to object when the Bill of
Lading (Exhibit 1-D, See Land) was presented in evidence. As
a matter of fact, Assurance admitted the genuineness and
due execution of said document in the partial stipulation of
facts submitted to the trial court (Record on Appeal, p. 50;
Rollo, p. 37). Likewise, Assurance did not object to the
admissions of the evidence proving the steps taken by
petitioner before removing the cargo from the container van.
When issues not raised by the pleadings are tried by express
or implied consent of the parties, they shall be treated in all
respects, as if they had been raised in the pleadings (Rule 10,
Sec. 5, Revised Rules of Court; Lizarraga Hermanos v. Yap
Tico, 24 Phil. 504; Molina v. Somes, 24 Phil. 49).
This brings us to the issue as to whether petitioner had been
relieved of its obligations under the Bill of Lading when it
devaned the cargo on July 13, 1974.

Section 15 of the Bill of Lading Exh. 1-D Sea-Land provides:


The carrier or master may appoint a stevedore or any other
persons to unload and take delivery of the goods and such
delivery from ships tackle shall be considered complete and
all responsibility of the carrier shall then terminate.
It is agreed that when possession of the goods is received or
taken by the customs or other authorities or by any operator
of any lighter, craft, dock, pier, store, warehouse,
refrigerator, elevator or other facilities whether selected by
the carrier or master, shipper or consignee, whether public or
private, such authority or person shall be considered as
having received possession and delivery of the goods solely
as agent of and on behalf of the shipper and consignee, at
the risk of the goods and subject to any lien of the carrier
thereon. Also if the consignee does not take possession or
delivery of the goods as soon as the goods are at the
disposal of the consignee for removal, the goods shall be at
their own risk and expense, delivery shall be considered
complete and the carrier may, subject to carriers liens, send
the goods to store, warehouse, put them on lighters or other
craft, put them in possession of authorities, dump, permit to
lie where landed or otherwise dispose of them, always at the
risk and expense of the goods, and the shipper and
consignee shall pay and indemnify the carrier for any loss,
damage, fine, charge or expense whatsoever suffered or
incurred in so dealing with or disposing of the goods, or by
reason of the consignees failure or delay in taking
possession and delivery as provided herein (Rollo, p. 14;
Italics supplied).
The SS Fairland, carrying the container van SEAU 17605,
STC 3, arrived in the Port of Manila on June 6, 1974. On the
same day, the said container was unloaded and discharged
from the carrying vessel. The day before the arrival of the
vessel, petitioner notified RFM, the consignee, that the
latters shipment would be arriving on June 6, 1974.
Petitioner notified RFM in a letter dated July 1, 1974 (Exh. 5)
that the shipment in the container van No. 17605 would be
transferred to a customs bonded warehouse. In a follow-up
letter dated July 12, 1974 (Exh. 6), petitioner again informed

RFM that the said container van had been transferred to the
bonded warehouse of the Luzon Brokerage Corporation and
asked RFM to take immediate delivery of the cargo (Decision,
p. 9; Rollo, p.48).
The bonded warehouse of Luzon Brokerage Corporation is
located in Pasig, Metro Manila and in the vicinity of the offices
of RFM.
For the third time, petitioner sent a notice to RFM on July 12,
1974 that the cargo had been transferred to the Luzon
Brokerage Corporation (Exh. 6, Sea-Land).
The cargo was unloaded from the container van on July 13,
1974 in the presence of the Luzon Brokerage Corporation
personnel. It was at this time that portions of the shipment
were found to be in bad order. It was only on July 24, 1974
that RFM took delivery of the shipment from the Luzon
Brokerage Corporation bonded warehouse and transferred
the same to its plant in Cabuyao, Laguna. A survey
conducted at the consignees plant showed that the fresh air
damper and the coil support frame assembly had been
damaged while several pieces of parts of the food processing
machinery were missing. By this time, Sea-Land had been
relieved of responsibility over the cargo under Section 15 of
the Bill of Lading.
There is no dispute that the cargo was shipped H to H
container STC 3 complete units food processing machinery,
meaning that the shipper itself loaded the cargo into the van,
which was sealed before its delivery to the carrying vessel.
There was no evidence presented by Assurance as to the
actual condition of the cargo when it was loaded into the
container van by Julian Engineering Co., the shipper.
Assurance issued the insurance policy without prior
inspection of the cargo on the assumption that the cargo
loaded into the container van was complete and in good
order. The insurance policy was issued when the cargo was
inside the sealed container van. Assurance was aware that
the carrying vessel had not accepted the cargo as complete
and in good order as shown by its qualified receipt as
appearing in the bill of lading (Exh. 1, Sea-land).

Under the provisions of Section 15 of the Bill of Lading, the


carriers can send the goods to store, warehouse, put them
on lighters or other craft, put them in possession of the
authorities, dump, permit to lie where landed or otherwise
dispose of them, always at the risk and expenses of the
goods xxx after the constructive delivery of the goods. The
carriers can devan the goods from the container without
the prior consent of the consignee or the Bureau of Customs
(Decision, p. 17; Rollo, p. 56).
WHEREFORE, the petition for certiorari is GRANTED and the
decision of the Court of Appeals appealed from is REVERSED.
The complaint in Civil Case No. 98127 of the Court of First
Instance of Manila is DISMISSED, with cost against plaintiff
therein.
SO ORDERED.
Cruz (Chairman), Grio-Aquino and Bellosillo, JJ., concur.
Petition granted. Appealed decision reversed.
Note.A pleading should state the ultimate facts essential to
the rights of action or defense asserted as distinguished from
mere conclusions of fact or conclusions of law (Abad vs.
Court of First Instance of Pangasinan, Br. VIII, 206 SCRA 567).
[Sea-Land Service, Inc. vs. Court of Appeals, 223 SCRA
316(1993)]

G.R. Nos. 88075-77. December 20, 1989.*


MAXIMO TACAY, PONCIANO PANES and ANTONIA NOEL,
petitioners, vs. REGIONAL TRIAL COURT OF TAGUM, Davao
del Norte, Branches 1 and 2, Presided by Hon. Marcial
Fernandez and Hon. Jesus Matas, respectively, PATSITA
GAMUTAN, Clerk of Court, and GODOFREDO PINEDA,
respondents.
Remedial Law; Civil Procedure; Judgment; Dismissal of
petition for failure to comply with Circular No. 1-88; Copies of
challenged orders were not certified by the clerk of court or
his duly authorized representative but by petitioners counsel
which is not allowed.It should be dismissed for failure to
comply with this Courts Circular No. 1-88 (effective January
1, 1989). The copies of the challenged Orders thereto
attached were not certified by the proper Clerk of Court or his
duly authorized representative. Certification was made by
the petitioners counsel, which is not allowed.
Same; Same; Actions; Jurisdiction; Determinative of the
courts jurisdiction in actions for recovery of possession of
real property is the nature thereof, not the amount of the
damages allegedly arising from or connected with the issue
of title or possession, and regardless of the value of the
property.It is true that the complaints do not state the
amounts being claimed as actual, moral and nominal
damages. It is also true, however, that the actions are not
basically for the recovery of sums of money. They are
principally for recovery of possession of real property, in the
nature of an accion publiciana. Determinative of the courts
jurisdiction in this type of actions is the nature thereof, not
the amount of the damages allegedly arising from or
connected with the issue of title or possession, and
regardless of the value of the property. Quite obviously, an
action for recovery of possession of real property (such as an
accion plenaria de posesion) or the title thereof, or for
partition or condemnation of, or the foreclosure of a
mortgage on, said real propertyin other words, a real action
may be commenced and prosecuted without an
accompanying claim for actual, moral, nominal or exemplary

damages; and such an action would fall within the exclusive,


original jurisdiction of the Regional Trial Court.
Same; Same; Same; Same; Jurisdiction of Regional Trial
Courts under B.P. 129; Application of the rule.Batas
Pambansa Bilang 129 provides that Regional Trial Courts shall
exercise exclusive original jurisdiction inter alia over all civil
actions which involve the title to, or possession of, real
property, or any interest therein, except actions for forcible
entry into and unlawful detainer of lands or buildings, original
jurisdiction over which is conferred upon Metropolitan Trial
Courts, Municipal Trial Courts, and Municipal Circuit Trial
Courts. The rule applies regardless of the value of the real
property involved, whether it be worth more than P20,000.00
or not, infra. The rule also applies even where the complaint
involving realty also prays for an award of damages; the
amount of those damages would be immaterial to the
question of the Courts jurisdiction. The rule is unlike that in
other casese.g., actions simply for recovery of money or of
personal property, or actions in admiralty and maritime
jurisdictionin which the amount claimed, or the value of the
personal property, is determinative of jurisdiction; i.e., the
value of the personal property or the amount claimed should
exceed twenty thousand pesos (P20,000.00) in order to be
cognizable by the Regional Trial Court.
Same; Same; Same; Same; Filing Fees; Circular No. 7ofthe
Supreme Court cannot be invoked as authority for dismissal
of the actions at bar; Circular was avowedly inspired by the
Manchester ruling.Circular No. 7 of this Court, dated March
24, 1988, cannot thus be invoked, as the petitioner does, as
authority for the dismissal of the actions at bar. That circular,
avowedly inspired by the doctrine laid down in Manchester
Development Corporation v. Court of Appeals, 149 SCRA 562
(May 7, 1987), has but limited application to said actions, as
shall presently be discussed. Moreover, the rules therein laid
down have since been clarified and amplified by the Courts
subsequent decision in Sun Insurance Office, Ltd. (SIOL) v.
Asuncion, et al., G.R. Nos..79937-38, February 13, 1989.
Same; Same; Same; Same; Same; Purpose of Circular No. 7.
Circular No. 7 was aimed at the practice of certain parties

who omit from the prayer of their complaints any


specification of the amount of damages, the omission being
clearly intended for no other purpose than to evade the
payment of the correct filing fees if not to mislead the docket
clerk, in the assessment of the filing fee.
Same; Same; Same; Same; Same; Requirement in Circular
No. 7 that complaints, etc. should specify the amount of
damages being prayed for not only in the body of the
pleading but also in the prayer has not been altered; New
rule that trial courts are now authorized to allow payment of
the fee within a reasonable time but not beyond the
prescriptive or reglementary period; For damages arising
after the filing of the complaint or similar pleading, the
additional filing fee shall constitute a lien on the judgment.
As will be noted, the requirement in Circular No. 7 that
complaints, petitions, answers, and similar pleadings should
specify the amount of damages being prayed for not only in
the body of the pleading but also in the prayer, has not been
altered. What has been revised is the rule that subsequent
amendment of the complaint or similar pleading will not
thereby vest jurisdiction in the Court, much less the payment
of the docket fee based on the amount sought in the
amended pleading, the trial court now being authorized to
allow payment of the fee within a reasonable time but in no
case beyond the applicable prescriptive or reglementary
period. Moreover, a new rule has been added, governing
awards of claims not specified in the pleadingi.e., damages
arising after the filing of the complaint or similar pleading
as to which the additional filing fee therefor shall constitute a
lien on the judgment.
Same; Same; Same; Same; Same; Where the action is purely
for recovery of money or damages, the docket fees are
assessed on the basis of the aggregate amount claimed,
exclusive only of interests and costs.Where the action is
purely for the recovery of money or damages, the docket
fees are assessed on the basis of the aggregate amount
claimed, exclusive only of interests and costs. In this case,
the complaint or similar pleading should, according to
Circular No. 7 of this Court, specify the amount of damages

being prayed for not only in the body of the pleading but also
in the prayer, and said damages shall be considered in the
assessment of the filing fees in any case.
Same; Same; Same; Same; Same; Same; Rules to be applied
where the complaint or similar pleading sets out a claim
purely for money or damages, and there is no precise
statement of the amounts being claimed, or where the
pleading specifies the amount of every claim, but the fees
paid are insufficient.Two situations may arise. One is where
the complaint or similar pleading sets out a claim purely for
money or damages and there is no precise statement of the
amounts being claimed. In this event the rule is that the
pleading will not be accepted nor admitted, or shall
otherwise be expunged from the record. In other words, the
complaint or pleading may be dismissed, or the claims as to
which the amounts are unspecified may be expunged,
although as aforestated the Court may, on motion, permit
amendment of the complaint and payment of the fees
provided the claim has not in the meantime become timebarred. The other is where the pleading does specify the
amount of every claim, but the fees paid are insufficient; and
here again, the rule now is that the court may allow a
reasonable time for the payment of the prescribed fees, or
the balance thereof, and upon such payment, the defect is
cured and the court may properly take cognizance of the
action, unless in the meantime prescription has set in and
consequently barred the right of action.
Same; Same; Same; Same; Same; Where the action involves
real property and a related claim for damages, the legal fees
shall be assessed on the basis of both the value of the
property and the total amount of related damages sought;
Rule where no amounts of the damages are specified.
Where the action involves real property and a related claim
for damages as well, the legal fees shall be assessed on the
basis of both (a) the value of the property and (b) the total
amount of related damages sought. The Court acquires
jurisdiction over the action if the filing of the initiatory
pleading is accompanied by the payment of the requisite
fees, or, if the fees are not paid at the time of the filing of the

pleading, as of the time of full payment of the fees within


such reasonable time as the court may grant, unless, of
course, prescription has set in in the meantime. But where
as in the case at barthe fees prescribed for an action
involving real property have been paid, but the amounts of
certain of the related damages (actual, moral and nominal)
being demanded are unspecified, the action may not be
dismissed. The Court undeniably has jurisdiction over the
action involving the real property, acquiring it upon the filing
of the complaint or similar pleading and payment of the
prescribed fee. And it is not divested of that authority by the
circumstance that it may not have acquired jurisdiction over
the accompanying claims for damages because of lack of
specification thereof. What should be done is simply to
expunge those claims for damages as to which no amounts
are stated, which is what the respondent Courts did, or allow,
on motion, a reasonable time for the amendment of the
complaints so as to allege the precise amount of each item of
damages and accept payment of the requisite fees therefor
within the relevant prescriptive period.
JOINT PETITION for certiorari, prohibition and mandamus to
review the orders of the Regional Trial Court of Tagum, Davao
del Norte, Br. 1 and 2.
The facts are stated in the opinion of the Court.
Eduardo C. De Vera for petitioners.
RESOLUTION
NARVASA, J.:
In the Regional Trial Court at Tagum, Davao del Norte,1 three
(3) actions for recovery of possession (acciones publicianas2)
were separately instituted by Godofredo Pineda against three
(3) defendants, docketed as follows:
1) vs. Antonia Noel Civil Case No. 2209
2) vs. Ponciano Panes Civil Case No. 2210
3) vs. Maximo Tacay Civil Case No. 2211.

Civil Cases Numbered 2209 and 2211 were raffled to Branch I


of the Trial Court, presided over by Judge Marcial Hernandez.
Civil No. 2210 was assigned to Branch 2, presided over by
Judge Jesus Matas.
The complaints3 all alleged the same essential facts: (1)
Pineda was the owner of a parcel of land measuring 790
square meters, his ownership being evidenced by TCT No. T46560; (2) the previous owner had allowed the defendants to
occupy portions of the land by mere tolerance; (3) having
himself need to use the property, Pineda had made demands
on the defendants to vacate the property and pay reasonable
rentals therefor, but these demands had been refused; and
(4) the last demand had been made more than a year prior to
the commencement of suit. The complaints prayed for the
same reliefs, to wit:
1) that plaintiff be declared owner of the areas occupied by
the defendants;
2) that defendants and their privies and allies be ordered to
vacate and deliver the portions of the land usurped by them;
3) that each defendant be ordered to pay:
1) P2,000 as monthly rents from February, 1987;
2) Actual damages, as proven;
3) Moral and nominal damages as the Honorable Court may
fix;4
4) P30,000.00, as attorneys fees, and representation fees
of P5,000.00 per day of appearance;
and
4) that he (Pineda) be granted such further relief and
remedies x x just and equitable in the premises.
The prayer of each complaint contained a handwritten
notation (evidently made by plaintiffs counsel) reading,
P5,000.00 as and for, immediately above the typewritten
words, Actual damages, as proven, the intention apparently
being to make the entire phrase read, 5,000.00 as and for
actual damages as proven.5

Motions to dismiss were filed in behalf of each of the


defendants by common counsel.6 Every motion alleged that
the Trial Court had not acquired jurisdiction of the case
. . . for the reason that the x x complaint violates the
mandatory and clear provision of Circular No. 7 of the x x
Supreme Court dated March 24, 1988, by failing to specify all
the amounts of damages which plaintiff is claiming from
defendant; and
. . . for x x failure (of the complaint) to even allege the basic
requirement as to the assessed value of the subject lot in
dispute.
Judge Matas denied the motion to dismiss filed in Civil Case
No. 2210 but ordered the expunction of the allegations in
paragraph 11 of the x x complaint regarding moral as well as
nominal damages.7 On motion of defendant Panes, Judge
Matas later ordered the striking out, too, of the handwritten
amount of P5,000.00 as and for, including the typewritten
words actual damages as proven x x in sub-paragraph b of
paragraph 4 in the conclusion and prayer of the complaint x
x.8
The motions to dismiss submitted in Civil Cases Numbered
2211 and 2209 were also denied in separate orders
promulgated by Judge Marcial Fernandez.9 His Order in Case
No. 2209 dated March 15, 1989 (a) declared that since the
action at bar is for Reivindicatoria, Damages and Attorneys
fees x x (d)efinitely this Court has the exclusive jurisdiction,
(b) that the claims for actual, moral and nominal damages
are only one aspect of the cause of action, and (c) because
of absence of specification of the amounts claimed as moral,
nominal and actual damages, they should be expunged from
the records.
Ascribing grave abuse of discretion to both Judges Matas and
Fernandez in the rendition of the Orders above described, the
defendants in all three (3) actions have filed with this Court a
Joint Petition for certiorari, prohibition and mandamus, with
prayer for temporary restraining order and/or writ of
preliminary prohibitory injunction, praying essentially that
said orders be annulled and respondent judges directed to

dismiss all the complaints without prejudice to private


respondent Pinedas re-filing a similar complaint that
complies with Circular No. 7. The joint petition (a) reasserted the proposition that because the complaints had
failed to state the amounts being claimed as actual, moral
and nominal damages, the Trial Courts aquo had not acquired
jurisdiction over the three (3) actions in questionindeed,
the respondent Clerk of Court should not have accepted the
complaints which initiated said suits, and (b) it was not
proper merely to expunge the claims for damages and allow
the so-called cause of action for reivindicatoria to remain
for trial by itself.10
The joint petition should be, as it is hereby, dismissed. It
should be dismissed for failure to comply with this Courts
Circular No. 1-88 (effective January 1, 1989). The copies of
the challenged Orders thereto attached11 were not certified
by the proper Clerk of Court or his duly authorized
representative. Certification was made by the petitioners
counsel, which is not allowed.
The petition should be dismissed, too, for another equally
important reason. It fails to demonstrate any grave abuse of
discretion on the part of the respondent Judges in rendering
the Orders complained of or, for that matter, the existence of
any proper cause for the issuance of the writ of mandamus.
On the contrary, the orders appear to have correctly applied
the law to the admitted facts.
It is true that the complaints do not state the amounts being
claimed as actual, moral and nominal damages. It is also
true, however, that the actions are not basically for the
recovery of sums of money. They are principally for recovery
of possession of real property, in the nature of an accion
publiciana. Determinative of the courts jurisdiction in this
type of actions is the nature thereof, not the amount of the
damages allegedly arising from or connected with the issue
of title or possession, and regardless of the value of the
property. Quite obviously, an action for recovery of
possession of real property (such as an accion plenaria de
posesion) or the title thereof,12 or for partition or
condemnation of, or the foreclosure of a mortgage on, said

real property13in other words, a real actionmay be


commenced and prosecuted without an accompanying claim
for actual, moral, nominal or exemplary damages; and such
an action would fall within the exclusive, original jurisdiction
of the Regional Trial Court.
Batas Pambansa Bilang 129 provides that Regional Trial
Courts shall exercise exclusive original jurisdiction inter alia
over all civil actions which involve the title to, or possession
of, real property, or any interest therein, except actions for
forcible entry into and unlawful detainer of lands or buildings,
original jurisdiction over which is conferred upon Metropolitan
Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial
Courts.14 The rule applies regardless of the value of the real
property involved, whether it be worth more than P20,000.00
or not, infra. The rule also applies even where the complaint
involving realty also prays for an award of damages; the
amount of those damages would be immaterial to the
question of the Courts jurisdiction. The rule is unlike that in
other casese.g., actions simply for recovery of money or of
personal property,15 or actions in admiralty and maritime
jurisdiction16in which the amount claimed,17 or the value
of the personal property, is determinative of jurisdiction; i.e.,
the value of the personal property or the amount claimed
should exceed twenty thousand pesos (P20,000.00) in order
to be cognizable by the Regional Trial Court.
Circular No. 7 of this Court, dated March 24, 1988, cannot
thus be invoked, as the petitioner does, as authority for the
dismissal of the actions at bar. That circular, avowedly
inspired by the doctrine laid down in Manchester
Development Corporation v. Court of Appeals, 149 SCRA 562
(May 7, 1987), has but limited application to said actions, as
shall presently be discussed. Moreover, the rules therein laid
down have since been clarified and amplified by the Courts
subsequent decision in Sun Insurance Office, Ltd. (SIOL) v.
Asuncion, et al., G.R. Nos. 79937-38, February 13, 1989.
Circular No. 7 was aimed at the practice of certain parties
who omit from the prayer of their complaints any
specification of the amount of damages, the omission being
clearly intended for no other purposes than to evade the

payment of the correct filing fees if not to mislead the docket


clerk, in the assessment of the filing fee. The following rules
were therefore set down:
1. All complaints, petitions, answers, and similar pleadings
should specify the amount of damages being prayed for not
only in the body of the pleading but also in the prayer, and
said damages shall be considered in the assessment of the
filing fees in any case.
2. Any pleading that fails to comply with this requirement
shall not be accepted nor admitted, or shall otherwise be
expunged from the record.
3. The Court acquires jurisdiction over any case only upon
the payment of the prescribed docket fee. An amendment of
the complaint or similar pleading will not thereby vest
jurisdiction in the Court, much less the payment of the docket
fee based on the amount sought in the amended pleading.
The clarificatory and additional rules laid down in Sun
Insurance Office, Ltd. v. Asuncion, supra, read as follows:
1. It is not simply the filing of the complaint or appropriate
initiatory pleading, but (also) 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, thirdparty claims and similar pleadings, which shall not be
considered filed until and unless the filing fee prescribed
therefor is paid. The court may also allow payment of said
fee within a reasonable time but also in no case beyond its
applicable prescriptive or reglementary period.
3. Where the trial court acquires jurisdiction over a claim by
the filing of the appropriate pleading and payment of the
prescribed filing fee but, subsequently, the judgment awards
a claim not specified in the pleading, or if specified, the same
has been left for determination by the court, the additional
filing fee therefor shall constitute a lien on the judgment. It

shall be the responsibility of the Clerk of Court or his duly


authorized deputy to enforce said lien and assess and collect
the additional fee.
As will be noted, the requirement in Circular No. 7 that
complaints, petitions, answers, and similar pleadings should
specify the amount of damages being prayed for not only in
the body of the pleading but also in the prayer, has not been
altered. What has been revised is the rule that subsequent
amendment of the complaint or similar pleading will not
thereby vest jurisdiction in the Court, much less the payment
of the docket fee based on the amount sought in the
amended pleading, the trial court now being authorized to
allow payment of the fee within a reasonable time but in no
case beyond the applicable prescriptive or reglementary
period. Moreover, a new rule has been added, governing
awards of claims not specified in the pleadingi.e., damages
arising after the filing of the complaint or similar pleading
as to which the additional filing fee therefor shall constitute a
lien on the judgment.
Now, under the Rules of Court, docket or filing fees are
assessed on the basis of the sum claimed, on the one
hand, or the value of the property in litigation or the value of
the estate, on the other.18 There are, in other words, as
already above intimated, actions or proceedings involving
real property, in which the value of the property is immaterial
to the courts jurisdiction, account thereof being taken
merely for assessment of the legal fees; and there are
actions or proceedings, involving personal property or the
recovery of money and/or damages, in which the value of the
property or the amount of the demand is decisive of the trial
courts competence (aside from being the basis for fixing the
corresponding docket fees).19
Where the action is purely for the recovery of money or
damages, the docket fees are assessed on the basis of the
aggregate amount claimed, exclusive only of interests and
costs. In this case, the complaint or similar pleading should,
according to Circular No. 7 of this Court, specify the amount
of damages being prayed for not only in the body of the

pleading but also in the prayer, and said damages shall be


considered in the assessment of the filing fees in any case.
Two situations may arise. One is where the complaint or
similar pleading sets out a claim purely for money or
damages and there is no precise statement of the amounts
being claimed. In this event the rule is that the pleading will
not be accepted nor admitted, or shall otherwise be
expunged from the record. In other words, the complaint or
pleading may be dismissed, or the claims as to which the
amounts are unspecified may be expunged, although as
aforestated the Court may, on motion, permit amendment of
the complaint and payment of the fees provided the claim
has not in the meantime become time-barred. The other is
where the pleading does specify the amount of every claim,
but the fees paid are insufficient; and here again, the rule
now is that the court may allow a reasonable time for the
payment of the prescribed fees, or the balance thereof, and
upon such payment, the defect is cured and the court may
properly take cognizance of the action, unless in the
meantime prescription has set in and consequently barred
the right of action.
Where the action involves real property and a related claim
for damages as well, the legal fees shall be assessed on the
basis of both (a) the value of the property and (b) the total
amount of related damages sought. The Court acquires
jurisdiction over the action if the filing of the initiatory
pleading is accompanied by the payment of the requisite
fees, or, if the fees are not paid at the time of the filing of the
pleading, as of the time of full payment of the fees within
such reasonable time as the court may grant, unless, of
course, prescription has set in in the meantime. But where
as in the case at barthe fees prescribed for an action
involving real property have been paid, but the amounts of
certain of the related damages (actual, moral and nominal)
being demanded are unspecified, the action may not be
dismissed. The Court undeniably has jurisdiction over the
action involving the real property, acquiring it upon the filing
of the complaint or similar pleading and payment of the
prescribed fee. And it is not divested of that authority by the

circumstance that it may not have acquired jurisdiction over


the accompanying claims for damages because of lack of
specification thereof. What should be done is simply to
expunge those claims for damages as to which no amounts
are stated, which is what the respondent Courts did, or allow,
on motion, a reasonable time for the amendment of the
complaints so as to allege the precise amount of each item of
damages and accept payment of the requisite fees therefor
within the relevant prescriptive period.
WHEREFORE,
the
petition
is
DISMISSED,
without
pronouncement as to costs.
Fernan (C.J.), Melencio-Herrera, Gutierrez, Jr., Cruz, Paras,
Feliciano, Gancayco, Padilla, Bidin, Sarmiento, Corts, GrioAquino, Medialdea and Regalado, JJ., concur.
Petition dismissed.
Notes.Jurisdiction is determined by the law in force at the
time of the commencement of the action. (Lee vs. Municipal
Trial Court of Legaspi, 145 SCRA 408.)
There is no rule authorizing a court personnel or branch clerk
of court to issue a notice of case status. (Koh vs.
Intermediate Appellate Court, 144 SCRA 259.) [Tacay vs.
Regional Trial Court of Tagum, Davao del Norte, 180 SCRA
433(1989)]

CESAR T. HILARIO, for himself and as Attorney-in-Fact of


IBARRA, NESTOR, LINA and PRESCILLA, all surnamed
HILARIO, petitioners, vs. ALLAN T. SALVADOR, respondent.
HEIRS OF SALUSTIANO SALVADOR, namely, REGIDOR M.
SALVADOR and VIRGINIA SALVADOR-LIM, respondentsintervenors.
Actions; Pleadings and Practice; The nature of the action and
which court has original and exclusive jurisdiction over the
same is determined by the material allegations of the
complaint, the type of relief prayed for by the plaintiff and
the law in effect when the action is filed, irrespective of
whether the plaintiffs are entitled to some or all of the claims
asserted therein.It bears stressing that the nature of the
action and which court has original and exclusive jurisdiction
over the same is determined by the material allegations of
the complaint, the type of relief prayed for by the plaintiff
and the law in effect when the action is filed, irrespective of
whether the plaintiffs are entitled to some or all of the claims
asserted therein. The caption of the complaint is not
determinative of the nature of the action. Nor does the
jurisdiction of the court depend upon the answer of the
defendant or agreement of the parties or to the waiver or
acquiescence of the parties.
Same; Accion Publiciana; Accion Reinvindicatoria; Words and
Phrases; An accion reinvindicatoria is a suit which has for its
object the recovery of possession over the real property as
owner while an accion publiciana is one for the recovery of
possession of the right to possessit is also referred to as an
ejectment suit filed after the expiration of one year after the
occurrence of the cause of action or from the unlawful
withholding of possession of the realty.We do not agree
with the contention of the petitioners and the ruling of the CA
that the action of the petitioners in the RTC was an accion
reinvindicatoria. We find and so rule that the action of the
petitioners was an accion publiciana, or one for the recovery
of possession of the real property subject matter thereof. An
accion reinvindicatoria is a suit which has for its object the
recovery of possession over the real property as owner. It

involves recovery of ownership and possession based on the


said ownership. On the other hand, an accion publiciana is
one for the recovery of possession of the right to possess. It
is also referred to as an ejectment suit filed after the
expiration of one year after the occurrence of the cause of
action or from the unlawful withholding of possession of the
realty.
Same; Jurisdictions; Judicial Notice; The jurisdiction of the
court over an action involving title to or possession of land is
now determined by the assessed value of the said property
and not the market value thereof, assessed value being the
fair market value of the real property multiplied by the
assessment level; The court cannot take judicial notice of the
assessed or market value of lands.The jurisdiction of the
court over an action involving title to or possession of land is
now determined by the assessed value of the said property
and not the market value thereof. The assessed value of real
property is the fair market value of the real property
multiplied by the assessment level. It is synonymous to
taxable value. The fair market value is the price at which a
property may be sold by a seller, who is not compelled to
sell, and bought by a buyer, who is not compelled to buy.
Even a cursory reading of the complaint will show that it does
not contain an allegation stating the assessed value of the
property subject of the complaint. The court cannot take
judicial notice of the assessed or market value of lands.
Absent any allegation in the complaint of the assessed value
of the property, it cannot thus be determined whether the
RTC or the MTC had original and exclusive jurisdiction over
the petitioners action.
Same; Same; Tax Declarations.It is elementary that the tax
declaration indicating the assessed value of the property
enjoys the presumption of regularity as it has been issued by
the proper government agency.
Same; Same; Section 33(3) of B.P. Blg. 129, as amended,
explicitly excludes from the determination of the
jurisdictional amount the demand for interest, damages of
whatever kind, attorneys fees, litigation expenses, and
costs.Unavailing also is the petitioners argumentation

that since the complaint, likewise, seeks the recovery of


damages exceeding P20,000.00, then the RTC had original
jurisdiction over their actions. Section 33(3) of B.P. Blg. 129,
as amended, quoted earlier, explicitly excludes from the
determination of the jurisdictional amount the demand for
interest, damages of whatever kind, attorneys fees,
litigation expenses, and costs. This Court issued
Administrative Circular No. 09-94 setting the guidelines in the
implementation of R.A. No. 7691, and paragraph 2 thereof
states that2. The exclusion of the term damages of
whatever kind in determining the jurisdictional amount
under Section 19(8) and Section 33(1) of B.P. Blg. 129, as
amended by R.A. 7691, applies to cases where the damages
are merely incidental to or a consequence of the main cause
of action. However, in cases where the claim for damages is
the main cause of action, or one of the causes of action, the
amount of such claim shall be considered in determining the
jurisdiction of the court.
Same; Same; Section 199(8) of B.P. Blg. 129, as amended, is
applicable only to all other cases other than an action
involving title to, or possession of real property in which the
assessed value is the controlling factor in determining the
courts jurisdiction.Neither may the petitioners find comfort
and solace in Section 19(8) of B.P. Blg. 129, as amended,
which states: SEC. 19. Jurisdiction in civil cases.Regional
Trial Courts shall exercise exclusive original jurisdiction: . . .
(8) In all other cases in which the demand, exclusive of
interest, damages of whatever kind, attorneys fees, litigation
expenses, and costs or the value of the property in
controversy exceeds One Hundred Thousand Pesos
(P100,000.00) or, in such other cases in Metro Manila, where
the demand, exclusive of the abovementioned items exceeds
Two Hundred Thousand Pesos (P200,000.00). The said
provision is applicable only to all other cases other than an
action involving title to, or possession of real property in
which the assessed value is the controlling factor in
determining the courts jurisdiction. The said damages are
merely incidental to, or a consequence of, the main cause of
action for recovery of possession of real property.

PETITION for review on certiorari of the decision and


resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
Rudy T. Muyco for petitioners.
Napoleon M. Victoriano for respondent.
CALLEJO, SR., J.:
This is a petition for review on certiorari under Rule 45 of the
Revised Rules of Court of the Decision1 of the Court of
Appeals (CA) in CA-G.R. CV No. 63737 as well as its
Resolution2 denying the motion for the reconsideration of the
said decision.
The Antecedents
On September 3, 1996, petitioners Cesar, Ibarra, Nestor, Lina
and Prescilla, all surnamed Hilario, filed a complaint with the
Regional Trial Court (RTC) of Romblon, Romblon, Branch 71,
against private respondent Allan T. Salvador. They alleged
therein, inter alia, as follows:
2. That, the plaintiffs are co-owners by inheritance from
Concepcion Mazo Salvador of a parcel of land designated as
Cad. Lot No. 3113-part, located at Sawang, Romblon,
Romblon, which property was [adjudged] as the hereditary
share of their father, Brigido M. Hilario, Jr. when their father
was still single, and which adjudication was known by the
plaintiffs[] fathers co-heirs;
3. That, sometime in 1989, defendant constructed his
dwelling unit of mixed materials on the property of the
plaintiffs father without the knowledge of the herein
plaintiffs or their predecessorsin-interest;
4. That, demands have been made of the defendant to
vacate the premises but the latter manifested that he have
(sic) asked the prior consent of their grandmother,
Concepcion Mazo Salvador;
5. That, to reach a possible amicable settlement, the
plaintiffs brought the matter to the Lupon of Barangay

Sawang, to no avail, evidenced by the CERTIFICATE TO FILE


ACTION hereto attached as ANNEX B;
6. That, the unjustified refusal of the defendant to vacate the
property has caused the plaintiffs to suffer shame,
humiliation, wounded feelings, anxiety and sleepless nights;
7. That, to protect their rights and interest, plaintiffs were
constrained to engage the services of a lawyer.3
The petitioners prayed that, after due proceedings, judgment
be rendered in their favor, thus:
WHEREFORE, it is prayed of this Honorable Court that after
due process (sic), an order be issued for the defendant to
vacate and peacefully turn over to the plaintiffs the occupied
property and that defendant be made to pay plaintiffs:
a. actual damages, as follows:
a.1. transportation expenses in connection with the projected
settlement of the case amounting to P1,500.00 and for the
subsequent attendance to the hearing of this case at
P1,500.00 each schedule;
a.2. attorneys fees in the amount of P20,000.00 and P500.00
for every court appearance;
b. moral and exemplary damages in such amount incumbent
upon the Honorable Court to determine; and
c. such other relief and remedies just and equitable under the
premises.4
The private respondent filed a motion to dismiss the
complaint on the ground of lack of jurisdiction over the
nature of the action, citing Section 33 of Batas Pambansa
(B.P.) Blg. 129, as amended by Section 3(3) of Republic Act
(R.A.) No. 7691.5 He averred that
(1) the complaint failed to state the assessed value of the
land in dispute;
(2) the complaint does not sufficiently identify and/or
describe the parcel of land referred to as the subject-matter
of this action;
both of which are essential requisites for determining the
jurisdiction of the Court where the case is filed. In this case,
however, the assessed value of the land in question is totally

absent in the allegations of the complaint and there is


nothing in the relief prayed for which can be picked-up for
determining the Courts jurisdiction as provided by law.
In the face of this predicament, it can nevertheless be
surmised by reading between the lines, that the assessed
value of the land in question cannot exceed P20,000.00 and,
as such, it falls within the jurisdiction of the Municipal Trial
Court of Romblon and should have been filed before said
Court rather than before the RTC. . . .6
The petitioners opposed the motion.7 They contended that
the RTC had jurisdiction over the action since the court can
take judicial notice of the market value of the property in
question, which was P200.00 per square meter and
considering that the property was 14,797 square meters,
more or less, the total value thereof is P3,500,000.00.
Besides, according to the petitioners, the motion to dismiss
was premature and the proper time to interpose it is when
the [petitioners] introduced evidence that the land is of such
value.
On November 7, 1996, the RTC issued an Order8 denying the
motion to dismiss, holding that the action was incapable of
pecuniary estimation, and therefore, cognizable by the RTC
as provided in Section 19(1) of B.P. Blg. 129, as amended.
After the denial of the motion to dismiss, the private
respondent filed his answer with counterclaim.9 Traversing
the material allegations of the complaint, he contended that
the petitioners had no cause of action against him since the
property in dispute was the conjugal property of his
grandparents, the spouses Salustiano Salvador and
Concepcion MazoSalvador.
On April 8, 1997, Regidor and Virginia Salvador filed their
Answer-in-Intervention10 making common cause with the
private respondent. On her own motion, however, Virginia
Salvador was dropped as intervenor.11
During trial, the petitioners adduced in evidence Tax
Declaration No. 8590-A showing that in 1991 the property
had an assessed value of P5,950.00.12

On June 3, 1999, the trial court rendered judgment finding in


favor of the petitioners. The dispositive portion of the
decision reads:
WHEREFORE, as prayed for, judgment is rendered:
Ordering the defendant to vacate and peacefully turn over to
the plaintiffs the occupied property; and
Dismissing defendants counterclaim.
SO ORDERED.13
Aggrieved, the private respondent and respondentintervenor
Regidor Salvador appealed the decision to the CA, which
rendered judgment on May 23, 2003 reversing the ruling of
the RTC and dismissing the complaint for want of jurisdiction.
The fallo of the decision is as follows:
IN VIEW OF THE FOREGOING, the appealed decision is
REVERSED, and the case DISMISSED, without prejudice to its
refilling in the proper court.
SO ORDERED.14
The CA declared that the action of the petitioners was one for
the recovery of ownership and possession of real property.
Absent any allegation in the complaint of the assessed value
of the property, the Municipal Trial Court (MTC) had exclusive
jurisdiction over the action, conformably to Section 3315 of
R.A. No. 7691.
The petitioners filed a motion for reconsideration of the said
decision, which the appellate court denied.16 Hence, they
filed the instant petition, with the following assignment of
errors:
I
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE
REVERSIBLE ERROR IN HOLDING THAT THE INSTANT CASE,
ACCION REINVINDICATORIA, FALLS WITHIN THE EXCLUSIVE
ORIGINAL JURISDICTION OF THE MUNICIPAL TRIAL COURT OF
ROMBLON, AND NOT WITH THE REGIONAL TRIAL COURT OF
ROMBLON.
II

THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS


REVERSIBLE ERROR IN ORDERING THE REFILING OF THE
CASE IN THE [PROPER] COURT, INSTEAD OF DECIDING THE
CASE ON THE MERITS BASED ON THE COMPLETE RECORDS
ELEVATED BEFORE SAID APPELLATE COURT AND IN NOT
AFFIRMING IN TOTO THE DECISION OF THE TRIAL COURT.17
The Ruling of the Court
The lone issue for our resolution is whether the RTC had
jurisdiction over the action of the petitioners, the plaintiffs in
the RTC, against the private respondent, who was the
defendant therein.
The petitioners maintain that the RTC has jurisdiction since
their action is an accion reinvindicatoria, an action incapable
of pecuniary estimation; thus, regardless of the assessed
value of the subject property, exclusive jurisdiction falls
within the said court. Besides, according to the petitioners, in
their opposition to respondents motion to dismiss, they
made mention of the increase in the assessed value of the
land in question in the amount of P3.5 million. Moreover, the
petitioners maintain that their action is also one for damages
exceeding P20,000.00, over which the RTC has exclusive
jurisdiction under R.A. No. 7691.
The petition has no merit.
It bears stressing that the nature of the action and which
court has original and exclusive jurisdiction over the same is
determined by the material allegations of the complaint, the
type of relief prayed for by the plaintiff and the law in effect
when the action is filed, irrespective of whether the plaintiffs
are entitled to some or all of the claims asserted therein.18
The caption of the complaint is not determinative of the
nature of the action. Nor does the jurisdiction of the court
depend upon the answer of the defendant or agreement of
the parties or to the waiver or acquiescence of the parties.
We do not agree with the contention of the petitioners and
the ruling of the CA that the action of the petitioners in the
RTC was an accion reinvindicatoria. We find and so rule that
the action of the petitioners was an accion publiciana, or one
for the recovery of possession of the real property subject

matter thereof. An accion reinvindicatoria is a suit which has


for its object the recovery of possession over the real
property as owner. It involves recovery of ownership and
possession based on the said ownership. On the other hand,
an accion publiciana is one for the recovery of possession of
the right to possess. It is also referred to as an ejectment suit
filed after the expiration of one year after the occurrence of
the cause of action or from the unlawful withholding of
possession of the realty.19
The action of the petitioners filed on September 3, 1996 does
not involve a claim of ownership over the property. They
allege that they are co-owners thereof, and as such, entitled
to its possession, and that the private respondent, who was
the defendant, constructed his house thereon in 1989
without their knowledge and refused to vacate the property
despite demands for him to do so. They prayed that the
private respondent vacate the property and restore
possession thereof to them.
When the petitioners filed their complaint on September 3,
1996, R.A. No. 7691 was already in effect. Section 33(3) of
the law provides:
Sec. 33. Jurisdiction of Metropolitan Trial Courts, Municipal
Trial Courts and Municipal Circuit Trial Courts in Civil Cases.
Metropolitan Trial Courts, Municipal Trial Courts and Municipal
Circuit Trial Courts shall exercise:
...
(3) Exclusive original jurisdiction in all civil actions which
involve title to, or possession of, real property, or any interest
therein where the assessed value of the property or interest
therein does not exceed Twenty Thousand Pesos
(P20,000.00) or, in civil actions in Metro Manila, where such
assessed value does not exceed Fifty Thousand Pesos
(P50,000.00) exclusive of interest, damages of whatever
kind, attorneys fees, litigation expenses and costs: Provided,
That in cases of land not declared for taxation purposes, the
value of such property shall be determined by the assessed
value of the adjacent lots.

Section 19(2) of the law, likewise, provides that:


Sec. 19. Jurisdiction in civil cases.The Regional Trial Court
shall exercise exclusive original jurisdiction:
...
(2) In all civil actions, which involve the title to, or possession
of, real property, or any interest therein, where the assessed
value of the property involved exceeds Twenty Thousand
Pesos (P20,000.00) or, for civil actions in Metro Manila, where
such value exceeds Fifty Thousand Pesos (P50,000.00) except
actions for forcible entry into and unlawful detainer of lands
or buildings, original jurisdiction over which is conferred upon
the Metropolitan Trial Courts, Municipal Trial Courts, and
Municipal Circuit Trial Courts.
The jurisdiction of the court over an action involving title to
or possession of land is now determined by the assessed
value of the said property and not the market value thereof.
The assessed value of real property is the fair market value
of the real property multiplied by the assessment level. It is
synonymous to taxable value.20 The fair market value is the
price at which a property may be sold by a seller, who is not
compelled to sell, and bought by a buyer, who is not
compelled to buy.
Even a cursory reading of the complaint will show that it does
not contain an allegation stating the assessed value of the
property subject of the complaint.21 The court cannot take
judicial notice of the assessed or market value of lands.22
Absent any allegation in the complaint of the assessed value
of the property, it cannot thus be determined whether the
RTC or the MTC had original and exclusive jurisdiction over
the petitioners action.
We note that during the trial, the petitioners adduced in
evidence Tax Declaration No. 8590-A, showing that the
assessed value of the property in 1991 was P5,950.00. The
petitioners, however, did not bother to adduce in evidence
the tax declaration containing the assessed value of the
property when they filed their complaint in 1996. Even
assuming that the assessed value of the property in 1991
was the same in 1995 or 1996, the MTC, and not the RTC had

jurisdiction over the action of the petitioners since the case


involved title to or possession of real property with an
assessed value of less than P20,000.00.23
We quote with approval, in this connection, the CAs
disquisition:
The determining jurisdictional element for the accion
reinvindicatoria is, as RA 7691 discloses, the assessed value
of the property in question. For properties in the provinces,
the RTC has jurisdiction if the assessed value exceeds
P20,000, and the MTC, if the value is P20,000 or below. An
assessed value can have reference only to the tax rolls in the
municipality where the property is located, and is contained
in the tax declaration. In the case at bench, the most recent
tax
declaration
secured
and
presented
by
the
plaintiffsappellees is Exhibit B. The loose remark made by
them that the property was worth 3.5 million pesos, not to
mention that there is absolutely no evidence for this, is
irrelevant in the light of the fact that there is an assessed
value. It is the amount in the tax declaration that should be
consulted and no other kind of value, and as appearing in
Exhibit B, this is P5,950. The case, therefore, falls within
the exclusive original jurisdiction of the Municipal Trial Court
of Romblon which has jurisdiction over the territory where the
property is located, and not the court a quo.24
It is elementary that the tax declaration indicating the
assessed value of the property enjoys the presumption of
regularity as it has been issued by the proper government
agency.25
Unavailing also is the petitioners argumentation that since
the complaint, likewise, seeks the recovery of damages
exceeding P20,000.00, then the RTC had original jurisdiction
over their actions. Section 33(3) of B.P. Blg. 129, as
amended, quoted earlier, explicitly excludes from the
determination of the jurisdictional amount the demand for
interest, damages of whatever kind, attorneys fees,
litigation expenses, and costs. This Court issued
Administrative Circular No. 09-94 setting the guidelines in the

implementation of R.A. No. 7691, and paragraph 2 thereof


states that
2. The exclusion of the term damages of whatever kind in
determining the jurisdictional amount under Section 19(8)
and Section 33(1) of B.P. Blg. 129, as amended by R.A. 7691,
applies to cases where the damages are merely incidental to
or a consequence of the main cause of action. However, in
cases where the claim for damages is the main cause of
action, or one of the causes of action, the amount of such
claim shall be considered in determining the jurisdiction of
the court.
Neither may the petitioners find comfort and solace in
Section 19(8) of B.P. Blg. 129, as amended, which states:
SEC. 19. Jurisdiction in civil cases.Regional Trial Courts shall
exercise exclusive original jurisdiction:
...
(8) In all other cases in which the demand, exclusive of
interest, damages of whatever kind, attorneys fees, litigation
expenses, and costs or the value of the property in
controversy exceeds One Hundred Thousand Pesos
(P100,000.00) or, in such other cases in Metro Manila, where
the demand, exclusive of the above-mentioned items
exceeds Two Hundred Thousand Pesos (P200,000.00).
The said provision is applicable only to all other cases other
than an action involving title to, or possession of real
property in which the assessed value is the controlling factor
in determining the courts jurisdiction. The said damages are
merely incidental to, or a consequence of, the main cause of
action for recovery of possession of real property.26
Since the RTC had no jurisdiction over the action of the
petitioners, all the proceedings therein, including the decision
of the RTC, are null and void. The complaint should perforce
be dismissed.27
WHEREFORE, the petition is DENIED. The assailed Decision
and Resolution of the Court of Appeals in CA-G.R. CV No.
63737 are AFFIRMED. Costs against the petitioners.
SO ORDERED.

Puno
(Chairman),
ChicoNazario, JJ., concur.

Austria-Martinez,

Tinga

and

G.R. Nos. 58507-08. February 26, 1992.*


RAMON GIL ABAD and CONSUELO R. ABAD, petitioners, vs.
COURT OF FIRST INSTANCE OF PANGASINAN, BRANCH VIII,
Presided over by HONORABLE JUDGE MODESTO S. BASCOS,
and
DIMENSIONAL
CONSTRUCTION,
TRADE
AND
DEVELOPMENT CORPORATION, respondents.
Remedial Law; Actions; Jurisdiction; It is axiomatic that the
averments of the complaint determine the nature of the
action and consequently the jurisdiction of the courts.It is
axiomatic that the averments of the complaint determine the
nature of the action, and consequently, the jurisdiction of the
courts. This is because the complaint must contain a concise
statement of the ultimate facts constituting the plaintiffs
cause of action and must specify the relief sought. No rule is
better established than that which requires the complaint to
contain a statement of all the facts constituting the plaintiffs
cause of action. Additionally, Section 5, Rule 8 of the Rules of
Court provides that in all averments of fraud or mistake, the
circumstances constituting fraud or mistake must be stated
with particularity. In the case at bar, while there are
allegations of fraud in the above quoted complaints, the
same are not particular enough to bring the controversy
within the SECs jurisdiction. The said allegations are not
statements of ultimate facts but are mere conclusions of law.
Same; Same; Same; A pleading should state the ultimate
facts essential to the rights of action or defense asserted as
distinguished from mere conclusions of fact or conclusions of
law.A pleading should state the ultimate facts essential to
the rights of action or defense asserted, as distinguished
from mere conclusions of fact, or conclusions of law. General
allegations that a contract is valid or legal, or is just, fair and
reasonable, are mere conclusions of law. Likewise, allegations
that a contract is void, voidable, invalid, illegal, ultra vires, or
against public policy, without stating facts showing its
invalidity, are mere conclusions of law.
Same; Same; Same; Clearly the allegations in the complaint
do not bring the cases within the jurisdiction of the SEC; Case

at bar.Clearly, therefore, the allegations in the complaint do


not bring the cases within the jurisdiction of the SEC. Shorn
of unnecessary details, it is evident that the actions are
simple money claims.
PETITION for review of the orders of the then Court of First
Instance of Pangasinan, Br. 8, Dagupan City, Bascos, J.
The facts are stated in the opinion of the Court.
Carlito A. Corpuz for private respondent.
DAVIDE, JR., J.:
Petitioners seek the review and the setting aside, on a
question of law, of the Orders of Branch 8 of the then Court
of First Instance (now Regional Trial Court) of Pangasinan in
Civil Case No. D-52161 and Civil Case No. D-5408:2 (a) of 25
May 1981 dismissing Civil Case No. D-5408 on the ground
that the Securities and Exchange Commission (SEC), and not
the respondent court, has original exclusive jurisdiction over
the subject matter thereof; (b) of 27 May 1981 dismissing
Civil Case No. D-5216 on the same ground aforestated; and
(c) of 12 October 1981 denying petitioners motion for
reconsideration in the aforesaid cases. They then pray that
the respondent Court be ordered to take cognizance of, hear
and decide said cases.
The undisputed facts of the controversy are simple.
Respondent corporation, hereinafter referred to as
DIMCONTRAD, is a domestic corporation duly organized and
existing under and by virtue of the laws of the Philippines
with principal office in Baguio City. In response to a call for
investors, petitioner Ramon Gil Abad invested various sums
with DIMCONTRAD on different dates, as follows: (a)
P21,000.00 on 15 December 1979; (b) P1,000.00 on 15
January 1980; (c) P1,000.00 on 15 March 1980; and (d)
P1,000.00 on 15 May 1980, subject to the following terms
and conditions:
1) The term of each investment is six (6) months counted
from the respective dates above indicated; hence, their

respective maturities fell on 15 June 1980, 15 July 1980, 15


September 1980 and 15 November 1980;
2) The investor is guaranteed a share in the profits for six (6)
months at the rate equal to 5% of the invested amount to be
paid to him on the 15th day of each month starting on the
15th day of the month next following the date the investment
was made;
3) On maturity date, DIMCONTRAD shall return to the
investor the amount invested plus a share in the last months
profit.
Upon receipt of the amount for each investment,
DIMCONTRAD delivered to Ramon an official receipt, an
instruction slip and a promissory note.3
Upon the other hand, Consuelo R. Abad, wife of Ramon, also
invested money in DIMCONTRAD, as follows: (a) P12,500.00
on 8 February 1980; (b) P2,700.00 on 8 March 1980; (c)
P1,000.00 on 8 April 1980; (d) P1,000 on 8 May 1980. The
said investments, totalling P17,000.00 were subject to the
same terms and conditions as those of her husbands. Upon
receipt of every investment, DIMCONTRAD delivered to
Consuelo an official receipt, instruction slip and a promissory
note.4
The promissory notes issued to Ramon and Consuelo
uniformly provide.
That Dimensional Construction, Trade and Development
Corporation x x x hereby binds itself and promises the return
of certain amount of monetary investment in Philippine
currency at the time of maturity in favor of the investor
written hereunder or in favor of any member of his family or
any third person whom he may designate to receive said
amount at the time said amount is to be returned subject to
the terms and conditions set forth hereunder.
As for the 15 December 1979 investment of Ramon,
DIMCONTRAD was only able to pay Ramon his share in the
profits for the months of January, February, March and April
1980. For the 15 January 1980 investment, it likewise failed
to pay the shares in profit for the months of May, June and

July 1980. It completely failed to pay Ramons shares in the


profits for his March and May 1980 investments.
Upon maturity of his P21,000.00 investment, Ramon tried to
collect the said amount together with the corresponding
unpaid monthly shares in profit but DIMCONTRAD prevailed
upon him to extend the date of maturity to 5 July 1980.5 He
agreed thereto. When again he attempted to collect the
matured investment together with the unpaid monthly shares
in the profit as agreed upon on 5 July 1980, DIMCONTRAD
refused.
On 15 July 1980, upon maturity of the 15 January investment,
Ramon tried to collect the same together with the unpaid
guaranteed monthly shares, but respondent corporation
again failed and refused to repay the investment. The latter
also refused to return the sums invested in March and May.
Subsequently, due to loss of confidence and in the exercise
of his contractual rights, Ramon tried to collect all his
investments in the total sum of P24,000.00 together with all
the unpaid monthly shares in the profits amounting to
P2,850.00, but DIMCONTRAD refused to pay the same.
As for Consuelos monthly shares in the profits, DIMCONTRAD
was able to pay her only for the months of March, April and
May for her 8 February 1980 investment; for the months of
April and May 1980 for her 8 March 1980 investment; and for
the month of May 1980 insofar as her 8 April 1980
investment is concerned. DIMCONTRAD failed to pay any
share in profits on her 8 May 1980 investment. She then
demanded the return of all her matured investments
amounting to P17,200.00. Notwithstanding repeated
demands, DIMCONTRAD failed and refused to return the
same together with the guaranteed shares in the profits
amounting to P2,975.00
Thus, on 4 September 1980, Ramon filed a complaint for
Sum of Money and Damages against DIMCONTRAD with the
then Court of First Instance of Pangasinan, which was
docketed as Civil Case No. D-5216 and which was raffled to
Branch 8 thereof at Dagupan City,6 alleging the foregoing
investments he had made and the failure and refusal of
DIMCONTRAD to return to him said investments pursuant to

the promissory notes with the unpaid guaranteed shares in


the profits. In support of his claim for attorneys fees and
damages, he alleges as follows:
xxx
15. That due to illegal, unreasonable and fraudulent actions
of the defendant as alleged in the foregoing paragraphs
hereof plaintiff was constrained to file this suit for which he
contracted the services of the undersigned counsel at a
contingent fee of twenty five percent (25%) of the entire
sums from defendant, and is likely to incur other litigation
expenses of approximately P5,000.00;
16. That due to the illegal, unreasonable and fraudulent acts
of the defendants as alleged in the preceding paragraphs
hereof plaintiff suffered mental torture and anguish, serious
anxiety, loss of sleep and appetite and has developed
nervousness all of which may be assessed at not less than
P10,000.00;
17. That under the circumstances of this case as alleged in
the preceding paragraphs hereof it is evident that defendant
employed deception, unfair business practices, and has acted
wantonly, recklessly, and imprudently in procuring the
investments of the plaintiff which justify the award of
exemplary damages against the defendant of not less than
P20,000.00 in order to give an example to others for the
public good;
On 11 September 1980, Ramon filed in Civil Case No. D-5216
a Motion for Preliminary Attachment praying therein that
certain properties of DIMCONTRAD be attached,7 which the
latter opposed.8
On 6 November 1980, DIMCONTRAD filed its Answer with
Counterclaim9 in Civil Case No. D-5216. As Special and
Affirmative Defenses, it alleges that: (a) it had invested the
amounts invested by the plaintiff in legitimate projects and
industrial concerns and had been paying the shares of its
profits for some months, but that it stopped paying it
because it had to wait for the new board of directors and (b)
the complaint states no cause of action.

On 10 December 1980, respondent Court issued a writ of


preliminary attachment.10
On 7 January 1981, Consuelo, assisted by her husband
Ramon, also filed a complaint11 for Sum of Money and
Damages with Preliminary Attachment against DIMCONTRAD
in the abovenamed court which docketed it as Civil Case No.
D-5408. She alleges therein the dates when she made her
investments, attaching thereto the official receipts,
instruction slips and promissory notes issued by
DIMCONTRAD, and the latters failure and refusal to return
the investments pursuant to the promissory notes and pay
the guaranteed profits. In support of her application for
preliminary attachment, she alleges:
xxx
10. That there exists a prima facie evidence (sic) that
defendant employed fraudulent means to induce the plaintiff
to make her investments as can be gleaned from the
following circumstances, to wit:
(a) defendant suddenly closed and abandoned its branch
offices in Dagupan City and Urdaneta, Pangasinan shortly
after the maturity of plaintiffs first investment;
(b) defendant abandoned and closed its restaurant and disco
business in Dagupan City shortly after closing its branch
offices in Pangasinan;
(c) defendants principal officers can no longer be located at
its principal office in Baguio City where they ought to be
found under normal circumstances; and
(d) there are other numerous investors of defendant whose
large investments have matured, but remained outstanding
and unpaid until the present and have likewise filed their
claims in court;
11. That defendant is about to dispose of its properties,
particularly the following:
xxx
with the intention of defrauding its creditors, x x x.
In both complaints, the petitioners pray for: (a) the return of
their investments, with legal interest thereon, (b) payment of
the unpaid guaranteed monthly profits, (c) attorneys fees,

and (d) miscellaneous litigation expenses. In Civil Case No. D5216, petitioner Ramon Abad further asks for moral and
exemplary damages.
On 2 March 1981, defendant in Civil Case No. D-5408 filed an
Omnibus motion to: (1) annul all proceedings, (2) lift and
dissolve all attachments, levies or executions, and (3) dismiss
all cases. A similar motion was filed in Civil Case No. D-5216
on 30 January 1981.12 The principal ground alleged in
support of the motion to dismiss is lack of jurisdiction on the
part of the trial court. DIMCONTRAD maintains that SEC has
jurisdiction over the claims of petitioners pursuant to Section
5(a) of P.D. No. 902-A, as amended.
The respondent Court thereafter promulgated two (2) orders,
one on 25 May 1981 (Civil Case No. D-5408) and the other on
27 May 1981 (Civil Case No. D-5216) dismissing the said
cases on the ground that since the plaintiffs therein allege
fraud in the acquisition of investments, the matter falls within
the jurisdiction of the SEC.13
Petitioners then jointly moved for a reconsideration of the
said Orders14 on 22 June 1981 which the respondent Court
denied in its Order15 of 12 October 1981, ruling therein that:
x x x From the very allegations of the complaint, the
plaintiffs admit having made investments at different times,
different sums of money, with the defendant corporation at a
fixed return of investment. In his (sic) motion and rejoinder,
plaintiffs, thru counsel, alleged that plaintiffs are collecting
their investments from the defendant corporation at the
agreed rate of interest. But the plaintiffs can not now
abandon the allegations of the complaint in which they
stated several times in different paragraphs that they made
investments of different amounts at different times with the
defendant which they admit is a private corporation duly
organized and existing in accordance with the laws of the
Philippines duly registered with the Securities and Exchange
Commission, further alleging in par. 10 of the complaint that
there exists prima facie evidence that defendant employed
fraudulent means to induce the plaintiffs to make
investments. (p. 4, par. 10, Complaint).

Verily, this Court believes that, as already discussed in the


order of May 27, 1981, the Securities and Exchange
Commission (SEC) has the jurisdiction in view of
subparagraphs (a) and (b) of Section 5 of PD No. 902-A
reorganizing said commission and giving it additional
powers.
From this dismissal, the petitioners filed the present petition
on 23 September 1981. On 18 January 1982, this Court
resolved to require the respondents to comment on the
petition,16 which they complied with. Petitioners filed a Reply
thereto.
In the Resolution of 1 December 1982,17 this Court resolved
to: (a) give due course to the petition; (b) consider
respondents Comment as the Answer to the petition; (c)
require the parties to file simultaneous Memoranda within
twenty (20) days from notice; and (d) require the SEC to act
as amicus curiae in this case and submit a Memorandum
within twenty (20) days from notice.
The parties submitted their Memoranda. The SEC, as amicus
curiae, filed its Memorandum on 9 April 1983;18 it submits
therein that it has the exclusive and original jurisdiction over
Civil Cases Nos. D-5216 and D-5408 filed in the court below
and subject of the instant petition considering that the
petitioners allege as common ground for their complaints
private respondents purported deception, unfair business
practices, fraudulent schemes and devices as means to
induce the former to make the corresponding investments,
which fall under paragraph (a) of Section 5, P.D. No. 902-A, as
amended. If further informed this Court that private
respondent was earlier investigated by the SEC, in the
process of which the latters officers, members of the board
of directors, agents, solicitors, representatives, employees
and other persons acting in their behalf were enjoined from
selling, soliciting, as well as offering investment contracts to
the public and from receiving monetary deposits or payments
in connection therewith. Moreover, respondent corporation
was directed to show cause why its corporate franchise or
certificate of registration should not be suspended or
revoked. The SEC had likewise initiated the filing of separate

criminal cases against respondent corporation in the Court of


First Instance of Pampanga.
Essential to the resolution of the present controversy is
Section 5 of P.D. No. 902-A, as amended, which provides:
SECTION 5. In addition to the regulatory and adjudicative
functions of the Securities and Exchange Commission over
corporations, partnerships and other forms of associations
registered with it as expressly granted under existing laws
and decrees, it shall have original and exclusive jurisdiction
to hear and decide cases involving:
(a) Devices or schemes employed by or any acts, of the
board of directors, business associates, its officers or
partners, amounting to fraud and misrepresentation which
may be detrimental to the interest of the public and/or of the
stockholders, partners, members of associations or
organizations registered with the Commission.
(b) Controversies arising out of intra-corporate or partnership
relations, between and among stockholders, members, or
associates; between any or all of them and the corporation,
partnership or association of which they are stockholders,
members or associates, respectively; and between such
corporation, partnership or association and the state insofar
as it concerns their individual franchise or right to exist as
such entity;
(c) Controversies in the election or appointments of directors,
trustees, officers or managers of such corporations,
partnerships or associations.
(d) Petitions of corporations, partnerships or associations to
be declared in the state of suspension of payments in cases
where the corporation, partnership or association possesses
sufficient property to cover all its debts but foresees the
impossibility of meeting them when they respectively fall due
or in cases where the corporation, partnership or association
has no sufficient assets to cover its liabilities, but is under the
management of a Rehabilitation Receiver or Management
Committee created pursuant to this Decree. (As added by
P.D. 1758).
Petitioners maintain that:

I
CIVIL CASES NOS. D-5216 AND D-5408 INVOLVE THE
COLLECTION OF SUMS OF MONEY ARISING FROM
CONTRACTUAL RELATIONSHIP (sic), AND THEREFORE,
PARTAKE THE NATURE (sic) OF ACTIONS FOR SPECIFIC
PERFORMANCE WHICH FALL WITHIN THE ORIGINAL
EXCLUSIVE JURISDICTION OF THE COURT OF FIRST INSTANCE
(NOW REGIONAL TRIAL COURTS); and
II
THE PROVISIONS OF PRESIDENTIAL DECREE NO. 902-A DO
NOT APPLY TO THE CASES AT BAR.
They submit that the actions filed before the court a quo are
for specific performance because their principal purpose is to
seek the refund of the amounts that were invested, together
with the unpaid earnings thereof pursuant to the contracts
entered into; petitioners aver that such actions, incapable of
pecuniary estimation, fall within the jurisdiction of the
respondent Court.
In support of their arguments, petitioners point to the
allegations in the complaints filed with the trial court which
readily reveal that plaintiffs therein are seeking full and
faithful compliance by defendant therein with its
commitments to the former, namely, the refund of the entire
investments and the payments of the outstanding and
unpaid earnings thereof as stipulated in the investment
contracts.19 While conceding that the complaints allege
fraud, even going as far as specifying the paragraphs
containing the said averments, petitioners stress that these
allegations do not alter the nature of the actions as the same
are mere incidents to the contracts of investment sought to
be enforced. The same do not refer to the schemes or
devices used or employed by private respondent in its
business in general, but to specific acts committed by the
latter against the petitioners. Moreover, such allegations
were made to substantiate petitioners claim for damages
and bolster the prayer for preliminary attachment.

Petitioners further claim that the dispute between the parties


does not involve an intra-corporate controversy as nowhere
in the various documents evidencing the investments of the
petitioners is it provided that the latter would automatically
become stockholders of the respondent corporation upon
execution thereof. Thus, the SEC cannot exercise jurisdiction
over the case. Reliance is placed on the leading case of
Sunset View Condominium Corp v. Campos20 wherein the
jurisdiction of the regular courts was upheld in a collection
case as the same did not arise out of an intra-corporate
controversy pursuant to Section 5(b) of P.D. No. 902-A.
We find the petition to be impressed with merit. Respondent
Judge committed grave abuse of discretion in dismissing Civil
Cases Nos. D-5216 and D-5408.
This is the second time that the matter of investments in the
respondent corporation of a nature similar to those involved
in the two (2) civil cases in question has been brought to this
Court. We were confronted by the same issue of jurisdiction
in Baez vs. Dimensional Construction Trade & Development
Corporation.21 In the said case, this Court, in upholding the
jurisdiction of the regular court over a controversy involving
promissory notes issued by the private respondent herein
and similar to those involved here, held that:
The recitals of the complaint in Civil Case No. 3569 disclose
that plaintiffs cause of action is merely for the collection of
the various sums of money that have already become
payable to petitioners due to the promissory notes executed
by defendant corporation which have already matured. There
is no allegation nor any mention whatsoever in plaintiffs
complaint that a device or scheme was resorted to by private
respondent
corporation
amounting
to
fraud
and
misrepresentation. It is, therefore, difficult to consider that
petitioners case falls within the jurisdiction of the Securities
and Exchange Commission pursuant to PD 902-A. x x x
xxx
In the promissory notes issued by private respondent
corporation, it is clearly indicated therein that the sums of
money received by private respondent were in the nature of

investments of the petitioners, agreed upon by the parties to


be returned by the corporation upon the maturity of said
promissory notes. As the money received by private
respondent do (sic) not constitute payment of subscription of
shares, the petitioners herein did not become members of
respondent Dimensional Trade and Development Corporation.
In the case of Sunset View Condominium Corporation vs.
Hon. Jose C. Campos, Jr., et al., 104 SCRA 295, it was ruled
that where the stated party-litigants are not shareholders of
the condominium corporation, the instant cases for collection
cannot be a controversy arising out of intra-corporate or
partnership relations between and among stockholders,
members or associates .
In the Baez case, the DIMCONTRAD issued the questioned
promissory notes in favor of the petitioner therein at around
the same time that it issued the notes in favor of the
petitioners in the instant case.
We cannot now decide differently in the case at bar. There
can be no doubt that no intra-corporate dispute is involved
because petitioners herein are neither actual nor prospective
shareholders of DIMCONTRAD. They are merely its creditors.
DIMCONTRAD, the respondent Judge and even the SEC, in the
latters Memorandum as amicus curiae, hold the view,
however, that there are allegations in the complaint which
bring the cases within the ambit of paragraph (a) of Section
5, P.D. No. 902-A, as amended. They particularly refer to
paragraphs 15 and 17 of the complaint in Civil Case No. D5216 and paragraph 10 of the complaint in Civil Case No.
5408, earlier quoted.
From said paragraphs, they conclude that the complaints
involve or relate to alleged devices or schemes employed by
DIMCONTRAD, its board of directors or officers amounting to
fraud and misrepresentation. We have carefully read and
scrutinized the complaints and We find nothing therein to
sustain such a conclusion. Petitioners do not even allege
therein that the call for investments, the instruction slips and
the promissory notes were nothing but part of a scheme to
defraud the investing public. The paragraphs preceding the
aforementioned paragraphs 15, 17 and 10 do not allege any

fraudulent scheme. They merely allege the investments


made, the issuance by DIMCONTRAD of the official receipts,
instruction slips and promissory notes, the months it failed to
pay the guaranteed shares in profits and its failure to pay the
promissory notes upon maturity. Paragraphs 15 and 17 are
nothing but conclusions of law to support the claims for
moral and exemplary damages and attorneys fees.
Paragraph 10 is intended to lay the basis for the issuance of
a writ of preliminary attachment and relates to acts allegedly
committed after the investments were made.
It is axiomatic that the averments of the complaint determine
the nature of the action, and consequently, the jurisdiction of
the courts.22 This is because the complaint must contain a
concise statement of the ultimate facts constituting the
plaintiffs cause of action and must specify the relief
sought.23 No rule is better established than that which
requires the complaint to contain a statement of all the facts
constituting the plaintiffs cause of action.24 Additionally,
Section 5, Rule 8 of the Rules of Court provides that in all
averments of fraud or mistake, the circumstances
constituting fraud or mistake must be stated with
particularity. In the case at bar, while there are allegations of
fraud in the above quoted complaints, the same are not
particular enough to bring the controversy within the SECs
jurisdiction. The said allegations are not statements of
ultimate facts but are mere conclusions of law.
A pleading should state the ultimate facts essential to the
rights of action or defense asserted, as distinguished from
mere conclusions of fact, or conclusions of law.25 General
allegations that a contract is valid or legal, or is just, fair and
reasonable, are mere conclusions of law. Likewise, allegations
that a contract is void, voidable, invalid, illegal, ultra vires, or
against public policy, without stating facts showing its
invalidity, are mere conclusions of law.26
Clearly, therefore, the allegations in the complaint do not
bring the cases within the jurisdiction of the SEC. Shorn of
unnecessary details, it is evident that the actions are simple
money claims.

In Union Glass & Container Corporation vs. Securities and


Exchange Commission,27 We held that:
This grant of jurisdiction (under Section 5 of PD 902-A) must
be viewed in the light of the nature and function of the SEC
under the law. Section 3 of PD No. 902-A confers upon the
latter absolute jurisdiction, supervision, and control over all
corporations, partnerships or associations, who are grantees
of primary franchise and/or license or permit issued by the
government to operate in the Philippines x x x. The principal
function of the SEC is the supervision and control over
corporations, partnerships and associations with the end in
view that investment in these entities may be encouraged
and protected, and their activities pursued for the promotion
of economic development. (Vide, Whereas Clauses of P.D.
902-A).
It is in aid of this office that the adjudicative power of the SEC
must be exercised. Thus the law explicitly specified and
delimited its jurisdiction to matters intrinsically connected
with the regulation of corporations, partnerships and
associations and those dealing with the internal affairs of
such corporations, partnerships or associations.
Otherwise stated, in order that the SEC can take cognizance
of a case, the controversy must pertain to any of the
following relationships: [a] between the corporation,
partnership or association and the public; [b] between the
corporation, partnership or association and its stockholders,
partners, members, or officers; [c] between the corporation,
partnership or association and the state in so far as its
franchise, permit or license to operate is concerned; and [d]
among the stockholders, partners or associates themselves.
WHEREFORE, the instant petition is GRANTED. The
questioned ORDERS of the respondent Court dated 25 May
1981, 27 May 1981 and 12 October 1981 are hereby
REVERSED and SET ASIDE. The respondent Court is hereby
directed to take cognizance of and hear and decide Civil
Cases Nos. D-5216 and D-5408.
IT IS SO ORDERED.
Gutierrez, Jr., Feliciano, Bidin and Romero, JJ., concur.

Petition granted; orders reversed and set aside.


Note.Securities and Exchange Commission has jurisdiction
over intracorporate controversy (Zamora vs. Court of
Appeals, 183 SCRA 279). [Abad vs. CFI of Pangasinan, Br. VIII,
206 SCRA 567(1992)]

COMMUNICATION MATERIALS AND DESIGN, INC., ASPAC


MULTI-TRADE, INC., (formerly ASPAC-ITEC PHILIPPINES, INC.)
and FRANCISCO S. AGUIRRE, petitioners, vs. THE COURT OF
APPEALS, ITEC INTERNATIONAL, INC., and ITEC, INC.,
respondents.
Corporations; Foreign Corporations; Actions; Conflict of Laws;
Generally, a foreign corporation has no legal existence
within the state in which it is foreign, and this proceeds from
the principle that juridical existence of a corporation is
confined within the territory of the state under whose laws it
was incorporated and organized, and it has no legal status
beyond such territory.Generally, a foreign corporation has
no legal existence within the state in which it is foreign. This
proceeds from the principle that juridical existence of a
corporation is confined within the territory of the state under
whose laws it was incorporated and organized, and it has no
legal status beyond such territory. Such foreign corporation
may be excluded by any other state from doing business
within its limits, or conditions may be imposed on the
exercise of such privileges. Before a foreign corporation can
transact business in this country, it must first obtain a license
to transact business in the Philippines, and a certificate from
the appropriate government agency. If it transacts business
in the Philippines without such a license, it shall not be
permitted to maintain or intervene in any action, suit, or
proceeding in any court or administrative agency of the
Philippines, but it may be sued on any valid cause of action
recognized under Philippine laws.
Same; Same; Same; The purpose of the law in requiring that
foreign corporations doing business in the Philippines be
licensed to do so and that they appoint an agent for service
of process is to subject the foreign corporation doing
business in the Philippines to the jurisdiction of its courts.
The purpose of the law in requiring that foreign corporations
doing business in the Philippines be licensed to do so and
that they appoint an agent for service of process is to subject
the foreign corporation doing business in the Philippines to

the jurisdiction of its courts. The object is 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 steps necessary to render it
amenable to suit in the local courts. The implication of the
law is that it was never the purpose of the legislature to
exclude a foreign corporation which happens to obtain an
isolated order for business from the Philippines, and thus, in
effect, to permit persons to avoid their contracts made with
such foreign corporations.
Same; Same; Same; Words and Phrases; The true test as to
what constitutes doing or engaging or transacting
business seems to be whether the foreign corporation is
continuing the body or substance of the business or
enterprise for which it was organized. There is no exact rule
or governing principle as to what constitutes doing or
engaging or transacting business. Indeed, such case
must be judged in the light of its peculiar circumstances,
upon its peculiar facts and upon the language of the statute
applicable. The true test, however, seems to be whether the
foreign corporation is continuing the body or substance of the
business or enterprise for which it was organized.
Same; Same; Same; In determining whether a corporation
does business in the Philippines or not, aside from their
activities within the forum, reference may be made to the
contractual agreements entered into by it with other entities
in the country.In determining whether a corporation does
business in the Philippines or not, aside from their activities
within the forum, reference may be made to the contractual
agreements entered into by it with other entities in the
country. Thus, in the Top-Weld case (supra), the foreign
corporations LICENSE AND TECHNICAL AGREEMENT and
DISTRIBUTOR AGREEMENT with their local contacts were
made the basis of their being regarded by this Tribunal as
corporations doing business in the country. Likewise, in Merill
Lynch Futures, Inc. vs. Court of Appeals, etc. the FUTURES
CONTRACT entered into by the petitioner foreign corporation
weighed heavily in the courts ruling.

Same; Same; Same; A foreign corporation is deemed to have


been engaged in or doing business in the Philippines
where its arrangements with its Philippine business contacts
indicate convincingly its purpose to bring about the situation
among its customers and the general public that they are
dealing directly with it and that it is actively engaging in
business in the country.With the above-stated precedents
in mind, we are persuaded to conclude that private
respondent had been engaged in or doing business in the
Philippines for some time now. This is the inevitable result
after a scrutiny of the different contracts and agreements
entered into by ITEC with its various business contacts in the
country, particularly ASPAC and Telephone Equipment Sales
and Services, Inc. (TESSI, for brevity). The latter is a local
electronics firm engaged by ITEC to be its local technical
representative, and to create a service center for ITEC
products sold locally. Its arrangements, with these entities
indicate convincingly ITECs purpose to bring about the
situation among its customers and the general public that
they are dealing directly with ITEC, and that ITEC is actively
engaging in business in the country.
Same; Same; Same; Estoppel; A party is estopped to
challenge the personality of a corporation after having
acknowledged the same by entering into a contract with it.
Notwithstanding such finding that ITEC is doing business in
the country, petitioner is nonetheless estopped from raising
this fact to bar ITEC from instituting this injunction case
against it. A foreign corporation doing business in the
Philippines may sue in Philippine Courts although not
authorized to do business here against a Philippine citizen or
entity who had contracted with and benefited by said
corporation. To put it in another way, a party is estopped to
challenge the personality of a corporation after having
acknowledged the same by entering into a contract with it.
And the doctrine of estoppel to deny corporate existence
applies to a foreign as well as to domestic corporations. One
who has dealt with a corporation of foreign origin as a
corporate entity is estopped to deny its corporate existence
and capacity. The principle will be applied to prevent a

person contracting with a foreign corporation from later


taking advantage of its noncompliance with the statutes
chiefly in cases where such person has received the benefits
of the contract.
Same; Same; Same; Same; Each party to a corporate
transaction is expected to act with utmost candor and
fairness and, thereby allow a reasonable proportion between
benefits and expected burdens, a norm which should be
observed where one or the other is a foreign entity venturing
in a global market.Concededly, corporations act through
agents like directors and officers. Corporate dealings must be
characterized by utmost good faith and fairness.
Corporations cannot just feign ignorance of the legal rules as
in most cases, they are manned by sophisticated officers with
tried management skills and legal experts with practiced eye
on legal problems. Each party to a corporate transaction is
expected to act with utmost candor and fairness and, thereby
allow a reasonable proportion between benefits and expected
burdens. This is a norm which should be observed where one
or the other is a foreign entity venturing in a global market.
Same; Same; Same; Conflict of Laws; The parties are charged
with knowledge of the existing law at the time they enter into
a contract and at the time it is to become operativeand, a
person is presumed to be more knowledgeable about his own
state law than his alien or foreign contemporary.The parties
are charged with knowledge of the existing law at the time
they enter into a contract and at the time it is to become
operative. (Twiehaus v. Rosner, 245 SW 2d 107; Hall v.
Bucher, 227 SW 2d 98). Moreover, a person is presumed to
be more knowledgeable about his own state law than his
alien or foreign contemporary. In this case, the record shows
that, at least, petitioner had actual knowledge of the
applicability of R.A. No. 5455 at the time the contract was
executed and at all times thereafter. This conclusion is
compelled by the fact that the same statute is now being
propounded by the petitioner to bolster its claim.
Same; Same; Same; Equity; Pari Delicto; Where the parties
are equally guilty of violating the law, they are in pari delicto,
in which case it follows as a consequence that petitioner is

not entitled to the relief prayed for.The very purpose of the


law was circumvented and evaded when the petitioner
entered into said agreements despite the prohibition of R.A.
No. 5455. The parties in this case being equally guilty of
violating R.A. No. 5455, they are in pari delicto, in which case
it follows as a consequence that petitioner is not entitled to
the relief prayed for in this case.
Same; Same; Same; The doctrine of lack of capacity to sue
based on the failure to acquire a local license was never
intended to favor domestic corporations who enter into
solitary transactions with unwary foreign firms and then
repudiate their obligations simply because the latter are not
licensed to do business in this country. The doctrine of lack
of capacity to sue based on the failure to acquire a local
license is based on considerations of sound public policy. The
license requirement was imposed to subject the foreign
corporation doing business in the Philippines to the
jurisdiction of its courts. It was never intended to favor
domestic corporations who enter into solitary transactions
with unwary foreign firms and then repudiate their
obligations simply because the latter are not licensed to do
business in this country.
Same; Same; Same; A foreign corporation may be exempted
from the license requirement in order to institute an action in
our courts if its representative in the country maintained an
independent status during the existence of the disputed
contract.In Top-Weld, we ruled that a foreign corporation
may be exempted from the license requirement in order to
institute an action in our courts if its representative in the
country maintained an independent status during the
existence of the disputed contract. Petitioner is deemed to
have acceded to such independent character when it entered
into the Representative Agreement with ITEC, particularly,
provision 6.2 (supra).
Same; Same; Same; Conflict of Laws; Forum Non Conveniens;
After having acquired jurisdiction over a plaintiff foreign
corporation by virtue of the filing of the original complaint,
the Philippine court now has the discretion, based on the
facts of the case, to either give due course to the suit or

dismiss it, on the principle of forum non conveniens.Thus,


having acquired jurisdiction, it is now for the Philippine Court,
based on the facts of the case, whether to give due course to
the suit or dismiss it, on the principle of forum non
conveniens. Hence, the Philippine Court may refuse to
assume jurisdiction in spite of its having acquired jurisdiction.
Conversely, the court may assume jurisdiction over the case
if it chooses to do so; provided, that the following requisites
are met: 1) That the Philippine Court is one to which the
parties may conveniently resort to; 2) That the Philippine
Court is in a position to make an intelligent decision as to the
law and the facts; and, 3) That the Philippine Court has or is
likely to have power to enforce its decision.
PETITION for review on certiorari of a decision of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Reynaldo A. Dario for petitioners.
Oreta & Berenguer for private respondents.
TORRES, JR., J.:
Business Corporations, according to Lord Coke, have no
souls. They do business peddling goods, wares or even
services across national boundaries in souless forms in
quest for profits albeit at times, unwelcomed in these strange
lands venturing into uncertain markets and, the risk of
dealing with wily competitors.
This is one of the issues in the case at bar.
Contested in this petition for review on Certiorari is the
Decision of the Court of Appeals on June 7, 1991, sustaining
the RTC Order dated February 22, 1991, denying the
petitioners Motion to Dismiss, and directing the issuance of a
writ of preliminary injunction, and its companion Resolution
of October 9, 1991, denying the petitioners Motion for
Reconsideration.
Petitioners COMMUNICATION MATERIALS AND DESIGN, INC.,
(CMDI, for brevity) and ASPAC MULTI-TRADE, INC., (CASPAC,
for brevity) are both domestic corporations, while petitioner

Francisco S. Aguirre is their President and majority


stockholder. Private Respondents ITEC, INC. and/or ITEC,
INTERNATIONAL, INC. (ITEC, for brevity) are corporations duly
organized and existing under the laws of the State of
Alabama, United States of America. There is no dispute that
ITEC is a foreign corporation not licensed to do business in
the Philippines.
On August 14, 1987, ITEC entered into a contract with
petitioner
ASPAC
referred
to
as
Representative
Agreement.1
Pursuant to the contract, ITEC engaged ASPAC as its
exclusive representative in the Philippines for the sale of
ITECs products, in consideration of which, ASPAC was paid a
stipulated commission. The agreement was signed by G.A.
Clark and Francisco S. Aguirre, presidents of ITEC and ASPAC
respectively, for and in behalf of their companies.2 The said
agreement was initially for a term of twenty-four months.
After the lapse of the agreed period, the agreement was
renewed for another twenty-four months.
Through a License Agreement3 entered into by the same
parties on November 10, 1988, ASPAC was able to
incorporate and use the name ITEC in its own name. Thus,
ASPAC Multi-Trade, Inc. became legally and publicly known as
AS-PAC-ITEC (Philippines).
By virtue of said contracts, ASPAC sold electronic products,
exported by ITEC, to their sole customer, the Philippine Long
Distance Telephone Company, (PLDT, for brevity).
To facilitate their transactions, ASPAC, dealing under its new
appellation, and PLDT executed a document entitled PLDTASPAC/ITEC PROTOCOL4 which defined the project details for
the supply of ITECs Interface Equipment in connection with
the Fifth Expansion Program of PLDT.
One year into the second term of the parties Representative
Agreement, ITEC decided to terminate the same, because
petitioner
ASPAC
allegedly
violated
its
contractual
commitment as stipulated in their agreements.5
ITEC charges the petitioners and another Philippine
Corporation, DIGITAL BASE COMMUNICATIONS, INC. (DIGITAL,

for brevity), the President of which is likewise petitioner


Aguirre, of using knowledge and information of ITECs
products specifications to develop their own line of
equipment and product support, which are similar, if not
identical to ITECs own, and offering them to ITECS former
customer.
On January 31, 1991, the complaint6 in Civil Case No. 91294, was filed with the Regional Trial Court of Makati, Branch
134 by ITEC, INC. Plaintiff sought to enjoin, first, preliminarily
and then, after trial, permanently; (1) defendants DIGITAL,
CMDI, and Francisco Aguirre and their agents and business
associates, to cease and desist from selling or attempting to
sell to PLDT and to any other party, products which have
been copied or manufactured in like manner, similar or
identical to the products, wares and equipment of plaintiff,
and (2) defendant ASPAC, to cease and desist from using in
its corporate name, letter heads, envelopes, sign boards and
business dealings, plaintiffs trademark, internationally
known as ITEC; and the recovery from defendants in solidum,
damages of at least P500,000.00, attorneys fees and
litigation expenses.
In due time, defendants filed a motion to dismiss7 the
complaint on the following grounds: (1) That plaintiff has no
legal capacity to sue as it is a foreign corporation doing
business in the Philippines without the required BOI authority
and SEC license, and (2) that plaintiff is simply engaged in
forum shopping which justifies the application against it of
the principle of forum non conveniens.
On February 8, 1991, the complaint was amended by virtue
of which ITEC INTERNATIONAL, INC. was substituted as
plaintiff instead of ITEC, INC.8
In their Supplemental Motion to Dismiss,9 defendants took
note of the amendment of the complaint and asked the court
to consider in toto their motion to dismiss and their
supplemental motion as their answer to the amended
complaint.
After conducting hearings on the prayer for preliminary
injunction, the court a quo on February 22, 1991, issued its

Order:10 (1) denying the motion to dismiss for being devoid


of legal merit with a rejection of both grounds relied upon by
the defendants in their motion to dismiss, and (2) directing
the issuance of a writ of preliminary injunction on the same
day.
From the foregoing order, petitioners elevated the case to the
respondent Court of Appeals on a Petition for Certiorari and
Prohibition11 under Rule 65 of the Revised Rules of Court,
assailing and seeking the nullification and the setting aside of
the Order and the Writ of Preliminary Injunction issued by the
Regional Trial Court.
The respondent appellate court stated, thus:
We find no reason whether in law or from the facts of record,
to disagree with the (lower courts) ruling. We therefore are
unable to find in respondent Judges issuance of said writ the
grave abuse of discretion ascribed thereto by the petitioners.
In fine, We find that the petition prima facie does not show
that Certiorari lies in the present case and therefore, the
petition does not deserve to be given due course.
WHEREFORE, the present petition should be, as it is hereby,
denied due course and accordingly, is hereby dismissed.
Costs against the petitioners.
SO ORDERED.12
Petitioners filed a motion for reconsideration13 on June 7,
1991, which was likewise denied by the respondent court.
WHEREFORE, the present motion for reconsideration should
be, as it is hereby, denied for lack of merit. For the same
reason, the motion to have the motion for reconsideration set
for oral argument likewise should be and is hereby denied.
SO ORDERED.14
Petitioners are now before us via Petition for Review on
Certiorari15 under Rule 45 of the Revised Rules of Court.
It is the petitioners submission that private respondents are
foreign corporations actually doing business in the Philippines
without the requisite authority and license from the Board of
Investments and the Securities and Exchange Commission,
and thus, disqualified from instituting the present action in
our courts. It is their contention that the provisions of the

Representative Agreement, petitioner ASPAC executed with


private respondent ITEC, are similarly highly restrictive in
nature as those found in the agreements which confronted
the Court in the case of Top-Weld Manufacturing, Inc. vs.
ECED S.A., et al.,16 as to reduce petitioner ASPAC to a mere
conduit or extension of private respondents in the
Philippines.
In that case, we ruled that respondent foreign corporations
are doing business in the Philippines because when the
respondents entered into the disputed contracts with the
petitioner, they were carrying out the purposes for which
they were created, i.e., to manufacture and market welding
products and equipment. The terms and conditions of the
contracts as well as the respondents conduct indicate that
they established within our country a continuous business,
and not merely one of a temporary character. The
respondents could be exempted from the requirements of
Republic Act 5455 if the petitioner is an independent entity
which buys and distributes products not only of the
petitioner, but also of other manufacturers or transacts
business in its name and for its account and not in the name
or for the account of the foreign principal. A reading of the
agreements between the petitioner and the respondents
shows that they are highly restrictive in nature, thus making
the petitioner a mere conduit or extension of the
respondents.
It is alleged that certain provisions of the Representative
Agreement executed by the parties are similar to those
found in the License Agreement of the parties in the Top-Weld
case which were considered as highly restrictive by this
Court. The provisions in point are:
2.0 Terms and Conditions of Sales.
2.1 Sale of ITEC products shall be at the purchase price set
by ITEC from time to time. Unless otherwise expressly agreed
to in writing by ITEC the purchase price is net to ITEC and
does not include any transportation charges, import charges
or taxes into or within the Territory. All orders from customers
are subject to formal acceptance by ITEC at its Huntsville,
Alabama U.S.A. facility.

xxx
3.0 Duties of Representative
3.1. REPRESENTATIVE SHALL:
3.1.1. Not represent or offer for sale within the Territory any
product which competes with an existing ITEC product or any
product which ITEC has under active development.
3.1.2. Actively solicit all potential customers within the
Territory in a systematic and businesslike manner.
3.1.3. Inform ITEC of all request for proposals, requests for
bids, invitations to bid and the like within the Territory.
3.1.4. Attain the Annual Sales Goal for the Territory
established by ITEC. The Sales Goals for the first 24 months
is set forth on Attachment two (2) hereto. The Sales Goal for
additional twelve month periods, if any, shall be sent to the
Sales Agent by ITEC at the beginning of each period. These
Sales Goals shall be incorporated into this Agreement and
made a part hereof.
xxx
6.0. Representative as Independent Contractor
xxx
6.2. When acting under this Agreement REPRESENTATIVE is
authorized to solicit sales within the Territory on ITECS behalf
but is authorized to bind ITEC only in its capacity as
Representative and no other, and then only to specific
customers and on terms and conditions expressly authorized
by ITEC in writing.17
Aside from the abovestated provisions, petitioners point out
the following matters of record, which allegedly bear witness
to the respondents activities within the Philippines in pursuit
of their business dealings:
a. While petitioner ASPAC was the authorized exclusive
representative for three (3) years, it solicited from and closed
several sales for and on behalf of private respondents as to
their products only and no other, to PLDT, worth no less than
US $15 Million (p. 20, tsn, Feb. 18, 1991);
b. Contract No. 1 (Exhibit for Petitioners) which covered these
sales and identified by private respondents sole witness, Mr.

Clarence Long, is not in the name of petitioner ASPAC as such


representative, but in the name of private respondent ITEC,
INC. (p. 20, tsn, Feb. 18, 1991);
c. The document denominated as PLDT-ASPAC/ITEC
PROTOCOL (Annex C of the original and amended
complaints) which defined the responsibilities of the parties
thereto as to the supply, installation and maintenance of the
ITEC equipment sold under said Contract No. 1 is, as its very
title indicates, in the names jointly of the petitioner ASPAC
and private respondents;
d. To evidence receipt of the purchase price of US $15 Million,
private respondent ITEC, Inc. issued in its letter head, a
Confirmation of payment dated November 13, 1989 and its
Invoice dated November 22, 1989 (Annexes 1 and 2 of the
Motion to Dismiss and marked as Exhibits 2 and 3 for the
petitioners), both of which were identified by private
respondents sole witness, Mr. Clarence Long (pp. 25-27, tsn,
Feb. 18, 1991).18
Petitioners contend that the above acts or activities belie the
supposed independence of petitioner ASPAC from private
respondents. The unrebutted evidence on record below for
the petitioners likewise reveal the continuous character of
doing business in the Philippines by private respondents
based on the standards laid down by this Court in Wang
Laboratories, Inc. vs. Hon. Rafael T. Mendoza, et al.19 and
again in TOP-WELD. (supra) It thus appears that as the
respondent Court of Appeals and the trial courts failure to
give credence on the grounds relied upon in support of their
Motion to Dismiss that petitioners ascribe grave abuse of
discretion amounting to an excess of jurisdiction of said
courts.
Petitioners likewise argue that since private respondents
have no capacity to bring suit here, the Philippines is not the
most convenient forum because the trial court is devoid of
any power to enforce its orders issued or decisions rendered
in a case that could not have been commenced to begin with,
such that in insisting to assume and exercise jurisdiction over
the case below, the trial court had gravely abused its
discretion and even actually exceeded its jurisdiction.

As against petitioners insistence that private respondent is


doing business in the Philippines, the latter maintains that
it is not.
We can discern from a reading of Section 1 (f) (1) and 1 (f)
(2) of the Rules and Regulations Implementing the Omnibus
Investments Code of 1987, the following:
(1) A foreign firm is deemed not engaged in business in the
Philippines if it transacts business through middlemen, acting
in their own names, such as indebtors, commercial bookers
or commercial merchants.
(2) A foreign corporation is deemed not doing business if
its representative domiciled in the Philippines has an
independent status in that it transacts business in its name
and for its account.20
Private respondent argues that a scrutiny of its
Representative Agreement with the Petitioners will show that
although ASPAC was named as representative of ITEC, ASPAC
actually acted in its own name and for its own account. The
following provisions are particularly mentioned:
3.1.7.1. In the event that REPRESENTATIVE imports directly
from ITEC, REPRESENTATIVE will pay for its own account; all
customs duties and import fees imposed on any ITEC
products; all import expediting or handling charges and
expenses imposed on ITEC products; and any stamp tax fees
imposed on ITEC.
xxx
4.1. As complete consideration and payment for acting as
representative under this Agreement, REPRESENTATIVE shall
receive a sales commission equivalent to a percentum of the
FOB value of all ITEC equipment sold to customers within the
territory as a direct result of REPRESENTATIVEs sales
efforts.21
More importantly, private respondent charges ASPAC of
admitting its independence from ITEC by entering and
ascribing to provision No. 6 of the Representative Agreement.
6.0. Representative as Independent Contractor
6.1. When performing any of its duties under this Agreement,
REPRESENTATIVE shall act as an independent contractor and

not as an employee, worker, laborer, partner, joint venturer


of ITEC as these terms are defined by the laws, regulations,
decrees or the like of any jurisdiction, including the
jurisdiction of the United States, the state of Alabama and
the Territory.22
Although it admits that the Representative Agreement
contains provisions which both support and belie the
independence of ASPAC, private respondent echoes the
respondent courts finding that the lower court did not
commit grave abuse of discretion nor acted in excess of
jurisdiction when it found that the ground relied upon by the
petitioners in their motion to dismiss does not appear to be
indubitable.23
The issues before us now are whether or not private
respondent ITEC is an unlicensed corporation doing business
in the Philippines, and if it is, whether or not this fact bars it
from invoking the injunctive authority of our courts.
Considering the above, it is necessary to state what is meant
by doing business in the Philippines. Section 133 of the
Corporation Code, provides that 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.24
Generally, a foreign corporation has no legal existence
within the state in which it is foreign. This proceeds from the
principle that juridical existence of a corporation is confined
within the territory of the state under whose laws it was
incorporated and organized, and it has no legal status
beyond such territory. Such foreign corporation may be
excluded by any other state from doing business within its
limits, or conditions may be imposed on the exercise of such
privileges.25 Before a foreign corporation can transact
business in this country, it must first obtain a license to
transact business in the Philippines, and a certificate from
the appropriate government agency. If it transacts business

in the Philippines without such a license, it shall not be


permitted to maintain or intervene in any action, suit, or
proceeding in any court or administrative agency of the
Philippines, but it may be sued on any valid cause of action
recognized under Philippine laws.26
In a long line of decisions, this Court has not altogether
prohibited a foreign corporation not licensed to do business
in the Philippines from suing or maintaining an action in
Philippine Courts. What it seeks to prevent is a foreign
corporation doing business in the Philippines without a
license from gaining access to Philippine Courts.27
The purpose of the law in requiring that foreign corporations
doing business in the Philippines be licensed to do so and
that they appoint an agent for service of process is to subject
the foreign corporation doing business in the Philippines to
the jurisdiction of its courts. The object is 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 steps necessary to render it
amenable to suit in the local courts.28 The implication of the
law is that it was never the purpose of the legislature to
exclude a foreign corporation which happens to obtain an
isolated order for business from the Philippines, and thus, in
effect, to permit persons to avoid their contracts made with
such foreign corporations.29
There is no exact rule or governing principle as to what
constitutes doing or engaging or transacting business.
Indeed, such case must be judged in the light of its peculiar
circumstances, upon its peculiar facts and upon the language
of the statute applicable. The true test, however, seems to be
whether the foreign corporation is continuing the body or
substance of the business or enterprise for which it was
organized.30
Article 44 of the Omnibus Investments Code of 1987 defines
the phrase to include:
soliciting orders, purchases, service contracts, opening
offices, whether called liaison offices or branches;
appointing representatives or distributors who are domiciled

in the Philippines or who in any calendar year stay in the


Philippines for a period or periods totalling one hundred
eighty (180) days or more; participating in the management,
supervision or control of any domestic business firm, entity or
corporation in the Philippines, and any other act or acts that
imply a continuity or commercial dealings or arrangements
and contemplate to that extent the performance of acts or
works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial
gain or of the purpose and object of the business
organization.
Thus, a foreign corporation with a settling agent in the
Philippines which issued twelve marine policies covering
different shipments to the Philippines31 and a foreign
corporation which had been collecting premiums on
outstanding policies32 were regarded as doing business here.
The same rule was observed relating to a foreign corporation
with an exclusive distributing agent in the Philippines, and
which has been selling its products here since 1929,33 and a
foreign
corporation
engaged
in
the
business
of
manufacturing and selling computers worldwide, and had
installed at least 26 different products in several corporations
in the Philippines, and allowed its registered logo and
trademark to be used and made it known that there exists a
designated distributor in the Philippines.34
In Georg Grotjahn GMBH and Co. vs. Isnani,35 it was held
that the uninterrupted performance by a foreign corporation
of acts pursuant to its primary purposes and functions as a
regional area headquarters for its home office, qualifies such
corporation as one doing business in the country.
These foregoing instances should be distinguished from a
single or isolated transaction or occasional, incidental, or
casual transactions, which do not come within the meaning
of the law,36 for in such case, the foreign corporation is
deemed not engaged in business in the Philippines.
Where a single act or transaction, however, is not merely
incidental or casual but indicates the foreign corporations
intention to do other business in the Philippines, said single

act or transaction constitutes doing or engaging in or


transacting business in the Philippines.37
In determining whether a corporation does business in the
Philippines or not, aside from their activities within the forum,
reference may be made to the contractual agreements
entered into by it with other entities in the country. Thus, in
the Top-Weld case (supra), the foreign corporations LICENSE
AND TECHNICAL AGREEMENT and DISTRIBUTOR AGREEMENT
with their local contacts were made the basis of their being
regarded by this Tribunal as corporations doing business in
the country. Likewise, in Merill Lynch Futures, Inc. vs. Court of
Appeals, etc.38 the FUTURES CONTRACT entered into by the
petitioner foreign corporation weighed heavily in the courts
ruling.
With the abovestated precedents in mind, we are persuaded
to conclude that private respondent had been engaged in
or doing business in the Philippines for some time now. This
is the inevitable result after a scrutiny of the different
contracts and agreements entered into by ITEC with its
various business contacts in the country, particularly ASPAC
and Telephone Equipment Sales and Services, Inc. (TESSI, for
brevity). The latter is a local electronics firm engaged by ITEC
to be its local technical representative, and to create a
service center for ITEC products sold locally. Its
arrangements, with these entities indicate convincingly
ITECs purpose to bring about the situation among its
customers and the general public that they are dealing
directly with ITEC, and that ITEC is actively engaging in
business in the country.
In its Master Service Agreement39 with TESSI, private
respondent required its local technical representative to
provide the employees of the technical and service center
with ITEC identification cards and business cards, and to
correspond only on ITEC, Inc., letterhead. TESSI personnel are
instructed to answer the telephone with ITEC Technical
Assistance Center, such telephone being listed in the
telephone book under the heading of ITEC Technical
Assistance Center, and all calls being recorded and forwarded
to ITEC on a weekly basis.

What is more, TESSI was obliged to provide ITEC with a


monthly report detailing the failure and repair of ITEC
products, and to requisition monthly the materials and
components needed to replace stock consumed in the
warranty repairs of the prior month.
A perusal of the agreements between petitioner ASPAC and
the respondents shows that there are provisions which are
highly restrictive in nature, such as to reduce petitioner ASPAC to a mere extension or instrument of the private
respondent.
The No Competing Product provision of the Representative
Agreement between ITEC and ASPAC provides: The
Representative shall not represent or offer for sale within the
Territory any product which competes with an existing ITEC
product or any product which ITEC has under active
development. Likewise pertinent is the following provision:
When acting under this Agreement, REPRESENTATIVE is
authorized to solicit sales within the Territory on ITECs behalf
but is authorized to bind ITEC only in its capacity as
Representative and no other, and then only to specific
customers and on terms and conditions expressly authorized
by ITEC in writing.
When ITEC entered into the disputed contracts with AS-PAC
and TESSI, they were carrying out the purposes for which it
was created, i.e., to market electronics and communications
products. The terms and conditions of the contracts as well
as ITECs conduct indicate that they established within our
country a continuous business, and not merely one of a
temporary character.40
Notwithstanding such finding that ITEC is doing business in
the country, petitioner is nonetheless estopped from raising
this fact to bar ITEC from instituting this injunction case
against it.
A foreign corporation doing business in the Philippines may
sue in Philippine Courts although not authorized to do
business here against a Philippine citizen or entity who had
contracted with and benefited by said corporation.41 To put it
in another way, a party is estopped to challenge the

personality of a corporation after having acknowledged the


same by entering into a contract with it. And the doctrine of
estoppel to deny corporate existence applies to a foreign as
well as to domestic corporations.42 One who has dealt with a
corporation of foreign origin as a corporate entity is estopped
to deny its corporate existence and capacity. The principle
will be applied to prevent a person contracting with a foreign
corporation from later taking advantage of its noncompliance
with the statutes chiefly in cases where such person has
received the benefits of the contract.43
The rule is deeply rooted in the time-honored axiom of
Commodum ex injuria sua non habere debetno person
ought to derive any advantage of his own wrong. This is as it
should be for as mandated by law, 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.44
Concededly, corporations act through agents like directors
and officers. Corporate dealings must be characterized by
utmost good faith and fairness. Corporations cannot just
feign ignorance of the legal rules as in most cases, they are
manned by sophisticated officers with tried management
skills and legal experts with practiced eye on legal problems.
Each party to a corporate transaction is expected to act with
utmost candor and fairness and, thereby allow a reasonable
proportion between benefits and expected burdens. This is a
norm which should be observed where one or the other is a
foreign entity venturing in a global market.
As observed by this Court in TOP-WELD (supra), viz:
The parties are charged with knowledge of the existing law at
the time they enter into a contract and at the time it is to
become operative. (Twiehaus v. Rosner, 245 SW 2d 107; Hall
v. Bucher, 227 SW 2d 98). Moreover, a person is presumed to
be more knowledgeable about his own state law than his
alien or foreign contemporary. In this case, the record shows
that, at least, petitioner had actual knowledge of the
applicability of R.A. No. 5455 at the time the contract was
executed and at all times thereafter. This conclusion is
compelled by the fact that the same statute is now being

propounded by the petitioner to bolster its claim. We,


therefore sustain the appellate courts view that it was
incumbent upon TOP-WELD to know whether or not IRTI and
ECED were properly authorized to engage in business in the
Philippines when they entered into the licensing and
distributorship agreements. The very purpose of the law was
circumvented and evaded when the petitioner entered into
said agreements despite the prohibition of R.A. No. 5455. The
parties in this case being equally guilty of violating R.A. No.
5455, they are in pari delicto, in which case it follows as a
consequence that petitioner is not entitled to the relief
prayed for in this case.
The doctrine of lack of capacity to sue based on the failure to
acquire a local license is based on considerations of sound
public policy. The license requirement was imposed to subject
the foreign corporation doing business in the Philippines to
the jurisdiction of its courts. It was never intended to favor
domestic corporations who enter into solitary transactions
with unwary foreign firms and then repudiate their
obligations simply because the latter are not licensed to do
business in this country.45
In Antam Consolidated, Inc. vs. Court of Appeals, et al. 46 we
expressed our chagrin over this commonly used scheme of
defaulting local companies which are being sued by
unlicensed foreign companies not engaged in business in the
Philippines to invoke the lack of capacity to sue of such
foreign companies. Obviously, the same ploy is resorted to by
ASPAC to prevent the injunctive action filed by ITEC to enjoin
petitioner from using knowledge possibly acquired in
violation of fiduciary arrangements between the parties.
By entering into the Representative Agreement with ITEC,
Petitioner is charged with knowledge that ITEC was not
licensed to engaged in business activities in the country, and
is thus estopped from raising in defense such incapacity of
ITEC, having chosen to ignore or even presumptively take
advantage of the same.
In Top-Weld, we ruled that a foreign corporation may be
exempted from the license requirement in order to institute
an action in our courts if its representative in the country

maintained an independent status during the existence of


the disputed contract. Petitioner is deemed to have acceded
to such independent character when it entered into the
Representative Agreement with ITEC, particularly, provision
6.2 (supra).
Petitioners insistence on the dismissal of this action due to
the application, or non application, of the private
international law rule of forum non conveniens defies wellsettled rules of fair play. According to petitioner, the
Philippine Court has no venue to apply its discretion whether
to give cognizance or not to the present action, because it
has not acquired jurisdiction over the person of the plaintiff in
the case, the latter allegedly having no personality to sue
before Philippine Courts. This argument is misplaced because
the court has already acquired jurisdiction over the plaintiff in
the suit, by virtue of his filing the original complaint. And as
we have already observed, petitioner is not at liberty to
question plaintiffs standing to sue, having already acceded
to the same by virtue of its entry into the Representative
Agreement referred to earlier.
Thus, having acquired jurisdiction, it is now for the Philippine
Court, based on the facts of the case, whether to give due
course to the suit or dismiss it, on the principle of forum non
conveniens.47 Hence, the Philippine Court may refuse to
assume jurisdiction in spite of its having acquired jurisdiction.
Conversely, the court may assume jurisdiction over the case
if it chooses to do so; provided, that the following requisites
are met: 1) That the Philippine Court is one to which the
parties may conveniently resort to; 2) That the Philippine
Court is in a position to make an intelligent decision as to the
law and the facts; and, 3) That the Philippine Court has or is
likely to have power to enforce its decision.48
The aforesaid requirements having been met, and in view of
the courts disposition to give due course to the questioned
action, the matter of the present forum not being the most
convenient as a ground for the suits dismissal, deserves
scant consideration.
IN VIEW OF THE FOREGOING PREMISES, the instant Petition is
hereby DISMISSED. The decision of the Court of Appeals

dated June 7, 1991, upholding the RTC Order dated February


22, 1991, denying the petitioners Motion to Dismiss, and
ordering the issuance of the Writ of Preliminary Injunction, is
hereby affirmed in toto.
SO ORDERED.
Regalado (Chairman), Romero, Puno and Mendoza, JJ.,
concur.
Petition dismissed.
Notes.The Corporation Law must be given a reasonable,
not an unduly harsh, interpretation which does not hamper
the development of trade relations and which fosters friendly
commercial intercourse among countries. The objectives
enunciated in the 1924 decisionMarshall Wells Co. v. Henry
W. Elser & Co., 46 Phil. 70are even more relevant today
when we view commercial relations in terms of a world
economy, when the tendency is to re-examine the political
boundaries separating one nation from another insofar as
they define business requirements or restrict marketing
conditions. (Home Insurance Co. v. Eastern Shipping Lines,
123 SCRA 424 [1983])
A party is estopped to challenge the personality of a
corporation after having acknowledged the same by entering
into a contract with it. (Georg Grotjahn GMBH & Co. vs.
Isnani, 235 SCRA 216 [1994]) [Communication Materials and
Design, Inc. vs. Court of Appeals, 260 SCRA 673(1996)]

SHOPPERS
PARADISE
REALTY
&
DEVELOPMENT
CORPORATION, petitioner, vs. EFREN P. ROQUE, respondent.
Civil Law; Property; Donation; In donations of immovable
property, the law requires for its validity that it should be
contained in a public document, specifying therein the
property donated and the value of the charges which the
donee must satisfy; It is enough, between the parties to a
donation of an immovable property, that the donation be
made in a public document but, in order to bind third
persons, the donation must be registered in the Registry of
Property.The existence, albeit unregistered, of the donation
in favor of respondent is undisputed. The trial court and the
appellate court have not erred in holding that the nonregistration of a deed of donation does not affect its validity.
As being itself a mode of acquiring ownership, donation
results in an effective transfer of title over the property from
the donor to the donee. In donations of immovable property,
the law requires for its validity that it should be contained in
a public document, specifying therein the property donated
and the value of the charges which the donee must satisfy.
The Civil Code provides, however, that titles of ownership,
or other rights over immovable property, which are not duly
inscribed or annotated in the Registry of Property (now
Registry of Land Titles and Deeds) shall not prejudice third
persons. It is enough, between the parties to a donation of
an immovable property, that the donation be made in a
public document but, in order to bind third persons, the
donation must be registered in the Registry of Property
(Registry of Land Titles and Deeds).
Same; Same; Land Registration; Where a party has
knowledge of a prior existing interest which is unregistered at
the time he acquired a right thereto, his knowledge of that
prior unregistered interest would have the effect of
registration as regards to him.A person dealing with
registered land may thus safely rely on the correctness of the
certificate of title issued therefor, and he is not required to go
beyond the certificate to determine the condition of the

property but, where such party has knowledge of a prior


existing interest which is unregistered at the time he
acquired a right thereto, his knowledge of that prior
unregistered interest would have the effect of registration as
regards to him.
Same; Same; Agency; The lease of real property for more
than one year is considered not merely an act of
administration but an act of strict dominion or of ownership;
A special power of attorney is thus necessary for its
execution through an agent.In a contract of agency, the
agent acts in representation or in behalf of another with the
consent of the latter. Article 1878 of the Civil Code expresses
that a special power of attorney is necessary to lease any
real property to another person for more than one year. The
lease of real property for more than one year is considered
not merely an act of administration but an act of strict
dominion or of ownership. A special power of attorney is thus
necessary for its execution through an agent.
Same; Estoppel; Essential elements of estoppel in pais, in
relation to the party sought to be estopped and with respect
to the party claiming estoppel.The essential elements of
estoppel in pais, in relation to the party sought to be
estopped, are: 1) a clear conduct amounting to false
representation or concealment of material facts or, at least,
calculated to convey the impression that the facts are
otherwise than, and inconsistent with, those which the party
subsequently attempts to assert; 2) an intent or, at least, an
expectation, that this conduct shall influence, or be acted
upon by, the other party; and 3) the knowledge, actual or
constructive, by him of the real facts. With respect to the
party claiming the estoppel, the conditions he must satisfy
are: 1) lack of knowledge or of the means of knowledge of
the truth as to the facts in question; 2) reliance, in good faith,
upon the conduct or statements of the party to be estopped;
and 3) action or inaction based thereon of such character as
to change his position or status calculated to cause him
injury or prejudice.
PETITION for review on certiorari of a decision of the Court of
Appeals.

The facts are stated in the opinion of the Court.


Picazo, Buyco, Tan, Fider and Santos for petitioner.
Martin D. Pantaleon for respondent.
VITUG, J.:
On 23 December 1993, petitioner Shoppers Paradise Realty
& Development Corporation, represented by its president,
Veredigno Atienza, entered into a twenty-five year lease with
Dr. Felipe C. Roque, now deceased, over a parcel of land, with
an area of two thousand and thirty six (2,036) square meters,
situated at Plaza Novaliches, Quezon City, covered by
Transfer of Certificate of Title (TCT) No. 30591 of the Register
of Deeds of Quezon City in the name of Dr. Roque. Petitioner
issued to Dr. Roque a check for P250,000 00 by way of
reservation payment. Simultaneously, petitioner and Dr
Roque likewise entered into a memorandum of agreement for
the construction, development and operation of a
commercial building complex on the property. Conformably
with the agreement, petitioner issued a check for another
P250,000.00 downpayment to Dr. Roque.
The contract of lease and the memorandum of agreement,
both notarized, were to be annotated on TCT No. 30591
within sixty (60) days from 23 December 1993 or until 23
February 1994. The annotations, however, were never made
because of the untimely demise of Dr. Felipe C. Roque. The
death of Dr. Roque on 10 February 1994 constrained
petitioner to deal with respondent Efren P. Roque, one of the
surviving children of the late Dr. Roque, but the negotiations
broke down due to some disagreements. In a letter, dated 3
November 1994, respondent advised petitioner to desist
from any attempt to enforce the aforementioned contract of
lease and memorandum of agreement. On 15 February
1995, respondent filed a case for annulment of the contract
of lease and the memorandum of agreement, with a prayer
for the issuance of a preliminary injunction, before Branch
222 of the Regional Trial Court of Quezon City. Efren P. Roque
alleged that he had long been the absolute owner of the

subject property by virtue of a deed of donation inter vivos


executed in his favor by his parents, Dr. Felipe Roque and
Elisa Roque, on 26 December 1978, and that the late Dr.
Felipe Roque had no authority to enter into the assailed
agreements with petitioner. The donation was made in a
public instrument duly acknowledged by the donor-spouses
before a notary public and duly accepted on the same day by
respondent before the notary public in the same instrument
of donation. The title to the property, however, remained in
the name of Dr. Felipe C. Roque, and it was only transferred
to and in the name of respondent sixteen years later, or on
11 May 1994, under TCT No. 109754 of the Register of Deeds
of Quezon City. Respondent, while he resided in the United
States of America, delegated to his father the mere
administration of the property. Respondent came to know of
the assailed contracts with petitioner only after retiring to the
Philippines upon the death of his father.
On 9 August 1996, the trial court dismissed the complaint of
respondent; it explained:
Ordinarily, a deed of donation need not be registered in
order to be valid between the parties. Registration, however,
is important in binding third persons. Thus, when Felipe
Roque entered into a lease contract with defendant
corporation, plaintiff Efren Roque (could) no longer assert the
unregistered deed of donation and say that his father, Felipe,
was no longer the owner of the subject property at the time
the lease on the subject property was agreed upon.
The registration of the Deed of Donation after the execution
of the lease contract did not affect the latter unless he had
knowledge thereof at the time of the registration which
plaintiff had not been able to establish. Plaintiff knew very
well of the existence of the lease. He, in fact, met with the
officers of the defendant corporation at least once before he
caused the registration of the deed of donation in his favor
and although the lease itself was not registered, it remains
valid considering that no third person is involved. Plaintiff
cannot be the third person because he is the successor-ininterest of his father, Felipe Roque, the lessor, and it is a rule
that contracts take effect not only between the parties

themselves but also between their assigns and heirs (Article


1311, Civil Code) and therefore, the lease contract together
with the memorandum of agreement would be conclusive on
plaintiff Efren Roque. He is bound by the contract even if he
did not participate therein. Moreover, the agreements have
been perfected and partially executed by the receipt of his
father of the downpayment and deposit totaling to
P500,000.00.1
The trial court ordered respondent to surrender TCT No.
109754 to the Register of Deeds of Quezon City for the
annotation of the questioned Contract of Lease and
Memorandum of Agreement.
On appeal, the Court of Appeals reversed the decision of the
trial court and held to be invalid the Contract of Lease and
Memorandum of Agreement. While it shared the view
expressed by the trial court that a deed of donation would
have to be registered in order to bind third persons, the
appellate court, however, concluded that petitioner was not a
lessee in good faith having had prior knowledge of the
donation in favor of respondent, and that such actual
knowledge had the effect of registration insofar as petitioner
was concerned. The appellate court based its findings largely
on the testimony of Veredigno Atienza during crossexamination, viz:
Q.
Aside from these two lots, the first in the name of Ruben
Roque and the second, the subject of the construction
involved in this case, you said there is another lot which was
part of the development project?
A.
Yes, this was the main concept of Dr. Roque so that the
adjoining properties of his two sons, Ruben and Cesar, will
comprise one whole. The other whole property belongs to
Cesar.
Q.
You were informed by Dr. Roque that this property was given
to his three (3) sons; one to Ruben Roque, the other to Efren,
and the other to Cesar Roque?

A.
Yes.
Q.
You did the inquiry from him, how was this property given to
them?
A.
By inheritance.
Q.
Inheritance in the form of donation?
A.
I mean inheritance.
Q.
What I am only asking you is, were you told by Dr. Felipe C.
Roque at the time of your transaction with him that all these
three properties were given to his children by way of
donation?
A.
What Architect Biglang-awa told us in his exact words: Yang
mga yan pupunta sa mga anak. Yong kay Ruben pupunta kay
Ruben. Yong kay Efren palibhasa nasa America siya, nasa
pangalan pa ni Dr. Felipe C. Roque.
x x x
xxx
xxx
Q.
When was the information supplied to you by Biglang-awa?
Before the execution of the Contract of Lease and
Memorandum of Agreement?
A.
Yes.
Q.
That being the case, at the time of the execution of the
agreement or soon before, did you have such information
confirmed by Dr. Felipe C. Roque himself?
A.
Biglang-awa did it for us.
Q.

But you yourself did not?


A.
No, because I was doing certain things. We were a team and
so Biglang-awa did it for us.
Q.
So in effect, any information gathered by Biglang-awa was of
the same effect as if received by you because you were
members of the same team?
A.
Yes.2
In the instant petition for review, petitioner seeks a reversal
of the decision of the Court of Appeals and the reinstatement
of the ruling of the Regional Trial Court; it argues that the
presumption of good faith it so enjoys as a party dealing in
registered land has not been overturned by the aforequoted
testimonial evidence, and that, in any event, respondent is
barred by laches and estoppel from denying the contracts.
The existence, albeit unregistered, of the donation in favor of
respondent is undisputed. The trial court and the appellate
court have not erred in holding that the non-registration of a
deed of donation does not affect its validity. As being itself a
mode of acquiring ownership, donation results in an effective
transfer of title over the property from the donor to the
donee.3 In donations of immovable property, the law requires
for its validity that it should be contained in a public
document, specifying therein the property donated and the
value of the charges which the donee must satisfy.4 The Civil
Code provides, however, that titles of ownership, or other
rights over immovable property, which are not duly inscribed
or annotated in the Registry of Property (now Registry of
Land Titles and Deeds) shall not prejudice third persons.5 It
is enough, between the parties to a donation of an
immovable property, that the donation be made in a public
document but, in order to bind third persons, the donation
must be registered in the Registry of Property (Registry of
Land Titles and Deeds).6 Consistently, Section 50 of Act No.
496 (Land Registration Act), as so amended by Section 51 of
P.D. No 1529 (Property Registration Decree), states:

SECTION 51. Conveyance and other dealings by registered


owner.An owner of registered land may convey, mortgage,
lease, charge or otherwise deal with the same in accordance
with existing laws. He may use such forms of deeds,
mortgages, leases or other voluntary instruments as are
sufficient in law. But no deed, mortgage, lease, or other
voluntary instrument, except a will purporting to convey or
affect registered land shall take effect as a conveyance or
bind the land, but shall operate only as a contract between
the parties and as evidence of authority to the Register of
Deeds to make registration.
The act of registration shall be the operative act to convey
or affect the land insofar as third persons are concerned, and
in all cases under this Decree, the registration shall be made
in the office of the Register of Deeds for the province or city
where the land lies. (emphasis supplied)
A person dealing with registered land may thus safely rely on
the correctness of the certificate of title issued therefor, and
he is not required to go beyond the certificate to determine
the condition of the property7 but, where such party has
knowledge of a prior existing interest which is unregistered at
the time he acquired a right thereto, his knowledge of that
prior unregistered interest would have the effect of
registration as regards to him.8
The appellate court was not without substantial basis when it
found petitioner to have had knowledge of the donation at
the time it entered into the two agreements with Dr. Roque.
During
their
negotiation,
petitioner,
through
its
representatives, was apprised of the fact that the subject
property actually belonged to respondent.
It was not shown that Dr. Felipe C. Roque had been an
authorized agent of respondent.
In a contract of agency, the agent acts in representation or in
behalf of another with the consent of the latter.9 Article 1878
of the Civil Code expresses that a special power of attorney is
necessary to lease any real property to another person for
more than one year. The lease of real property for more than
one year is considered not merely an act of administration

but an act of strict dominion or of ownership. A special power


of attorney is thus necessary for its execution through an
agent.
The Court cannot accept petitioners argument that
respondent is guilty of laches. Laches, in its real sense, is 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 or declined to assert it.10
Respondent learned of the contracts only in February 1994
after the death of his father, and in the same year, during
November, he assailed the validity of the agreements.
Hardly, could respondent then be said to have neglected to
assert his case for an unreasonable length of time.
Neither is respondent estopped from repudiating the
contracts. The essential elements of estoppel in pais, in
relation to the party sought to be estopped, are: 1) a clear
conduct amounting to false representation or concealment of
material facts or, at least, calculated to convey the
impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently
attempts to assert; 2) an intent or, at least, an expectation,
that this conduct shall influence, or be acted upon by, the
other party; and 3) the knowledge, actual or constructive, by
him of the real facts.11 With respect to the party claiming the
estoppel, the conditions he must satisfy are: 1) lack of
knowledge or of the means of knowledge of the truth as to
the facts in question; 2) reliance, in good faith, upon the
conduct or statements of the party to be estopped; and 3)
action or inaction based thereon of such character as to
change his position or status calculated to cause him injury
or prejudice.12 It has not been shown that respondent
intended to conceal the actual facts concerning the property;
more importantly, petitioner has been shown not to be totally
unaware of the real ownership of the subject property.
Altogether, there is no cogent reason to reverse the Court of
Appeals in its assailed decision.

WHEREFORE, the petition is DENIED, and the decision of the


Court of Appeals declaring the contract of lease and
memorandum of agreement entered into between Dr. Felipe
C. Roque and Shoppers Paradise Realty & Development
Corporation not to be binding on respondent is AFFIRMED. No
costs.
SO ORDERED.
PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC. and
TAGUM PLASTICS, INC., petitioners, vs. SWEET LINES, INC.,
DAVAO VETERANS ARRASTRE AND PORT SERVICES, INC. and
HON. COURT OF APPEALS, respondents.
Remedial Law; Civil Procedure; Actionable documents; Bills of
lading can be categorized as actionable documents which
under the Rules must be properly pleaded either as causes of
action or defenses, and the genuineness and due execution
of which are deemed admitted unless specifically denied
under oath by the adverse party.As petitioners are suing
upon SLIs contractual obligation under the contract of
carriage as contained in the bills of lading, such bills of lading
can be categorized as actionable documents which under the
Rules must be properly pleaded either as causes of action or
defenses, and the genuineness and due execution of which
are deemed admitted unless specifically denied under oath
by the adverse party. The rules on actionable documents
cover and apply to both a cause of action or defense based
on said documents.
Same; Same; Same; Judicial admissions; Judicial admissions,
verbal or written, made by the parties in the pleadings or in
the course of the trial or other proceedings in the same case
are conclusive, no evidence being required to prove the
same, and cannot be contradicted unless shown to have
been made through palpable mistake or that no such
admission was made.Petitioners failure to specifically deny
the existence, much less the genuineness and due execution,
of the instruments in question amounts to an admission.
Judicial admissions, verbal or written, made by the parties in
the pleadings or in the course of the trial or other
proceedings in the same case are conclusive, no evidence

being required to prove the same, and cannot be


contradicted unless shown to have been made through
palpable mistake or that no such admission was made.
Moreover, when the due execution and genuineness of an
instrument are deemed admitted because of the adverse
partys failure to make a specific verified denial thereof, the
instrument need not be presented formally in evidence for it
may be considered an admitted fact.
Same; Same; Same; Negative Pregnant; Negative pregnant is
a denial pregnant with the admission of the substantial facts
in the pleading responded to which are not squarely denied.
Even granting that petitioners averment in their reply
amounts to a denial, it has the procedural earmarks of what
in the law on pleadings is called a negative pregnant, that is,
a denial pregnant with the admission of the substantial facts
in the pleading responded to which are not squarely denied.
It is in effect an admission of the averment it is directed to.
Thus, while petitioners objected to the validity of such
agreement for being contrary to public policy, the existence
of the bills of lading and said stipulations were nevertheless
impliedly admitted by them.
Same; Same; Same; Formal offer of evidence; The noninclusion of the controverted bills of lading in the formal offer
of evidence cannot be considered a fatal procedural lapse as
would bar respondent carrier from raising the defense of
prescription.We find merit in respondent courts comments
that petitioners failed to touch on the matter of the nonpresentation of the bills of lading in their brief and earlier on
in the appellate proceedings in this case, hence it is too late
in the day to now allow the litigation to be overturned on that
score, for to do so would mean an over-indulgence in
technicalities. Hence, for the reasons already advanced, the
non-inclusion of the controverted bills of lading in the formal
offer of evidence cannot, under the facts of this particular
case, be considered a fatal procedural lapse as would bar
respondent carrier from raising the defense of prescription.
Petitioners feigned ignorance of the provisions of the bills of
lading, particularly on the time limitations for filing a claim

and for commencing a suit in court, as their excuse for noncompliance therewith does not deserve serious attention.
Same; Same; Right of action; The right of action does not
arise until the performance of all conditions precedent to the
action and may be taken away by the running of the statute
of limitations, through estoppel, or by other circumstances
which do not affect the cause of action.It bears restating
that a right of action is the right to pre-sently enforce a cause
of action, while a cause of action, while a cause of action
consists of the operative facts which give rise to such right of
action. The right of action does not arise until the
performance of all conditions precedent to the action and
may be taken away by the running of the statute of
limitations, through estoppel, or by other circumstances
which do not affect the cause of action. Performance or
fulfillment of all conditions precedent upon which a right of
action depends must be sufficiently alleged, considering that
the burden of proof to show that a party has a right of action
is upon the person initiating the suit.
Maritime Commerce; Contract of Shipment; Notice of loss or
injury to the goods; Notice of loss or injury protects the
carrier by affording it an opportunity to make an investigation
of a claim while the matter is fresh and easily investigated so
as to safeguard itself from false and fraudulent claim.More
particularly, where the contract of shipment contains a
reasonable requirement of giving notice of loss of or injury to
the goods, the giving of such notice is a condition precedent
to the action for loss or injury or the right to enforce the
carriers liability. Such requirement is not an empty
formalism. The fundamental reason or purpose of such a
stipulation is not to relieve the carrier from just liability, but
reasonably to inform it that the shipment has been damaged
and that it is charged with liability therefor, and to give it an
opportunity to examine the nature and extent of the injury.
This protects the carrier by affording it an opportunity to
make an investigation of a claim while the matter is fresh
and easily investigated so as to safeguard itself from false
and fraudulent claims.

Same; Same; Same; Remedial Law; Civil Procedure; Action;


Prescription; The findings of respondent court as supported
by petitioners formal offer of evidence in the court below
show that the claim was filed with Sweet Lines Incorporated
only on April 28, 1978, way beyond the period provided in
the bills of lading and violative of the contractual provision,
the inevitable loss of which is the loss of petitioners remedy
or right to sue.The shipment in question was discharged
into the custody of the consignee on May 15, 1977, and it
was from this date that petitioners cause of action accrued,
with thirty (30) days therefrom within which to file a claim
with the carrier for any loss or damage which may have been
suffered by the cargo and thereby perfect their right of
action. The findings of respondent court as supported by
petitioners formal offer of evidence in the court below show
that the claim was filed with SLI only on April 28, 1978, way
beyond the period provided in the bills of lading and violative
of the contractual provision, the inevitable consequence of
which is the loss of petitioners remedy or right to sue. Even
the filing of the complaint on May 12, 1978 is of no remedial
or practical consequence, since the time limits for the filing
thereof whether viewed as a condition precedent or as a
prescriptive period, would in this case be productive of the
same result, that is, that petitioners had no right of action to
begin with or, at any rate, their claim was time-barred.
Same; Same; Notice of claim under Art. 366 of the Code of
Commerce; Non-compliance with the requirement of filing a
notice of claim under Art. 366 of the Code of Commerce does
not affect the consignees right of action against the carrier.
As explained above, the shortened period for filing suit is
not unreasonable and has in fact been generally recognized
to be a valid business practice in the shipping industry.
Petitioners advertence to the Courts holding in the Southern
Lines case, supra, is futile as what was involved was a claim
for refund of excess payment. We ruled therein that noncompliance with the requirement of filing a notice of claim
under Article 366 of the Code of Commerce does not affect
the consignees right of action against the carrier because
said requirement applies only to cases for recovery of

damages on account of loss of or damage to cargo, not to an


action for refund of overpayment, and on the further
consideration that neither the Code of Commerce nor the
bills of lading therein provided any time limitation for suing
for refund of money paid in excess, except only that it be
filed within a reasonable time.
Same; Remedial Law; Venue of action; Contract of adhesion;
Contracts of adhesion wherein one party imposes a readymade form of contract on the other are contracts not entirely
prohibited.The ruling in Sweet Lines categorizing the
stipulated limitation on venue of action provided in the
subject bill of lading as a contract of adhesion and, under the
circumstances therein, void for being contrary to public
policy is evidently likewise unavailing in view of the discrete
environmental facts involved and the fact that the restriction
therein was unreasonable. In any case, Ong Yiu vs. Court of
Appeals, et al., instructs us that contracts of adhesion
wherein one party imposes a ready-made form of contract on
the other x x x are contracts not entirely prohibited. The one
who adheres to the contract is in reality free to reject it
entirely; if he adheres he gives his consent. In the present
case, not even an allegation of ignorance of a party excuses
non-compliance with the contractual stipulations since the
responsibility for ensuring full comprehension of the
provisions of a contract of carriage devolves not on the
carrier but on the owner, shipper, or consignee as the case
may be.
PETITION for certiorari to review the judgment of the Court of
Appeals.
The facts are stated in the opinion of the Court.
De Lara, De Lunas & Rosales for petitioners.
Carlo L. Aquino for Sweet Lines, Inc.
REGALADO, J.:

A maritime suit1 was commenced on May 12, 1978 by herein


petitioner Philippine American General Insurance Co., Inc.
(Philamgen) and Tagum Plastics, Inc. (TPI) against private
respondents Sweet Lines, Inc. (SLI) and Davao Veterans
Arrastre and Port Services, Inc. (DVAPSI), along with S.C.I.
Line (The Shipping Corporation of India Limited) and F.E.
Zuellig, Inc., as co-defendants in the court a quo, seeking
recovery of the cost of lost or damaged shipment plus
exemplary damages, attorneys fees and costs allegedly due
to defendants negligence, with the following factual
backdrop yielded by the findings of the court below and
adopted by respondent court:
It would appear that in or about March 1977, the vessel SS
VISHVA YASH belonging to or operated by the foreign
commoncarrier, took on board at Baton Rouge, LA, two (2)
consignments ofcargoes for shipment to Manila and later for
transhipment to DavaoCity, consisting of 600 bags Low
Density Polyethylene 631 and another 6,400 bags Low
Density Polyethylene 647, both consigned to theorder of Far
East Bank and Trust Company of Manila, with arrivalnotice to
Tagum Plastics, Inc., Madaum, Tagum, Davao City.
Saidcargoes were covered, respectively, by Bills of Lading
Nos. 6 and 7issued by the foreign common carrier (Exhs. E
and F). The necessarypacking or Weight List (Exhs. A and B),
as well as the CommercialInvoices (Exhs. C and D)
accompanied the shipment. The cargoes werelikewise
insured by the Tagum Plastics Inc. with plaintiff
PhilippineAmerican General Insurance Co., Inc., (Exh. G).
In the course of time, the said vessel arrived at Manila and
discharged its cargoes in the Port of Manila for transhipment
to Davao City. For this purpose, the foreign carrier awaited
and made use of the services of the vessel called M/V Sweet
Love owned and operated by defendant interisland carrier.
Subject cargoes were loaded in Holds Nos. 2 and 3 of the
interisland carrier. These were commingled with similar
cargoes belonging to Evergreen Plantation and also
Standfilco.

On May 15, 1977, the shipment(s) were discharged from the


interisland carrier into the custody of the consignee. A later
survey conducted on July 8, 1977, upon the instance of the
plaintiff, shows the following:
Of the cargo covered by Bill of Lading No. 25 or (2)6,
supposed to contain 6,400 bags of Low Density Polyethylene
647 originally inside 160 pallets, there were delivered to the
consignee 5,413 bags in good order condition. The survey
shows shortages, damages and losses to be as follows:
Undelivered/Damaged bags as tallied during discharge from
vessel-173 bags; undelivered and damaged as noted and
observed whilst stored at the pier-699 bags; and shortlanded110 bags (Exhs. P and P-1).
Of the 600 bags of Low Density Polyethylene 631, the
survey conducted on the same day shows an actual delivery
to the consignee of only 507 bags in good order condition.
Likewise noted were the following losses, damages and
shortages, to wit:
Undelivered/damaged bags and tally sheets during discharge
from vessel-17 bags.
Undelivered and damaged as noted and observed whilst
stored at the pier-66 bags; Shortlanded-10 bags.
Therefore, of said shipment totalling 7,000 bags, originally
contained in 175 pallets, only a total of 5,820 bags were
delivered to the consignee in good order condition, leaving a
balance of 1,080 bags. Such loss from this particular
shipment is what any or all defendants may be answerable to
(sic).
As already stated, some bags were either shortlanded or
were missing, and some of the 1,080 bags were torn, the
contents thereof partly spilled or were fully/partially emptied,
but, worse, the contents thereof contaminated with foreign
matters and therefore could no longer serve their intended
purpose. The position taken by the consignee was that even
those bags which still had some contents were considered as

total losses as the remaining contents were contaminated


with foreign matters and therefore did not (sic) longer serve
the intended purpose of the material. Each bag was valued,
taking into account the customs duties and other taxes paid
as well as charges and the conversion value then of a dollar
to the peso, at P110.28 per bag (see Exhs. L and L-1 and M
and O).2
Before trial, a compromise agreement was entered into
between petitioners, as plaintiffs, and defendants S.C.I. Line
and F.E. Zuellig, upon the latters payment of P532.65 in
settlement of the claim against them. Whereupon, the trial
court in its order of August 12, 19813 granted plaintiffs
motion to dismiss grounded on said amicable settlement and
the case as to S.C.I. Line and F.E. Zuellig was consequently
dismissed with prejudice and without pronouncement as to
costs.
The trial court thereafter rendered judgment in favor of
herein petitioners on this dispositive portion:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff Philippine General American Insurance Company Inc.
and against the remaining defendants, Sweet Lines Inc. and
Davao Veterans Arrastre Inc. as follows:
Defendant Sweet Lines, Inc. is ordered to pay said plaintiff
the sum of P34,902.00, with legal interest thereon from date
of extrajudicial demand on April 28, 1978 (Exh. M) until fully
paid;
Defendant Sweet Lines Inc. and Davao Veterans Arrastre and
(Port) Services Inc. are directed to pay jointly and severally,
the plaintiff the sum of P49,747.55, with legal interest
thereon from April 28, 1978 until fully paid;
Each of said defendants are ordered to pay the plaintiffs the
additional sum of P5,000 as reimbursable attorneys fees and
other litigation expenses;
Each of said defendants shall pay one-fourth (1/4) costs.4

Due to the reversal on appeal by respondent court of the trial


courts decision on the ground of prescription,5 in effect
dismissing the complaint of herein petitioners, and the denial
of their motion for reconsideration,6 petitioners filed the
instant petition for review on certiorari, faulting respondent
appellate court with the following errors: (1) in upholding,
without proof, the existence of the so-called prescriptive
period; (2) granting arguendo that the said prescriptive
period does exist, in not finding the same to be null and void;
and (3) assuming arguendo that the said prescriptive period
is valid and legal, in failing to conclude that petitioners
substantially complied therewith.7
Parenthetically, we observe that herein petitioners are jointly
pursuing this case, considering their common interest in the
shipment subject of the present controversy, to obviate any
question as to who the real party in interest is and to protect
their respective rights as insurer and insured. In any case,
there is no impediment to the legal standing of petitioner
Philamgen, even if it alone were to sue herein private
respondents in its own capacity as insurer, it having been
subrogated to all rights of recovery for loss of or damage to
the shipment insured under its Marine Risk Note No. 438734
dated March 31, 19778 in view of the full settlement of the
claim thereunder as evidenced by the subrogation receipt9
issued in its favor by Far East Bank and Trust Co., Davao
Branch, for the account of petitioner TPI.
Upon payment of the loss covered by the policy, the insurers
entitlement to subrogation pro tanto, being of the highest
equity, equips it with a cause of action against a third party
in case of contractual breach.10 Further, the insurers
subrogatory right to sue for recovery under the bill of lading
in case of loss of or damage to the cargo is jurisprudentially
upheld.11 However, if an insurer, in the exercise of its
subrogatory right, may proceed against the erring carrier and
for all intents and purposes stands in the place and in
substitution of the consignee, a fortiori such insurer is
presumed to know and is just as bound by the contractual
terms under the bill of lading as the insured.

On the first issue, petitioners contend that it was error for the
Court of Appeals to reverse the appealed decision on the
supposed ground of prescription when SLI failed to adduce
any evidence in support thereof and that the bills of lading
said to contain the shortened periods for filing a claim and for
instituting a court action against the carrier were never
offered in evidence. Considering that the existence and tenor
of this stipulation on the aforesaid periods have allegedly not
been established, petitioners maintain that it is inconceivable
how they can possibly comply therewith.12 In refutation, SLI
avers that it is standard practice in its operations to issue
bills of lading for shipments entrusted to it for carriage and
that it in fact issued bills of lading numbered MD-25 and MD26 therefor with proof of their existence manifest in the
records of the case.13 For its part, DVAPSI insists on the
propriety of the dismissal of the complaint as to it due to
petitioners failure to prove its direct responsibility for the
loss of and/or damage to the cargo.14
On this point, in denying petitioners motion for
reconsideration, the Court of Appeals resolved that although
the bills of lading were not offered in evidence, the litigation
obviously revolves on such bills of lading which are
practically the documents or contracts sued upon, hence,
they are inevitably involved and their provisions cannot be
disregarded in the determination of the relative rights of the
parties thereto.15
Respondent court correctly passed upon the matter of
prescription, since that defense was so considered and
controverted by the parties. This issue may accordingly be
taken cognizance of by the court even if not inceptively
raised as a defense so long as its existence is plainly
apparent on the face of relevant pleadings.16 In the case at
bar, prescription as an affirmative defense was seasonably
raised by SLI in its answer,17 except that the bills of lading
embodying the same were not formally offered in evidence,
thus reducing the bone of contention to whether or not
prescription can be maintained as such defense and, as in

this case, consequently upheld on the strength of mere


references thereto.
As petitioners are suing upon SLIs contractual obligation
under the contract of carriage as contained in the bills of
lading, such bills of lading can be categorized as actionable
documents which under the Rules must be properly pleaded
either as causes of action or defenses,18 and the
genuineness and due execution of which are deemed
admitted unless specifically denied under oath by the
adverse party.19 The rules on actionable documents cover
and apply to both a cause of action or defense based on said
documents.20
In the present case and under the aforestated assumption
that the time limit involved is a prescriptive period,
respondent carrier duly raised prescription as an affirmative
defense in its answer setting forth paragraph 5 of the
pertinent bills of lading which comprised the stipulation
thereon by parties, to wit:
5. Claims for shortage, damage, must be made at the time
of delivery to consignee or agent, if container shows exterior
signs of damage or shortage. Claims for non-delivery,
misdelivery, loss or damage must be filed within 30 days
from accrual. Suits arising from shortage, damage or loss,
non-delivery or misdelivery shall be instituted within 60 days
from date of accrual of right of action. Failure to file claims or
institute judicial proceedings as herein provided constitutes
waiver of claim or right of action. In no case shall carrier be
liable for any delay, non-delivery, misdelivery, loss of
damage to cargo while cargo is not in actual custody of
carrier.21
In their reply thereto, herein petitioners, by their own
assertions that
2. In connection with Pars. 14 and 15 of defendant Sweet
Lines, Inc.s Answer, plaintiffs state that such agreements are
what the Supreme Court considers as contracts of adhesion
(see Sweet Lines, Inc. vs. Hon. Bernardo Teves, et al., G.R.

No. L-37750, May 19, 1978) and, consequently, the


provisions therein which are contrary to law and public policy
cannot be availed of by answering defendant as valid
defenses.22
thereby failed to controvert the existence of the bills of
lading and the aforequoted provisions therein, hence they
impliedly admitted the same when they merely assailed the
validity of subject stipulations.
Petitioners failure to specifically deny the existence, much
less the genuineness and due execution, of the instruments
in question amounts to an admission. Judicial admissions,
verbal or written, made by the parties in the pleadings or in
the course of the trial or other proceedings in the same case
are conclusive, no evidence being required to prove the
same, and cannot be contradicted unless shown to have
been made through palpable mistake or that no such
admission was made.23 Moreover, when the due execution
and genuineness of an instrument are deemed admitted
because of the adverse partys failure to make a specific
verified denial thereof, the instrument need not be presented
formally in evidence for it may be considered an admitted
fact.24
Even granting that petitioners averment in their reply
amounts to a denial, it has the procedural earmarks of what
in the law on pleadings is called a negative pregnant, that is,
a denial pregnant with the admission of the substantial facts
in the pleading responded to which are not squarely denied.
It is in effect an admission of the averment it is directed to.25
Thus, while petitioners objected to the validity of such
agreement for being contrary to public policy, the existence
of the bills of lading and said stipulations were nevertheless
impliedly admitted by them.
We find merit in respondent courts comments that
petitioners failed to touch on the matter of the nonpresentation of the bills of lading in their brief and earlier on
in the appellate proceedings in this case, hence it is too late
in the day to now allow the litigation to be overturned on that

score, for to do so would mean an over-indulgence in


technicalities. Hence, for the reasons already advanced, the
non-inclusion of the controverted bills of lading in the formal
offer of evidence cannot, under the facts of this particular
case, be considered a fatal procedural lapse as would bar
respondent carrier from raising the defense of prescription.
Petitioners feigned ignorance of the provisions of the bills of
lading, particularly on the time limitations for filing a claim
and for commencing a suit in court, as their excuse for noncompliance therewith does not deserve serious attention.
It is to be noted that the carriage of the cargo involved was
effected pursuant to an Application for Delivery of Cargoes
without Original Bill of Lading issued on May 20, 1977 in
Davao City26 with the notation therein that said application
corresponds to and is subject to the terms of bills of lading
MD-25 and MD-26. It would be a safe assessment to interpret
this to mean that, sight unseen, petitioners acknowledged
the existence of said bills of lading. By having the cargo
shipped on respondent carriers vessel and later making a
claim for loss on the basis of the bills of lading, petitioners for
all intents and purposes accepted said bills. Having done so
they are bound by all stipulations contained therein.27 Verily,
as petitioners are suing for recovery on the contract, and in
fact even went as far as assailing its validity by categorizing
it as a contract of adhesion, then they necessarily admit that
there is such a contract, their knowledge of the existence of
which with its attendant stipulations they cannot now be
allowed to deny.
On the issue of the validity of the controverted paragraph 5
of the bills of lading above quoted which unequivocally
prescribes a time frame of thirty (30) days for filing a claim
with the carrier in case of loss of or damage to the cargo and
sixty (60) days from accrual of the right of action for
instituting an action in court, which periods must concur,
petitioners posit that the alleged shorter prescriptive period
which is in the nature of a limitation on petitioners right of
recovery is unreasonable and that SLI has the burden of
proving otherwise, citing the earlier case of Southern Lines,

Inc. vs. Court of Appeals, et al..28 They postulate this on the


theory that the bills of lading containing the same constitute
contracts of adhesion and are, therefore, void for being
contrary to public policy, supposedly pursuant to the dictum
in Sweet Lines, Inc. vs. Teves, et al.29
Furthermore, they contend, since the liability of private
respondents has been clearly established, to bar petitioners
right of recovery on a mere technicality will pave the way for
unjust enrichment.30 Contrarily, SLI asserts and defends the
reasonableness of the time limitation within which claims
should be filed with the carrier; the necessity for the same,
as this condition for the carriers liability is uniformly adopted
by nearly all shipping companies if they are to survive the
concomitant rigors and risks of the shipping industry; and the
countervailing balance afforded by such stipulation to the
legal presumption of negligence under which the carrier
labors in the event of loss of or damage to the cargo.31
It has long been held that Article 366 of the Code of
Commerce applies not only to overland and river
transportation but also to maritime transportation.32
Moreover, we agree that in this jurisdiction, as viewed from
another angle, it is more accurate to state that the filing of a
claim with the carrier within the time limitation therefor
under Article 366 actually constitutes a condition precedent
to the accrual of a right of action against a carrier for
damages caused to the merchandise. The shipper or the
consignee must allege and prove the fulfillment of the
condition and if he omits such allegations and proof, no right
of action against the carrier can accrue in his favor. As the
requirements in Article 366, restated with a slight
modification in the assailed paragraph 5 of the bills of lading,
are reasonable conditions precedent, they are not limitations
of action.33 Being conditions precedent, their performance
must precede a suit for enforcement34 and the vesting of the
right to file suit does not take place until the happening of
these conditions.35

Now, before an action can properly be commenced all the


essential elements of the cause of action must be in
existence, that is, the cause of action must be complete. All
valid conditions precedent to the institution of the particular
action, whether prescribed by statute, fixed by agreement of
the parties or implied by law must be performed or complied
with before commencing the action, unless the conduct of
the adverse party has been such as to prevent or waive
performance or excuse non-performance of the condition.36
It bears restating that a right of action is the right to
presently enforce a cause of action, while a cause of action
consists of the operative facts which give rise to such right of
action. The right of action does not arise until the
performance of all conditions precedent to the action and
may be taken away by the running of the statute of
limitations, through estoppel, or by other circumstances
which do not affect the cause of action.37 Performance or
fulfillment of all conditions precedent upon which a right of
action depends must be sufficiently alleged,38 considering
that the burden of proof to show that a party has a right of
action is upon the person initiating the suit.39
More particularly, where the contract of shipment contains a
reasonable requirement of giving notice of loss of or injury to
the goods, the giving of such notice is a condition precedent
to the action for loss or injury or the right to enforce the
carriers liability. Such requirement is not an empty
formalism. The fundamental reason or purpose of such a
stipulation is not to relieve the carrier from just liability, but
reasonably to inform it that the shipment has been damaged
and that it is charged with liability therefor, and to give it an
opportunity to examine the nature and extent of the injury.
This protects the carrier by affording it an opportunity to
make an investigation of a claim while the matter is fresh
and easily investigated so as to safeguard itself from false
and fraudulent claims.40
Stipulations in bills of lading or other contracts of shipment
which require notice of claim for loss of or damage to goods

shipped in order to impose liability on the carrier operate to


prevent the enforcement of the contract when not complied
with, that is, notice is a condition precedent and the carrier is
not liable if notice is not given in accordance with the
stipulation,41 as the failure to comply with such a stipulation
in a contract of carriage with respect to notice of loss or
claim for damage bars recovery for the loss or damage
suffered.42
On the other hand, the validity of a contractual limitation of
time for filing the suit itself against a carrier shorter than the
statutory period therefor has generally been upheld as such
stipulation merely affects the shippers remedy and does not
affect the liability of the carrier. In the absence of any
statutory limitation and subject only to the requirement on
the reasonableness of the stipulated limitation period, the
parties to a contract of carriage may fix by agreement a
shorter time for the bringing of suit on a claim for the loss of
or damage to the shipment than that provided by the statute
of limitations. Such limitation is not contrary to public policy
for it does not in any way defeat the complete vestiture of
the right to recover, but merely requires the assertion of that
right by action at an earlier period than would be necessary
to defeat it through the operation of the ordinary statute of
limitations.43
In the case at bar, there is neither any showing of compliance
by petitioners with the requirement for the filing of a notice
of claim within the prescribed period nor any allegation to
that effect. It may then be said that while petitioners may
possibly have a cause of action, for failure to comply with the
above condition precedent they lost whatever right of action
they may have in their favor or, taken in another sense, that
remedial right or right to relief had prescribed.44
The shipment in question was discharged into the custody of
the consignee on May 15, 1977, and it was from this date
that petitioners cause of action accrued, with thirty (30)
days therefrom within which to file a claim with the carrier for
any loss or damage which may have been suffered by the

cargo and thereby perfect their right of action. The findings


of respondent court as supported by petitioners formal offer
of evidence in the court below show that the claim was filed
with SLI only on April 28, 1978, way beyond the period
provided in the bills of lading45 and violative of the
contractual provision, the inevitable consequence of which is
the loss of petitioners remedy or right to sue. Even the filing
of the complaint on May 12, 1978 is of no remedial or
practical consequence, since the time limits for the filing
thereof, whether viewed as a condition precedent or as a
prescriptive period, would in this case be productive of the
same result, that is, that petitioners had no right of action to
begin with or, at any rate, their claim was time-barred.
What the court finds rather odd is the fact that petitioner TPI
filed a provisional claim with DVAPSI as early as June 14,
197746 and, as found by the trial court, a survey fixing the
extent of loss of and/or damage to the cargo was conducted
on July 8, 1977 at the instance of petitioners.47 If petitioners
had the opportunity and awareness to file such provisional
claim and to cause a survey to be conducted soon after the
discharge of the cargo, then they could very easily have filed
the necessary formal, or even a provisional, claim with SLI
itself48 within the stipulated period therefor, instead of doing
so only on April 28, 1978 despite the vessels arrival at the
port of destination on May 15, 1977. Their failure to timely
act brings us to no inference other than the fact that
petitioners slept on their rights and they must now face the
consequences of such inaction.
The ratiocination of the Court of Appeals on this aspect is
worth reproducing:
xxx
It must be noted, at this juncture, that the aforestated time
limitation in the presentation of claim for loss or damage, is
but a restatement of the rule prescribed under Art. 366 of the
Code of Commerce which reads as follows:

Art. 366. 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 opening 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 the packages, in which
case the claims shall be admitted only at the time of the
receipt.
After the periods mentioned have elapsed, or the
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.
Gleanable therefrom is the fact that subject stipulation even
lengthened the period for presentation of claims thereunder.
Such modification has been sanctioned by the Supreme
Court. In the case of Ong Yet (M)ua Hardware Co., Inc. vs.
Mitsui Steamship Co., Ltd., et al., 59 O.G. No. 17, p. 2764, it
ruled that Art. 366 of the Code of Commerce can be modified
by a bill of lading prescribing the period of 90 days after
arrival of the ship, for filing of written claim with the carrier or
agent, instead of the 24-hour time limit after delivery
provided in the aforecited legal provision.
Tested, too, under paragraph 5 of said Bill of Lading, it is
crystal clear that the commencement of the instant suit on
May 12, 1978 was indeed fatally late. In view of the express
provision that suits arising from x x x damage or loss shall be
instituted within 60 days from date of accrual of right of
action, the present action necessarily fails on ground of
prescription.
In the absence of constitutional or statutory prohibition, it is
usually held or recognized that it is competent for the parties
to a contract of shipment to agree on a limitation of time
shorter than the statutory period, within which action for
breach of the contract shall be brought, and such limitation
will be enforced if reasonable . . . (13 C.J.S. 496-497)

A perusal of the pertinent provisions of law on the matter


would disclose that there is no constitutional or statutory
prohibition infirming paragraph 5 of subject Bill of Lading.
The stipulated period of 60 days is reasonable enough for
appellees to ascertain the facts and thereafter to sue, if need
be, and the 60-day period agreed upon by the parties which
shortened the statutory period within which to bring action
for breach of contract is valid and binding. x x x. (Emphasis
in the original text.)49
As explained above, the shortened period for filing suit is not
unreasonable and has in fact been generally recognized to be
a valid business practice in the shipping industry. Petitioners
advertence to the Courts holding in the Southern Lines case,
supra, is futile as what was involved was a claim for refund of
excess payment. We ruled therein that non-compliance with
the requirement of filing a notice of claim under Article 366
of the Code of Commerce does not affect the consignees
right of action against the carrier because said requirement
applies only to cases for recovery of damages on account of
loss of or damage to cargo, not to an action for refund of
overpayment, and on the further consideration that neither
the Code of Commerce nor the bills of lading therein provided
any time limitation for suing for refund of money paid in
excess, except only that it be filed within a reasonable time.
The ruling in Sweet Lines categorizing the stipulated
limitation on venue of action provided in the subject bill of
lading as a contract of adhesion and, under the
circumstances therein, void for being contrary to public
policy is evidently likewise unavailing in view of the discrete
environmental facts involved and the fact that the restriction
therein was unreasonable. In any case, Ong Yiu vs. Court of
Appeals, et al.,50 instructs us that contracts of adhesion
wherein one party imposes a ready-made form of contract on
the other x x x are contracts not entirely prohibited. The one
who adheres to the contract is in reality free to reject it
entirely; if he adheres he gives his consent. In the present
case, not even an allegation of ignorance of a party excuses
non-compliance with the contractual stipulations since the

responsibility for ensuring full comprehension of the


provisions of a contract of carriage devolves not on the
carrier but on the owner, shipper, or consignee as the case
may be.
While it is true that substantial compliance with provisions on
filing of claim for loss of or damage to cargo may sometimes
suffice, the invocation of such an assumption must be viewed
vis-a-vis the object or purpose which such a provision seeks
to attain and that is to afford the carrier a reasonable
opportunity to determine the merits and validity of the claim
and to protect itself against unfounded impositions.51
Petitioners would nevertheless adopt an adamant posture
hinged on the issuance by SLI of a Report on Losses and
Damages, dated May 15, 1977,52 from which petitioners
theorize that this charges private respondents with actual
knowledge of the loss and damage involved in the present
case as would obviate the need for or render superfluous the
filing of a claim within the stipulated period.
Withal, it has merely to be pointed out that the
aforementioned report bears this notation at the lower part
thereof: Damaged by Mla. labor upon unloading; B/L noted
at port of origin, as an explanation for the cause of loss of
and/or damage to the cargo, together with an iterative note
stating that (t)his Copy should be submitted together with
your claim invoice or receipt within 30 days from date of
issue otherwise your claim will not be honored.
Moreover, knowledge on the part of the carrier of the loss of
or damage to the goods deducible from the issuance of said
report is not equivalent to nor does it approximate the legal
purpose served by the filing of the requisite claim, that is, to
promptly apprise the carrier about a consignees intention to
file a claim and thus cause the prompt investigation of the
veracity and merit thereof for its protection. It would be an
unfair imposition to require the carrier, upon discovery in the
process of preparing the report on losses or damages of any
and all such loss or damage, to presume the existence of a
claim against it when at that time the carrier is expectedly

concerned merely with accounting for each and every


shipment and assessing its condition. Unless and until a
notice of claim is therewith timely filed, the carrier cannot be
expected to presume that for every loss or damage tallied, a
corresponding claim therefor has been filed or is already in
existence as would alert it to the urgency for an immediate
investigation of the soundness of the claim. The report on
losses and damages is not the claim referred to and required
by the bills of lading for it does not fix responsibility for the
loss or damage, but merely states the condition of the goods
shipped. The claim contemplated herein, in whatever form,
must be something more than a notice that the goods have
been lost or damaged; it must contain a claim for
compensation or indicate an intent to claim.53
Thus, to put the legal effect of respondent carriers report on
losses or damages, the preparation of which is standard
procedure upon unloading of cargo at the port of destination,
on the same level as that of a notice of claim by imploring
substantial compliance is definitely farfetched. Besides, the
cited notation on the carriers report itself makes it clear that
the filing of a notice of claim in any case is imperative if
carrier is to be held liable at all for the loss of or damage to
cargo.
Turning now to respondent DVAPSI and considering that
whatever right of action petitioners may have against
respondent carrier was lost due to their failure to seasonably
file the requisite claim, it would be awkward, to say the least,
that by some convenient process of elimination DVAPSI
should proverbially be left holding the bag, and it would be
pure speculation to assume that DVAPSI is probably
responsible for the loss of or damage to cargo. Unlike a
common carrier, an arrastre operator does not labor under a
presumption of negligence in case of loss, destruction or
deterioration of goods discharged into its custody. In other
words, to hold an arrastre operator liable for loss of and/or
damage to goods entrusted to it there must be preponderant
evidence that it did not exercise due diligence in the handling
and care of the goods.

Petitioners failed to pinpoint liability on any of the original


defendants and in this seemingly wild goose-chase, they
cannot quite put their finger down on when, where, how and
under whose responsibility the loss or damage probably
occurred, or as stated in paragraph 8 of their basic complaint
filed in the court below, whether (u)pon discharge of the
cargoes from the original carrying vessel, the SS VISHVA
YASH, and/or upon discharge of the cargoes from the
interisland vessel the MV SWEET LOVE, in Davao City and
later while in the custody of defendant arrastre operator.54
The testimony of petitioners own witness, Roberto Cabato,
Jr., Marine and Aviation Claims Manager of petitioner
Philamgen, was definitely inconclusive and the responsibility
for the loss or damage could still not be ascertained
therefrom:
Q
In other words, Mr. Cabato, you only computed the loss on
the basis of the figures submitted to you and based on the
documents like the survey certificate and the certificate of
the arrastre?
A

that in your processing and investigation you considered how


the shipment was transported? Where the losses could have
occurred and what is the extent of the respective
responsibilities of the bailees and/or carriers involved?

xxx
A
With respect to the shipment being transported, we have of
course to get into it in order to check whether the shipment
coming in to this port is in accordance with the policy
condition, like in this particular case, the shipment was
transported to Manila and transhipped through an inter-island
vessel in accordance with the policy. With respect to the
losses, we have a general view where losses could have
occurred. Of course we will have to consider the
different bailees wherein the shipment must have passed
through, like the ocean vessel, the interisland vessel and the
arrastre, but definitely at that point and time we cannot
determine the extent of each liability. We are only interested
at that point and time in the liability as regards the
underwriter in accordance with the policy that we issued.

Yes, sir.
Q

xxx

Therefore, Mr. Cabato, you have no idea how or where these


losses were incurred?

A
No, sir.

Mr. Witness, from the documents, namely, the survey of


Manila Adjusters and Surveyors Company, the survey of
Davao Arrastre contractor and the bills of lading issued by
the defendant Sweet Lines, will you be able to tell the
respective liabilities of the bailees and/or carriers concerned?

xxx

No, sir. (Italics ours.)55

Mr. Witness, you said that you processed and investigated


the claim involving the shipment in question. Is it not a fact

Neither did nor could the trial court, much less the Court of
Appeals, precisely establish the stage in the course of the

shipment when the goods were lost, destroyed or damaged.


What can only be inferred from the factual findings of the
trial court is that by the time the cargo was discharged to
DVAPSI, loss or damage had already occurred and that the
same could not have possibly occurred while the same was in
the custody of DVAPSI, as demonstrated by the observations
of the trial court quoted at the start of this opinion.
ACCORDINGLY, on the foregoing premises, the instant
petition is DENIED and the dismissal of the complaint in the
court a quo as decreed by respondent Court of Appeals in its
challenged judgment is hereby AFFIRMED.
SO ORDERED.
Narvasa (C.J., Chairman), Padilla and Nocon, JJ., concur.
Petition denied; judgment affirmed.
Note.Judicial admissions are conclusive and no evidence is
required to prove the same. (Solivio vs. Court of Appeals, 182
[Philippine American General Insurance Co., Inc. vs. Sweet
Lines, Inc., 212 SCRA 194(1992)]

INOCENCIA YU DINO and her HUSBAND doing business under


the trade name CANDY CLAIRE FASHION GARMENTS,
petitioners, vs. COURT OF APPEALS and ROMAN SIO, doing
business under the name UNIVERSAL TOY MASTER
MANUFACTUR-ING, respondents.
Civil Law; Contracts; The contract executed by and between
the petitioners and the respondents was a contract for a
piece of work.As this Court ruled in Engineering &
Machinery Corporation v. Court of Appeals, et al., a contract
for a piece of work, labor and materials may be distinguished
from a contract of sale by the inquiry as to whether the thing
transferred is one not in existence and which would never
have existed but for the order of the person desiring it. In
such case, the contract is one for a piece of work, not a sale.
On the other hand, if the thing subject of the contract would
have existed and been the subject of a sale to some other
person even if the order had not been given then the
contract is one of sale. The contract between the petitioners
and
respondent
stipulated
that
respondent
would
manufacture upon order of the petitioners 20,000 pieces of
vinyl frogs and 20,000 pieces of vinyl mooseheads according
to the samples specified and approved by the petitioners.
Respondent Sio did not ordinarily manufacture these
products, but only upon order of the petitioners and at the
price agreed upon. Clearly, the contract executed by and
between the petitioners and the respondent was a contract
for a piece of work.
Remedial Law; Actions; Prescription; As a rule, the defense of
prescription cannot be raised for the first time on appeal;
Trial courts have authority and discretion to dismiss an action
on the ground of prescription when the parties pleadings or
other facts on record show it to be indeed time-barred,As a
rule, the defense of prescription cannot be raised for the first
time on appeal. Thus, we held in Ramos v. Osorio, viz.: It is
settled law in this jurisdiction that the defense of prescription
is waivable, and that if it was not raised as a defense in the
trial court, it cannot be considered on appeal, the general

rule being that the appellate court is not authorized to


consider and resolve any question not properly raised in the
lower court (Subido vs. Lacson, 55 O.G. 8281, 8285; Moran,
Comments on the Rules of Court, Vol. I, p. 784, 1947
Edition). However, this is not a hard and fast rule. In Gicano
v. Gegato, we held: . . . (T)rial courts have authority and
discretion to dismiss an action on the ground of prescription
when the parties pleadings or other facts on record show it
to be indeed time-barred; (Francisco v. Robles, Feb. 15, 1954;
Sison v. McQuaid, 50 O.G. 97; Bambao v. Lednicky, Jan. 28,
1961; Cordova v. Cordova, Jan. 14, 1958; Convets, Inc. v.
NDC, Feb. 28, 1958; 32 SCRA 529; Sinaon v. Sorongan, 136
SCRA 408); and it may do so on the basis of a motion to
dismiss (Sec. 1, f, Rule 16, Rules of Court), or an answer
which sets up such ground as an affirmative defense (Sec. 5,
Rule 16), or even if the ground is alleged after judgment on
the merits, as in a motion for reconsideration (Ferrer v. Ericta,
84 SCRA 705); or even if the defense has not been asserted
at all, as where no statement thereof is found in the
pleadings (Garcia v. Mathis, 100 SCRA 250; PNB v. Pacific
Commission House, 27 SCRA 766; Chua Lamco v. Dioso, et
al., 97 Phil. 821); or where a defendant has been declared in
default (PNB v. Perez, 16 SCRA 270). What is essential only,
to repeat, is that the facts demonstrating the lapse of the
prescriptive period be otherwise sufficiently and satisfactorily
apparent on the record; either in the averments of the
plaintiffs complaint, or otherwise established by the
evidence. (emphasis supplied)
Same; Same; Same; When the plaintiffs own complaint shows
clearly that the action has prescribed, the action may be
dismissed even if the defense of prescription was not invoked
by the defendant.In Aldovino, et al. v. Alunan, et al., the
Court en banc reiterated the Garcia v. Mathis doctrine cited in
the Gicano case that when the plaintiffs own complaint
shows clearly that the action has prescribed, the action may
be dismissed even if the defense of prescription was not
invoked by the defendant. It is apparent in the records that
respondent made the last delivery of vinyl products to the
petitioners on September 28, 1988. Petitioners admit this in

their Memorandum submitted to the trial court and reiterate


it in their Petition for Review. It is also apparent in the
Complaint that petitioners instituted their action on July 24,
1989. The issue for resolution is whether or not the
respondent Court of Appeals could dismiss the petitioners
action if the defense of prescription was raised for the first
time on appeal but is apparent in the records.
Same; Same; Same; Courts application of the Osorio and
Gicano doctrines to the case at bar is confirmed and now
enshrined in Rule 9, Sec. 1 of the 1997 Rules of Civil
Procedure.This Courts application of the Osorio and Gicano
doctrines to the case at bar is confirmed and now enshrined
in Rule 9, Sec. 1 of the 1997 Rules of Civil Procedure, viz.:
Section 1. Defense and objections not pleaded.Defenses
and objections not pleaded whether in a motion to dismiss or
in the answer are deemed waived. However, when it appears
from the pleadings 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. (Emphasis supplied)
PETITION for review on certiorari of a decision of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Abdul & Maningas Law Offices for petitioners.
Julian S. Yap for private respondent.
D E C I S I O N**
PUNO, J.:
Though people say, better late than never, the law frowns
upon those who assert their rights past the eleventh hour. For
failing to timely institute their action, the petitioners are
forever barred from claiming a sum of money from the
respondent.
This is a petition for review on certiorari to annul and set
aside the amended decision of the respondent court dated
January 24, 1994 reversing its April 30, 1993 decision and

dismissing the plaintiff-petitioners Complaint on the ground


of prescription.
The following undisputed facts gave rise to the case at bar:
Petitioners spouses Dino, doing business under the trade
name Candy Claire Fashion Garment are engaged in the
business of manufacturing and selling shirts.1 Respondent
Sio is part owner and general manager of a manufacturing
corporation doing business under the trade name Universal
Toy Master Manufacturing.2 Petitioners and respondent Sio
entered into a contract whereby the latter would
manufacture for the petitioners 20,000 pieces of vinyl frogs
and 20,000 pieces of vinyl mooseheads at P7.00 per piece in
accordance with the sample approved by the petitioners.
These frogs and mooseheads were to be attached to the
shirts petitioners would manufacture and sell.3
Respondent Sio delivered in several installments the 40,000
pieces of frogs and mooseheads. The last delivery was made
on September 28, 1988. Petitioner fully paid the agreed
price.4 Subsequently, petitioners returned to respondent
29,772 pieces of frogs and mooseheads for failing to comply
with the approved sample.5 The return was made on
different dates: the initial one on December 12, 1988
consisting of 1,720 pieces,6 the second on January 11,
1989,7 and the last on January 17, 1989.8
Petitioners then demanded from the respondent a refund of
the purchase price of the returned goods in the amount of
P208,404.00. As respondent Sio refused to pay,9 petitioners
filed on July 24, 1989 an action for collection of a sum of
money in the Regional Trial Court of Manila, Branch 38.
The trial court ruled in favor of the petitioners, viz.:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiffs Vicente and Inocencia Dino and against defendant
Toy Master Manufacturing, Inc. ordering the latter to pay the
former:
1. The amount of Two Hundred Eight Thousand Four Hundred
Four (P208,404.00) Pesos with legal interest thereon from July
5, 1989, until fully paid; and

2. The amount of Twenty Thousand (P20,000.00) Pesos as


attorneys fees and the costs of this suit.
The counterclaim on the other hand is hereby dismissed for
lack of merit.10
Respondent Sio sought recourse in the Court of Appeals. In
its April 30, 1993 decision, the appellate court affirmed the
trial court decision. Respondent then filed a Motion for
Reconsideration
and
a
Supplemental
Motion
for
Reconsideration alleging therein that the petitioners action
for collection of sum of money based on a breach of warranty
had already prescribed. On January 24, 1994, the respondent
court reversed its decision and dismissed petitioners
Complaint for having been filed beyond the prescriptive
period. The amended decision read in part, viz.
Even if there is failure to raise the affirmative defense of
prescription in a motion to dismiss or in an appropriate
pleading (answer, amended or supplemental answer) and an
amendment would no longer be feasible, still prescription, if
apparent on the face of the complaint may be favorably
considered (Spouses Matias B. Aznar, III, et al. vs. Hon.
Juanito A. Bernad, etc., supra, G.R. 81190, May 9, 1988). The
rule in Gicano vs. Gegato (supra) was reiterated in Severo v.
Court of Appeals, (G.R. No. 84051, May 19, 1989).
WHEREFORE the Motion for Reconsideration is granted. The
judgment of this Court is set aside and judgment is hereby
rendered REVERSING the judgment of the trial court and
dismissing plaintiffs complaint.11
Hence, this petition with the following assignment of errors:
I.
The respondent Court of Appeals seriously erred in dismissing
the complaint of the Petitioners on the ground that the action
had prescribed.
II.
The respondent Court of Appeals seriously erred in holding
that the defense of prescription would still be considered

despite the fact that it was not raised in the answer, if


apparent on the face of the complaint.
We first determine the nature of the action filed in the trial
court to resolve the issue of prescription. Petitioners claim
that the Complaint they filed in the trial court on July 24,
1989 was one for the collection of a sum of money.
Respondent contends that it was an action for breach of
warranty as the sum of money petitioners sought to collect
was actually a refund of the purchase price they paid for the
alleged defective goods they bought from the respondent.
We uphold the respondents contention.
The following provisions of the New Civil Code are apropos:
Art. 1467. A contract for the delivery at a certain price of an
article which the vendor in the ordinary course of his
business manufactures or procures for the general market,
whether the same is on hand at the time or not, is a contract
of sale, but if the goods are to be manufactured specially for
the customer and upon his special order, and not for the
general market, it is a contract for a piece of work.
Art. 1713. By the contract for a piece of work the contractor
binds himself to execute a piece of work for the employer, in
consideration of a certain price or compensation. The
contractor may either employ only his labor or skill, or also
furnish the material.
As this Court ruled in Engineering & Machinery Corporation v.
Court of Appeals, et al.,12 a contract for a piece of work,
labor and materials may be distinguished from a contract of
sale by the inquiry as to whether the thing transferred is one
not in existence and which would never have existed but for
the order of the person desiring it. In such case, the contract
is one for a piece of work, not a sale. On the other hand, if
the thing subject of the contract would have existed and
been the subject of a sale to some other person even if the
order had not been given then the contract is one of sale.13
The contract between the petitioners and respondent
stipulated that respondent would manufacture upon order of
the petitioners 20,000 pieces of vinyl frogs and 20,000 pieces
of vinyl mooseheads according to the samples specified and

approved by the petitioners. Respondent Sio did not


ordinarily manufacture these products, but only upon order of
the petitioners and at the price agreed upon.14 Clearly, the
contract executed by and between the petitioners and the
respondent was a contract for a piece of work. At any rate,
whether the agreement between the parties was one of a
contract of sale or a piece of work, the provisions on
warranty of title against hidden defects in a contract of sale
apply to the case at bar, viz.:
Art. 1714. If the contractor agrees to produce the work from
material furnished by him, he shall deliver the thing produced
to the employer and transfer dominion over the thing. This
contract shall be governed by the following articles as well as
by the pertinent provisions on warranty of title and against
hidden defects and the payment of price in a contract of
sale.
Art. 1561. The vendor shall be responsible for warranty
against the hidden defects which the thing sold may have,
should they render it unfit for the use for which it is intended,
or should they diminish its fitness for such use to such an
extent that, had the vendee been aware thereof, he would
not have acquired it or would have given a lower price for it;
but said vendor shall not be answerable for patent defects or
those which may be visible, or for those which are not visible
if the vendee is an expert who, by reason of his trade or
profession, should have known them.
Petitioners aver that they discovered the defects in
respondents products when customers in their (petitioners)
shirt business came back to them complaining that the frog
and moosehead figures attached to the shirts they bought
were torn. Petitioners allege that they did not readily see
these hidden defects upon their acceptance. A hidden defect
is one which is unknown or could not have been known to the
vendee.15 Petitioners then returned to the respondent
29,772 defective pieces of vinyl products and demanded a
refund of their purchase price in the amount of P208,404.00.
Having failed to collect this amount, they filed an action for
collection of a sum of money.

Article 1567 provides for the remedies available to the


vendee in case of hidden defects, viz.:
Art. 1567. In the cases of Articles 1561, 1562, 1564, 1565
and 1566, the vendee may elect between withdrawing from
the contract and demanding a proportionate reduction of the
price, with damages in either case.
By returning the 29,772 pieces of vinyl products to
respondent and asking for a return of their purchase price,
petitioners were in effect withdrawing from the contract as
provided in Art. 1567. The prescriptive period for this kind of
action is provided in Art. 1571 of the New Civil Code, viz.:
Art. 1571. Actions arising from the provisions of the
preceding ten articles shall be barred after six months from
the delivery of the thing sold. (Emphasis supplied)
There is no dispute that respondent made the last delivery of
the vinyl products to petitioners on September 28, 1988. It is
also settled that the action to recover the purchase price of
the goods petitioners returned to the respondent was filed on
July 24, 1989,16 more than nine months from the date of last
delivery. Petitioners having filed the action three months
after the six-month period for filing actions for breach of
warranty against hidden defects stated in Art. 1571,17 the
appellate court dismissed the action.
Petitioners fault the ruling on the ground that it was too late
in the day for respondent to raise the defense of prescription.
The law then applicable to the case at bar, Rule 9, Sec. 2 of
the Rules of Court, provides:
Defenses and objections not pleaded either in a motion to
dismiss or in the answer are deemed waived; except the
failure to state a cause of action . . .
Thus, they claim that since the respondent failed to raise the
defense of prescription in a motion to dismiss or in its
answer, it is deemed waived and cannot be raised for the
first time on appeal in a motion for reconsideration of the
appellate courts decision.
As a rule, the defense of prescription cannot be raised for the
first time on appeal. Thus, we held in Ramos v. Osorio,18 viz.:

It is settled law in this jurisdiction that the defense of


prescription is waivable, and that if it was not raised as a
defense in the trial court, it cannot be considered on appeal,
the general rule being that the appellate court is not
authorized to consider and resolve any question not properly
raised in the lower court (Subido vs. Lacson, 55 O.G, 8281,
8285; Moran, Comments on the Rules of Court, Vol. I, p. 784,
1947 Edition).
However, this is not a hard and fast rule. In Gicano v.
Gegato,19 we held:
. . . (T)rial courts have authority and discretion to dismiss
an action on the ground of prescription when the parties
pleadings or other facts on record show it to be indeed timebarred; (Francisco v. Robles Feb. 15, 1954; Sison v. McQuaid,
50 O.G. 97; Bambao v. Lednicky, Jan. 28, 1961; Cordova v.
Cordova, Jan. 14, 1958; Convets, Inc. v. NDC, Feb. 28, 1958;
32 SCRA 529; Sinaon v. Sorongan, 136 SCRA 408); and it may
do so on the basis of a motion to dismiss (Sec. 1, f, Rule 16,
Rules of Court), or an answer which sets up such ground as
an affirmative defense (Sec. 5, Rule 16), or even if the ground
is alleged after judgment on the merits, as in a motion for
reconsideration (Ferrer v. Ericta, 84 SCRA 705); or even if the
defense has not been asserted at all, as where no statement
thereof is found in the pleadings (Garcia v. Mathis, 100 SCRA
250; PNB v. Pacific Commission House, 27 SCRA 766; Chua
Lamco v. Dioso, et al., 97 Phil. 821); or where a defendant
has been declared in default (PNB v. Perez, 16 SCRA 270).
What is essential only, to repeat, is that the facts
demonstrating the lapse of the prescriptive period be
otherwise sufficiently and satisfactorily apparent on the
record; either in the averments of the plaintiffs complaint, or
otherwise established by the evidence. (emphasis supplied)
In Aldovino, et al. v. Alunan, et al.,20 the Court en banc
reiterated the Garcia v. Mathis doctrine cited in the Gicano
case that when the plaintiffs own complaint shows clearly
that the action has prescribed, the action may be dismissed
even if the defense of prescription was not invoked by the
defendant.

It is apparent in the records that respondent made the last


delivery of vinyl products to the petitioners on September 28,
1988. Petitioners admit this in their Memorandum submitted
to the trial court and reiterate it in their Petition for Review.21
It is also apparent in the Complaint that petitioners instituted
their action on July 24, 1989. The issue for resolution is
whether or not the respondent Court of Appeals could
dismiss the petitioners action if the defense of prescription
was raised for the first time on appeal but is apparent in the
records.
Following the Gicano doctrine that allows dismissal of an
action on the ground of prescription even after judgment on
the merits, or even if the defense was not raised at all so
long as the relevant dates are clear on the record, we rule
that the action filed by the petitioners has prescribed. The
dates of delivery and institution of the action are undisputed.
There are no new issues of fact arising in connection with the
question of prescription, thus carving out the case at bar as
an exception from the general rule that prescription if not
impleaded in the answer is deemed waived.22
Even if the defense of prescription was raised for the first
time on appeal in respondents Supplemental Motion for
Reconsideration of the appellate courts decision, this does
not militate against the due process right of the petitioners.
On appeal, there was no new issue of fact that arose in
connection with the question of prescription, thus it cannot
be said that petitioners were not given the opportunity to
present evidence in the trial court to meet a factual issue.
Equally important, petitioners had the opportunity to oppose
the defense of prescription in their Opposition to the
Supplemental Motion for Reconsideration filed in the
appellate court and in their Petition for Review in this Court.
This Courts application of the Osorio and Gicano doctrines to
the case at bar is confirmed and now enshrined in Rule 9,
Sec. 1 of the 1997 Rules of Civil Procedure, viz.:
Section 1. Defense and objections not pleaded.Defenses
and objections not pleaded whether in a motion to dismiss or
in the answer are deemed waived. However, when it appears
from the pleadings 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. (Emphasis supplied)
WHEREFORE, the petition is DENIED and the impugned
decision of the Court of Appeals dated January 24, 1994 is
AFFIRMED. No costs.
SO ORDERED.
Davide, Jr. (C.J., Chairman), Kapunan, Pardo and YnaresSantiago, JJ., concur.
Petition denied, judgment affirmed. [Dino vs. Court of
Appeals, 359 SCRA 91(2001)]

LUXURIA HOMES, INC., and/or AIDA M. POSADAS, petitioners,


vs. HONORABLE COURT OF APPEALS, JAMES BUILDER
CONSTRUCTION and/or JAIME T. BRAVO, respondents.
Actions; Courts; Damages; A court is bereft of jurisdiction to
award, in a judgment by default, a relief other than that
specifically prayed for in the complaint.We reiterate that
we cannot award an amount higher than what was claimed in
the complaint. Consequently for the preparation of both the
architectural design and site development plan, respondent
is entitled to the amount of P450,000.00 less partial
payments made in the amount of P25,000.00. In Policarpio v.
RTC of Quezon City, it was held that a court is bereft of
jurisdiction to award, in a judgment by default, a relief other
than that specifically prayed for in the complaint.
Same; Same; Same; Evidence; He who alleges a fact has the
burden of proving it and a mere allegation is not evidence.
For respondents failure to show proof of accomplishment of
the aforesaid services, their claims cannot be granted. In P.T.
Cerna Corp. v. Court of Appeals, we ruled that in civil cases,
the burden of proof rests upon the party who, as determined
by the pleadings or the nature of the case, asserts the
affirmative of an issue. In this case the burden lies on the
complainant, who is duty bound to prove the allegations in
the complaint. As this Court has held, he who alleges a fact
has the burden of proving it and A MERE ALLEGATION IS NOT
EVIDENCE.
Same; Same; Same; Same; After entry of judgment in default
against a defendant who has neither appeared nor answered,
and before final judgment in favor of the plaintiff, the latter
must establish by competent evidence all the material
allegations of his complaint upon which he bases his prayer
for relief.And the rules do not change even if the defendant
is declared in default. In the leading case of Lopez v.
Mendezona, this Court ruled that after entry of judgment in
default against a defendant who has neither appeared nor
answered, and before final judgment in favor of the plaintiff,
the latter must establish by competent evidence all the

material allegations of his complaint upon which he bases his


prayer for relief. In De los Santos v. De la Cruz, this Court
declared that a judgment by default against a defendant
does not imply a waiver of rights except that of being heard
and of presenting evidence in his favor. It does not imply
admission by the defendant of the facts and causes of action
of the plaintiff, because the codal section requires the latter
to adduce his evidence in support of his allegations as an
indispensable condition before final judgment could be given
in his favor. Nor could it be interpreted as an admission by
the defendant that the plaintiffs causes of action finds
support in the law or that the latter is entitled to the relief
prayed for.
Same; Same; Same; Same; Favorable relief can be granted
only after the court has ascertained that the evidence offered
and the facts proven by the presenting party warrant the
grant of the same.We explained the rule in judgments by
default in Pascua v. Florendo, where we said that nowhere is
it stated that the complainants are automatically entitled to
the relief prayed for, once the defendants are declared in
default. Favorable relief can be granted only after the court
has ascertained that the evidence offered and the facts
proven by the presenting party warrant the grant of the
same. Otherwise it would be meaningless to require
presentation of evidence if everytime the other party is
declared in default, a decision would automatically be
rendered in favor of the non-defaulting party and exactly
according to the tenor of his prayer. In Lim Tanhu v. Ramolete
we elaborated and said that a defaulted defendant is not
actually thrown out of court. The rules see to it that any
judgment against him must be in accordance with law. The
evidence to support the plaintiffs 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 the amount or be different in


kind from what is prayed for in the complaint.
Same; Same; Same; Same; The burden of proof of the
damages suffered is on the party claiming the same. It is his
duty to present evidence to support his claim for actual
damages.The prayer for actual damages in the amount of
P500,000.00, supposedly for the bunkhouse/warehouse,
hollow-block factory, lumber, cement, guard, etc., which the
trial court granted and even increased to P1,500,000.00, and
which this Court would have rightly reduced to the amount
prayed for in the complaint, was not established, as shown
upon further review of the record. No receipts or vouchers
were presented by private respondents to show that they
actually spent the amount. In Salas v. Court of Appeals, we
said that the burden of proof of the damages suffered is on
the party claiming the same. It is his duty to present
evidence to support his claim for actual damages. If he failed
to do so, he has only himself to blame if no award for actual
damages is handed down.
Same; Same; Same; Same; To recover actual damages, the
amount of loss must not only be capable of proof but must
actually be proven with reasonable degree of certainty,
premised upon competent proof or best evidence obtainable
of the actual amount thereof.In fine, as we declared in
PNOC Shipping & Transport Corp. v. Court of Appeals, basic is
the rule that to recover actual damages, the amount of loss
must not only be capable of proof but must actually be
proven with reasonable degree of certainty, premised upon
competent proof or best evidence obtainable of the actual
amount thereof.
Same; Contracts; Corporation Law; To disregard the separate
juridical personality of a corporation, the wrongdoing must be
clearly and convincingly established. It cannot be presumed.
The separate personality of the corporation may be
disregarded only when the corporation is used as a cloak or
cover for fraud or illegality, or to work injustice, or where
necessary for the protection of the creditors. To disregard
the separate juridical personality of a corporation, the
wrongdoing must be clearly and convincingly established. It

cannot be presumed. This is elementary. Thus in Bayer-Roxas


v. Court of Appeals, we said that the separate personality of
the corporation may be disregarded only when the
corporation is used as a cloak or cover for fraud or illegality,
or to work injustice, or where necessary for the protection of
the creditors. Accordingly in Del Rosario v. NLRC, where the
Philsa International Placement and Services Corp. was
organized and registered with the POEA in 1981, several
years before the complainant was filed a case in 1985, we
held that this cannot imply fraud.
Same; Same.Obviously in the instant case, private
respondents failed to show proof that petitioner Posadas
acted in bad faith. Consequently since private respondents
failed to show that petitioner Luxuria Homes, Inc., was a
party to any of the supposed transactions, not even to the
agreement to negotiate with and relocate the squatters, it
cannot be held liable, nay jointly and in solidum, to pay
private respondents. In this case since it was petitioner Aida
M. Posadas who contracted respondent Bravo to render the
subject services, only she is liable to pay the amounts
adjudged herein.
Same; Same; There can be no contract in the true sense in
the absence of the element of agreement, or of mutual
assent of the parties.It is fundamental that there can be no
contract in the true sense in the absence of the element of
agreement, or of mutual assent of the parties. To compel
petitioner Posadas, whether as representative of petitioner
Luxuria Homes or in her personal capacity, to execute a
management contract under the terms and conditions of
private respondents would be to violate the principle of
consensuality of contracts. In Philippine National Bank v.
Court of Appeals, we held that if the assent is wanting on the
part of one who contracts, his act has no more efficacy than
if it had been done under duress or by a person of unsound
mind. In ordering petitioner Posadas to execute a
management contract with private respondents, the trial
court in effect is putting her under duress.
Same; Same; At any time prior to the perfection of a
contract, unaccepted offers and proposals remain as such

and cannot be considered as binding commitments; hence


not demandable.The parties are bound to fulfill the
stipulations in a contract only upon its perfection. At any time
prior to the perfection of a contract, unaccepted offers and
proposals remain as such and cannot be considered as
binding commitments; hence not demandable.
PETITION for review on certiorari of a decision of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Ricardo M. Dira for petitioners.
Amado R. Fojas for private respondents.
MARTINEZ, J.:
This petition for review assails the decision of the respondent
Court of Appeals dated March 15, 1996,1 which affirmed with
modification the judgment of default rendered by the
Regional Trial Court of Muntinlupa, Branch 276, in Civil Case
No. 92-2592 granting all the reliefs prayed for in the
complaint of private respondents James Builder Construction
and/or Jaime T. Bravo.
As culled from the record, the facts are as follows:
Petitioner Aida M. Posadas and her two (2) minor children coowned a 1.6 hectare property in Sucat, Muntinlupa, which
was occupied by squatters. Petitioner Posadas entered into
negotiations with private respondent Jaime T. Bravo
regarding the development of the said property into a
residential subdivision. On May 3, 1989, she authorized
private respondent to negotiate with the squatters to leave
the said property. With a written authorization, respondent
Bravo buckled down to work and started negotiations with
the squatters.
Meanwhile, some seven (7) months later, on December 11,
1989, petitioner Posadas and her two (2) children, through a
Deed of Assignment, assigned the said property to petitioner
Luxuria Homes, Inc., purportedly for organizational and tax
avoidance purposes. Respondent Bravo signed as one of the

witnesses to the execution of the Deed of Assignment and


the Articles of Incorporation of petitioner Luxuria Homes, Inc.
Then sometime in 1992, the harmonious and congenial
relationship of petitioner Posadas and respondent Bravo
turned sour when the former supposedly could not accept the
management contracts to develop the 1.6 hectare property
into a residential subdivision, the latter was proposing. In
retaliation, respondent Bravo demanded payment for
services rendered in connection with the development of the
land. In his statement of account dated 21 August 19912
respondent demanded the payment of P1,708,489.00 for
various services rendered, i.e., relocation of squatters,
preparation of the architectural design and site development
plan, survey and fencing.
Petitioner Posadas refused to pay the amount demanded.
Thus, in September 1992, private respondents James Builder
Construction and Jaime T. Bravo instituted a complaint for
specific performance before the trial court against petitioners
Posadas and Luxuria Homes, Inc. Private respondents alleged
therein that petitioner Posadas asked them to clear the
subject parcel of land of squatters for a fee of P1,100,000.00
for which they were partially paid the amount of
P461,511.50, leaving a balance of P638,488.50. They were
also supposedly asked to prepare a site development plan
and an architectural design for a contract price of
P450,000.00 for which they were partially paid the amount of
P25,000.00, leaving a balance of P425,000.00. And in
anticipation of the signing of the land development contract,
they had to construct a bunkhouse and warehouse on the
property which amounted to P300,000.00, and a hollow
blocks factory for P60,000.00. Private respondents also
claimed that petitioner Posadas agreed that private
respondents will develop the land into a first class subdivision
thru a management contract and that petitioner Posadas is
unjustly refusing to comply with her obligation to finalize the
said management contract.
The prayer in the complaint of the private respondents before
the trial court reads as follows:

WHEREFORE, premises considered, it is respectfully prayed


of this Honorable Court that after hearing/trial judgment be
rendered ordering defendant to:
a) Comply with its obligation to deliver/finalize Management
Contract of its land in Sucat, Muntinlupa, Metro Manila and to
pay plaintiff its balance in the amount of P1,708,489.00;
b) Pay plaintiff moral and exemplary damages in the amount
of P500,000.00;
c) Pay plaintiff actual damages in the amount of P500,000.00
(Bunkhouse/warehouseP300,000.00, Hollow-block factory
P60,000.00, lumber, cement, etc.,P120,000.00, guard
P20,000.00);
d) Pay plaintiff attorneys fee of P50,000 plus P700 per
appearance in court and 5% of that which may be awarded
by the court to plaintiff re its monetary claims;
e) Pay cost of this suit.3
On September 27, 1993, the trial court declared petitioner
Posadas in default and allowed the private respondents to
present their evidence ex-parte. On March 8, 1994, it ordered
petitioner Posadas, jointly and in solidum with petitioner
Luxuria Homes, Inc., to pay private respondents as follows:
1. x x x the balance of the payment for the various services
performed by Plaintiff with respect to the land covered by
TCT No. 167895 previously No. 158290 in the total amount of
P1,708,489.00.
2. x x x actual damages incurred for the construction of the
warehouses/bunks, and for the materials used in the total
sum of P1,500,000.00.
3. Moral and exemplary damages of P500,000.00.
4. Attorneys fee of P50,000.00.
5. And cost of this proceedings.
Defendant Aida Posadas as the Representative of the
Corporation Luxuria Homes, Incorporated, is further directed
to execute the management contract she committed to do,
also in consideration of the various undertakings that Plaintiff
rendered for her.4

Aggrieved by the aforecited decision, petitioners appealed to


respondent Court of Appeals, which, as aforestated, affirmed
with modification the decision of the trial court. The appellate
court deleted the award of moral damages on the ground
that respondent James Builder Construction is a corporation
and hence could not experience physical suffering and
mental anguish. It also reduced the award of exemplary
damages. The dispositive portion of the decision reads:
WHEREFORE, the decision appealed from is hereby
AFFIRMED with the modification that the award of moral
damages is ordered deleted and the award of exemplary
damages to the plaintiffs-appellee should only be in the
amount of FIFTY THOUSAND (P50,000.00) PESOS.5
Petitioners motion for reconsideration was denied, prompting
the filing of this petition for review before this Court.
On January 15, 1997, the Third Division of this Court denied
due course to this petition for failing to show convincingly
any reversible error on the part of the Court of Appeals. This
Court however deleted the grant of exemplary damages and
attorneys fees. The Court also reduced the trial courts
award of actual damages from P1,500,000.00 to P500,000.00
reasoning that the grant should not exceed the amount
prayed for in the complaint. In the prayer in the complaint
respondents asked for actual damages in the amount of
P500,000.00 only.
Still feeling aggrieved with the resolution of this Court,
petitioners filed a motion for reconsideration. On March 17,
1997, this Court found merit in the petitioners motion for
reconsideration and reinstated this petition for review.
From their petition for review and motion for reconsideration
before this Court, we now synthesize the issues as follows:
1. Were private respondents able to present ex-parte
sufficient evidence to substantiate the allegations in their
complaint and entitle them to their prayers?
2. Can petitioner Luxuria Homes, Inc., be held liable to
private respondents for the transactions supposedly entered
into between petitioner Posadas and private respondents?

3. Can petitioners be compelled to enter into a management


contract with private respondents?
Petitioners who were declared in default assert that the
private respondents who presented their evidence ex-parte
nonetheless utterly failed to substantiate the allegations in
their complaint and as such cannot be entitled to the reliefs
prayed for.
A perusal of the record shows that petitioner Posadas
contracted respondent Bravo to render various services for
the initial development of the property as shown by vouchers
evidencing payments made by petitioner Posadas to
respondent Bravo for squatter relocation, architectural
design, survey and fencing.
Respondents prepared the architectural design, site
development plan and survey in connection with petitioner
Posadas application with the Housing and Land Use
Regulatory Board (HLURB) for the issuance of the
Development Permit, Preliminary Approval and Locational
Clearance.6 Petitioner benefited from said services as the
Development Permit and the Locational Clearance were
eventually issued by the HLURB in her favor. Petitioner
Posadas is therefore liable to pay for these services rendered
by respondents. The contract price for the survey of the land
is P140,000.00. Petitioner made partial payments totaling
P130,000.00 leaving a payable balance of P10,000.00.
In his testimony,7 he alleged that the agreed price for the
preparation of the site development plan is P500,000.00 and
that the preparation of the architectural designs is for
P450,000, or a total of P950,000.00 for the two contracts. In
his complaint however, respondent Bravo alleged that he was
asked to prepare the site development plan and the
architectural designs x x x for a contract price of P450,000.00
x x x.8 The discrepancy or inconsistency was never
reconciled and clarified.
We reiterate that we cannot award an amount higher than
what was claimed in the complaint. Consequently for the
preparation of both the architectural design and site
development plan, respondent is entitled to the amount of

P450,000.00 less partial payments made in the amount of


P25,000.00. In Policarpio v. RTC of Quezon City,9 it was held
that a court is bereft of jurisdiction to award, in a judgment
by default, a relief other than that specifically prayed for in
the complaint.
As regards the contracts for the ejectment of squatters and
fencing, we believe however that respondents failed to show
proof that they actually fulfilled their commitments therein.
Aside from the bare testimony of respondent Bravo, no other
evidence was presented to show that all the squatters were
ejected from the property. Respondent Bravo failed to show
how many shanties or structures were actually occupying the
property before he entered the same, to serve as basis for
concluding whether the task was finished or not. His
testimony alone that he successfully negotiated for the
ejectment of all the squatters from the property will not
suffice.
Likewise, in the case of fencing, there is no proof that it was
accomplished as alleged. Respondent Bravo claims that he
finished sixty percent (60%) of the fencing project but he
failed to present evidence showing the area sought to be
fenced and the actual area fenced by him. We therefore have
no basis to determining the veracity respondents
allegations. We cannot assume that the said services
rendered for it will be unfair to require petitioner to pay the
full amount claimed in case the respondents obligations were
not completely fulfilled.
For respondents failure to show proof of accomplishment of
the aforesaid services, their claims cannot be granted. In P.T.
Cerna Corp. v. Court of Appeals,10 we ruled that in civil
cases, the burden of proof rests upon the party who, as
determined by the pleadings or the nature of the case,
asserts the affirmative of an issue. In this case the burden
lies on the complainant, who is duty bound to prove the
allegations in the complaint. As this Court has held, he who
alleges a fact has the burden of proving it and A MERE
ALLEGATION IS NOT EVIDENCE.
And the rules do not change even if the defendant is
declared in default. In the leading case of Lopez v.

Mendezona,11 this Court ruled that after entry of judgment in


default against a defendant who has neither appeared nor
answered, and before final judgment in favor of the plaintiff,
the latter must establish by competent evidence all the
material allegations of his complaint upon which he bases his
prayer for relief. In De los Santos v. De la Cruz,12 this Court
declared that a judgment by default against a defendant
does not imply a waiver of rights except that of being heard
and of presenting evidence in his favor. It does not imply
admission by the defendant of the facts and causes of action
of the plaintiff, because the codal section requires the latter
to adduce his evidence in support of his allegations as an
indispensable condition before final judgment could be given
in his favor. Nor could it be interpreted as an admission by
the defendant that the plaintiffs causes of action finds
support in the law or that the latter is entitled to the relief
prayed for.
We explained the rule in judgments by default in Pascua v.
Florendo,13 where we said that nowhere is it stated that the
complainants are automatically entitled to the relief prayed
for, once the defendants are declared in default. Favorable
relief can be granted only after the court has ascertained
that the evidence offered and the facts proven by the
presenting party warrant the grant of the same. Otherwise it
would be meaningless to require presentation of evidence if
everytime the other party is declared in default, a decision
would automatically be rendered in favor of the nondefaulting party and exactly according to the tenor of his
prayer. In Lim Tanhu v. Ramolete14 we elaborated and said
that a defaulted defendant is not actually thrown out of
court. The rules see to it that any judgment against him must
be in accordance with law. The evidence to support the
plaintiffs 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


the amount or be different in kind from what is prayed for in
the complaint.
The prayer for actual damages in the amount of P500,000.00,
supposedly for the bunkhouse/warehouse, hollow-block
factory, lumber, cement, guard, etc., which the trial court
granted and even increased to P1,500,000.00, and which this
Court would have rightly reduced to the amount prayed for in
the complaint, was not established, as shown upon further
review of the record. No receipts or vouchers were presented
by private respondents to show that they actually spent the
amount. In Salas v. Court of Appeals,15 we said that the
burden of proof of the damages suffered is on the party
claiming the same. It is his duty to present evidence to
support his claim for actual damages. If he failed to do so, he
has only himself to blame if no award for actual damages is
handed down.
In fine, as we declared in PNOC Shipping & Transport Corp. v.
Court of Appeals,16 basic is the rule that to recover actual
damages, the amount of loss must not only be capable of
proof but must actually be proven with reasonable degree of
certainty, premised upon competent proof or best evidence
obtainable of the actual amount thereof.
We go to the second issue of whether Luxuria Homes, Inc.,
was a party to the transactions entered into by petitioner
Posadas and private respondents and thus could be held
jointly and severally with petitioner Posadas. Private
respondents contend that petitioner Posadas surreptitiously
formed Luxuria Homes, Inc., and transferred the subject
parcel of land to it to evade payment and defraud creditors,
including private respondents. This allegation does not find
support in the evidence on record.
On the contrary we hold that respondent Court of Appeals
committed a reversible error when it upheld the factual
finding of the trial court that petitioners liability was
aggravated by the fact that Luxuria Homes, Inc., was formed
by petitioner Posadas after demand for payment had been
made, evidently for her to evade payment of her obligation,

thereby showing that the transfer of her property to Luxuria


Homes, Inc., was in fraud of creditors.
We easily glean from the record that private respondents
sent demand letters on 21 August 1991 and 14 September
1991, or more than a year and a half after the execution of
the Deed of Assignment on 11 December 1989, and the
issuance of the Articles of Incorporation of petitioner Luxuria
Homes on 26 January 1990. And, the transfer was made at
the time the relationship between petitioner Posadas and
private respondents was supposedly very pleasant. In fact
the Deed of Assignment dated 11 December 1989 and the
Articles of Incorporation of Luxuria Homes, Inc., issued 26
January 1990 were both signed by respondent Bravo himself
as witness. It cannot be said then that the incorporation of
petitioner Luxuria Homes and the eventual transfer of the
subject property to it were in fraud of private respondents as
such were done with the full knowledge of respondent Bravo
himself.
Besides petitioner Posadas is not the majority stockholder of
petitioner Luxuria Homes, Inc., as erroneously stated by the
lower court. The Articles of Incorporation of petitioner Luxuria
Homes, Inc., clearly show that petitioner Posadas owns
approximately 33% only of the capital stock. Hence petitioner
Posadas cannot be considered as an alter ego of petitioner
Luxuria Homes, Inc.
To disregard the separate juridical personality of a
corporation, the wrongdoing must be clearly and convincingly
established. It cannot be presumed. This is elementary. Thus
in Bayer-Roxas v. Court of Appeals,17 we said that the
separate personality of the corporation may be disregarded
only when the corporation is used as a cloak or cover for
fraud or illegality, or to work injustice, or where necessary for
the protection of the creditors. Accordingly in Del Rosario v.
NLRC,18 where the Philsa International Placement and
Services Corp. was organized and registered with the POEA in
1981, several years before the complainant was filed a case
in 1985, we held that this cannot imply fraud.
Obviously in the instant case, private respondents failed to
show proof that petitioner Posadas acted in bad faith.

Consequently since private respondents failed to show that


petitioner Luxuria Homes, Inc., was a party to any of the
supposed transactions, not even to the agreement to
negotiate with and relocate the squatters, it cannot be held
liable, nay jointly and in solidum, to pay private respondents.
In this case since it was petitioner Aida M. Posadas who
contracted respondent Bravo to render the subject services,
only she is liable to pay the amounts adjudged herein.
We now resolve the third and final issue. Private respondents
urge the court to compel petitioners to execute a
management contract with them on the basis of the
authorization letter dated May 3, 1989. The full text of Exh.
D reads:
I hereby certify that we have duly authorized the bearer,
Engineer Bravo to negotiate, in our behalf, the ejectment of
squatters from our property of 1.6 hectares, more or less, in
Sucat, Muntinlupa. This authority is extended to him as the
representative of the Managers, under our agreement for
them to undertake the development of said area and the
construction of housing units intended to convert the land
into a first class subdivision.
The aforecited document is nothing more than a to-whom-itmay-concern authorization letter to negotiate with the
squatters. Although it appears that there was an agreement
for the development of the area, there is no showing that
same was ever perfected and finalized. Private respondents
presented in evidence only drafts of a proposed management
contract with petitioners handwritten marginal notes but the
management contract was not put in its final form. The
reason why there was no final uncorrected draft was because
the parties could not agree on the stipulations of said
contract, which even private respondents admitted as found
by the trial court.19 As a consequence the management
drafts submitted by the private respondents should at best
be considered as mere unaccepted offers. We find no cogent
reason, considering that the parties no longer are in a
harmonious relationship, for the execution of a contract to
develop a subdivision.

It is fundamental that there can be no contract in the true


sense in the absence of the element of agreement, or of
mutual assent of the parties. To compel petitioner Posadas,
whether as representative of petitioner Luxuria Homes or in
her personal capacity, to execute a management contract
under the terms and conditions of private respondents would
be to violate the principle of consensuality of contracts. In
Philippine National Bank v. Court of Appeals,20 we held that
if the assent is wanting on the part of one who contracts, his
act has no more efficacy than if it had been done under
duress or by a person of unsound mind. In ordering petitioner
Posadas to execute a management contract with private
respondents, the trial court in effect is putting her under
duress.
The parties are bound to fulfill the stipulations in a contract
only upon its perfection. At any time prior to the perfection of
a contract, unaccepted offers and proposals remain as such
and cannot be considered as binding commitments; hence
not demandable.
WHEREFORE, the petition is PARTIALLY GRANTED. The
assailed decision dated March 15, 1996, of respondent
Honorable Court of Appeals and its Resolution dated August
12, 1996, are MODIFIED ordering PETITIONER AIDA M.
POSADAS to pay PRIVATE RESPONDENTS the amount of
P435,000.00 as balance for the preparation of the
architectural design, site development plan and survey. All
other claims of respondents are hereby DENIED for lack of
merit.
SO ORDERED.
Melo, Kapunan and Pardo, JJ., concur.
Davide, Jr., (C.J., Chairman), No part. Former counsel of a
party.
Petition partially granted.
Notes.Requisites of a valid and perfected contract are: (1)
Consent of the contracting parties; (2) Object certain which is
the subject matter of the contract; and (3) Cause of the
obligation which is established. (First Philippine International
Bank vs. Court of Appeals, 252 SCRA 259 [1996])

A contract is a meeting of minds between two persons


whereby one binds himself, with respect to the other, to give
something or to render some service. (Coronel vs. Court of
Appeals, 263 SCRA 15 [1996]) [Luxuria Homes, Inc. vs. Court
of Appeals, 302 SCRA 315(1999)]

HENRY S. OAMINAL, petitioner, vs. PABLITO M. CASTILLO and


GUIA S. CASTILLO, respondents.
Civil Procedure; Jurisdiction; Summons; Where the action is in
personam and the defendant is in the Philippines, the service
of summons may be made through personal or substituted
service in the manner provided for by Sections 6 and 7 of
Rule 14 of the Revised Rules of Court.In civil cases, the trial
court acquires jurisdiction over the person of the defendant
either by the service of summons or by the latters voluntary
appearance and submission to the authority of the former.
Where the action is in personam and the defendant is in the
Philippines, the service of summons may be made through
personal or substituted service in the manner provided for by
Sections 6 and 7 of Rule 14 of the Revised Rules of Court.
Same; Same; Same; Personal service of summons preferred
over substituted service; Circumstances in order for
substituted service of summons may be valid.Personal
service of summons is preferred over substituted service.
Resort to the latter is permitted when the summons cannot
be promptly served on the defendant in person and after
stringent formal and substantive requirements have been
complied with. For substituted service of summons to be
valid, it is necessary to establish the following circumstances:
(a) personal service of summons within a reasonable time
was impossible; (b) efforts were exerted to locate the party;
and (c) the summons was served upon a person of sufficient
age and discretion residing at the partys residence or upon a
competent person in charge of the partys office or regular
place of business. It is likewise required that the pertinent
facts proving these circumstances are stated in the proof of
service or officers return.
Same; Same; Same; Defendants actual receipt of the
summons satisfied the requirements of procedural due
process.That the defendants actual receipt of the
summons satisfied the requirements of procedural due
process had previously been upheld by the Court thus: x x x
[T]here is no question that summons was timely issued and

received by private respondent. In fact, he never denied


actual receipt of such summons but confined himself to the
argument that the Sheriff should prove that personal service
was first made before resorting to substituted service. This
brings to the fore the question of procedural due process. In
Montalban v. Maximo (22 SCRA 1077 [1968]) the Court ruled
that The constitutional requirement of due process exacts
that the service be such as may be reasonably expected to
give the notice desired. Once the service provided by the
rules reasonably accomplishes that end, the requirement of
justice is answered; the traditional notions of fair play are
satisfied; due process is served.
Same; Same; Same; The filing of Motions seeking affirmative
reliefto admit answer, for additional time to file answer, for
reconsideration of a default judgment, and to lift order of
default with motion for reconsiderationare considered
voluntary submission to the jurisdiction of the court.
Assuming arguendo that the service of summons was
defective, such flaw was cured and respondents are deemed
to have submitted themselves to the jurisdiction of the trial
court when they filed an Omnibus Motion to Admit the Motion
to Dismiss and Answer with Counterclaim, an Answer with
Counterclaim, a Motion to Inhibit, and a Motion for
Reconsideration and Plea to Reset Pre-trial. The filing of
Motions seeking affirmative reliefto admit answer, for
additional time to file answer, for reconsideration of a default
judgment, and to lift order of default with motion for
reconsiderationare considered voluntary submission to the
jurisdiction of the court. Having invoked the trial courts
jurisdiction to secure affirmative relief, respondents cannot
after failing to obtain the relief prayed forrepudiate the
very same authority they have invoked.
Same; Certiorari; Certiorari will lie only when a court has
acted without or in excess of jurisdiction or with grave abuse
of discretion; It is axiomatic that the availability of the right
of appeal precludes recourse to the special civil action for
certiorari.Well-settled is the rule that certiorari will lie only
when a court has acted without or in excess of jurisdiction or
with grave abuse of discretion. As a condition for the filing of

a petition for certiorari, Section 1 of Rule 65 of the Rules of


Court additionally requires that no appeal nor any plain,
speedy and adequate remedy in the ordinary course of law
must be available. It is axiomatic that the availability of the
right of appeal precludes recourse to the special civil action
for certiorari.
Same; Default; Courts have repeatedly been admonished
against default orders and judgments that lay more emphasis
on procedural niceties at the expense of substantial justice.
As much as possible, suits should be decided on the merits
and not on technicalities. For this reason, courts have
repeatedly been admonished against default orders and
judgments that lay more emphasis on procedural niceties at
the expense of substantial justice. Not being based upon the
merits of the controversy, such issuances may indeed
amount to a considerable injustice resulting in serious
consequences on the part of the defendant. Thus, it is
necessary to examine carefully the grounds upon which
these orders and judgments are sought to be set aside.
PETITION for review on certiorari of a decision of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Sam Norman G. Fuentes for petitioner.
P.M. Castillo for respondents.
PANGANIBAN, J.:
In the instant case, the receipt of the summons by the legal
secretary of the defendantsrespondents hereinis deemed
proper, because they admit the actual receipt thereof, but
merely question the manner of service. Moreover, when they
asked for affirmative reliefs in several motions and thereby
submitted themselves to the jurisdiction of the trial court,
whatever defects the service of summons may have had
were cured.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules
of Court, seeking to nullify the March 26, 2002 Decision2 of

the Court of Appeals (CA) in CA-GR SP No. 66562. The


assailed Decision disposed thus:
WHEREFORE, the [D]ecision dated 23 August 2001 is hereby
NULLIFIED and SET ASIDE and Civil Case No. OZC-00-13
ordered DISMISSED, without prejudice. Costs against
[petitioner].3
The Antecedents
The antecedents of the case were narrated by the CA as
follows:
On 09 March 2000, [Petitioner Henry Oaminal] filed a
complaint for collection against [Respondents Pablito and
Guia Castillo] with the Regional Trial Court [RTC] of Ozamis
City (Branch 35) x x x. The complaint prayed that
[respondents] be ordered to pay P1,500,000.00 by way of
liquidated damages and P150,000.00 as attorneys fees.
On 30 May 2000, the summons together with the complaint
was served upon Ester Fraginal, secretary of [Respondent]
Mrs. Castillo.
On 06 June 2000, [respondents] filed their Urgent Motion to
Declare Service of Summons Improper and Legally Defective
alleging that the Sheriffs Return has failed to comply with
Section (1), Rule 14 of the Rules of Court or substituted
service of summons.
The scheduled hearing of the Motion on 14 July 2000 did not
take place because x x x [RTC] Judge [Felipe Zapatos] took a
leave of absence from July 17 to 19, 2000[;] hence[,] it was
re-scheduled to 16 August 2000.
On 19 October 2000, [petitioner] filed an Omnibus Motion to
Declare [Respondents] in Default and to Render Judgment
because no answer [was] filed by [the latter].
[Respondents] forthwith filed the following:
a. Omnibus Motion Ad Cautelam to Admit Motion to Dismiss
and Answer with Compulsory Counter-claim dated 9
November 2000 which was set for hearing on 27 November
2000 at 8:30 a.m.;
b. x x x Urgent Motion to Dismiss also dated 9 November
2000 which was also set for hearing on 27 November 2000 at
8:30 a.m. The said motion was anchored on the premise that

x x x [petitioners] complaint was barred by improper venue


and litis pendentia; and
c. Answer with Compulsory Counter-Claim dated 9 November
2000.
On 16 November 2000, x x x [the] judge denied
[respondents] Motion to Dismiss, admitted [their] Answer,
and set the pre-trial [on] 17 January 2001.
On 24 November 2000, [respondents] filed an Urgent
Motion to Inhibit Ad Cautelam against Judge [Zapatos], In
the higher interest of substantial justice and the [r]ule of
[l]aw x x x.
On 27 December 2000, Judge [Zapatos] denied the motion
and transferred the January 17th pre-trial to 19 February
2001.
[Respondents] filed an Urgent Omnibus Motion for
Reconsideration with the Accompanying Plea to Reset dated
22 January 2001. The motion requested that it be set for
consideration and approval by the trial court on 05 February
2001 at 8:30 a.m. Said motion in the main prayed that an
order be issued by the Honorable Court reconsidering its
adverse order dated 16 November 2000, by dismissing the
case at bar on the ground of improper venue or in the
alternative, that the Honorable Presiding Judge reconsider
and set aside its order dated December 27, 2000 by
inhibiting himself from the case at hand.
On 22 May 2001, Judge [Zapatos] ruled that [respondents]
Omnibus Motion Ad Cautelam to Admit Motion to Dismiss
and Answer with Counterclaim was filed outside the period
to file answer, hence he (1) denied the Motion to Admit
Motion to Dismiss and Answer; (2) declared [respondents] in
default; and (3) ordered [petitioner] to present evidence exparte within ten days from receipt of [the] order, [failing]
which, the case will be dismissed.
On 23 August 2001, Judge [Zapatos] rendered a decision on
the merits, with the following dispositi[on]:
WHEREFORE, finding by preponderance of evidence,
judgment is hereby rendered in favor of [petitioner], ordering
[respondents] to pay x x x:

1) P1,500,000.00 by way of [l]iquidated [d]amages;


2) P20,000.00 as attorneys fees and litigation expenses; and
3) x x x cost[s]. 4
On September 11, 2001, respondents filed with the CA a
Petition for certiorari, prohibition and injunction, with a
prayer for a writ of preliminary injunction or temporary
restraining order (TRO). In the main, they raised the issue of
whether the trial court had validly acquired jurisdiction over
them.
On September 20, 2001, the appellate court issued a TRO to
enjoin the lower court from issuing a writ of execution to
enforce the latters decision.
Ruling of the Court of Appeals
The CA ruled that the trial court did not validly acquire
jurisdiction over respondents, because the summons had
been improperly served on them. It based its finding on the
Sheriffs Return, which did not contain any averment that
effort had been exerted to personally serve the summons on
them before substituted service was resorted to. Thus, the
appellate court set aside the trial courts Decision and
dismissed, without prejudice, Civil Case No. OZC-00-13.
Hence, this Petition.5
Issues
Petitioner submits the following issues for our consideration:
I
Whether respondents recourse to a Petition for Certiorari
[was] appropriate when the remedy of appeal was available?
II
Whether the Decision of the trial court attained finality?
III
Whether the Honorable Third Division of the Court of Appeals
[was] correct in entertaining and in granting the Writ of
Certiorari when the facts clearly establish[ed] that not only

was [an] appeal available, but x x x there were other plain,


speedy and adequate remedies in the ordinary course of law?
IV
Whether the Honorable Third Division of the Court of Appeals
had jurisdiction to nullify and set aside the Decision of the
trial court and dismiss the case?
V
[Whether] receipt by a legal secretary of a summons [is
deemed] receipt by a lawyer in contemplation of law?6
Simply stated, the issues boil down to the following: (1)
whether the Petition for certiorari before the CA was proper;
and (2) whether the trial court acquired jurisdiction over
respondents.
Since the Petition for certiorari was granted by the CA based
on the trial courts alleged lack of jurisdiction over
respondents, the second issue shall be discussed ahead of
the former.
The Courts Ruling
The present Petition is partly meritorious.
First Issue:
Jurisdiction over Defendants
Petitioner contends that the trial court validly acquired
jurisdiction over the persons of respondents, because the
latter never denied that they had actually received the
summons through their secretary. Neither did they dispute
her competence to receive it.
Moreover, he argues that respondents automatically
submitted themselves to the jurisdiction of the trial court
when they filed, on November 9, 2000, an Omnibus Motion to
Dismiss or Admit Answer, a Motion to Dismiss on the grounds
of improper venue and litis pendentia, and an Answer with
Counterclaim.
On the other hand, respondents insist that the substituted
service of summons on them was improper. Thus, they allege

that the trial court did not have the authority to render its
August 23, 2001 Decision.
We clarify.
Service of Summons
In civil cases, the trial court acquires jurisdiction over the
person of the defendant either by the service of summons or
by the latters voluntary appearance and submission to the
authority of the former. Where the action is in personam and
the defendant is in the Philippines, the service of summons
may be made through personal or substituted service in the
manner provided for by Sections 6 and 7 of Rule 14 of the
Revised Rules of Court, which read:
Section 6. Service in person on defendant.Whenever
practicable, the summons shall be served by handing a copy
thereof to the defendant in person, or, if he refuses to receive
and sign for it, by tendering it to him.
Section 7. Substituted serviceIf, for justifiable causes, the
defendant cannot be served within a reasonable time as
provided in the preceding section, service may be effected
(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
defendants office or regular place of business with some
competent person in charge thereof.
Personal service of summons is preferred over substituted
service. Resort to the latter is permitted when the summons
cannot be promptly served on the defendant in person and
after stringent formal and substantive requirements have
been complied with.7
For substituted service of summons to be valid, it is
necessary to establish the following circumstances: (a)
personal service of summons within a reasonable time was
impossible; (b) efforts were exerted to locate the party; and
(c) the summons was served upon a person of sufficient age
and discretion residing at the partys residence or upon a
competent person in charge of the partys office or regular
place of business.8 It is likewise required that the pertinent

facts proving these circumstances are stated in the proof of


service or officers return.
In the present case, the Sheriffs Return9 failed to state that
efforts had been made to personally serve the summons on
respondents. Neither did the Return indicate that it was
impossible to do so within a reasonable time. It simply
stated:
THIS IS TO CERTIFY that on the 30th day of May 2000,
copies of the summons together with the complaint and
annexes attached thereto were served upon the defendants
Pablito M. Castillo and Guia B. Castillo at their place of
business at No. 7, 21st Avenue, Cubao, Quezon City thru MS.
ESTER FREGINAL, secretary, who is authorized to receive
such kind of process. She signed in receipt of the original as
evidenced by her signature appearing on the original
summons.
That this return is submitted to inform the Honorable x x x
Court that the same was duly served.10
Nonetheless, nothing in the records shows that respondents
denied actual receipt of the summons through their
secretary, Ester Fraginal. Their Urgent Motion to Declare
Service of Summons Improper and Legally Defective11 did
not deny receipt thereof; it merely assailed the manner of its
service. In fact, they admitted in their Motion that the
summons, together with the complaint, was served by the
Sheriff on Ester Fraginal, secretary of the defendants at No.
7, 21st Avenue, Cubao, Quezon City on 30 May 2000.12
That the defendants actual receipt of the summons satisfied
the requirements of procedural due process had previously
been upheld by the Court thus:
x x x [T]here is no question that summons was timely issued
and received by private respondent. In fact, he never denied
actual receipt of such summons but confined himself to the
argument that the Sheriff should prove that personal service
was first made before resorting to substituted service.
This brings to the fore the question of procedural due
process. In Montalban v. Maximo (22 SCRA 1077 [1968]) the
Court ruled that The constitutional requirement of due

process exacts that the service be such as may be


reasonably expected to give the notice desired. Once the
service provided by the rules reasonably accomplishes that
end, the requirement of justice is answered; the traditional
notions of fair play are satisfied; due process is served. 13
There is likewise no showing that respondents had heretofore
pursued the issue of lack of jurisdiction; neither did they
reserve their right to invoke it in their subsequent pleadings.
If at all, what they avoided forfeiting and waivingboth in
their Omnibus Motion ad Cautelam to Admit Motion to
Dismiss and Answer with Compulsory Counter-Claim14 and in
their Motion to Dismiss15was their right to invoke the
grounds of improper venue and litis pendentia. They argued
therein:
3. x x x. To be sure, the [respondents] have already
prepared a finalized draft of their [M]otion to [D]ismiss the
case at bar, based on the twin compelling grounds of
improper venue and [the] additional fact that there exists a
case between the parties involving the same transaction/s
covered by the plaintiffs cause of action. x x x;
4. That as things now stand, the [respondents] are
confronted with the dilemma of filing their [M]otion to
[D]ismiss based on the legal grounds stated above and thus
avoid forfeiture and waiver of these rights as provided for by
the Rules and also file the corresponding [M]otion to [A]dmit
x x x [A]nswer as mandated by the Omnibus Rule.
xxx
xxx
x x x16
Verily, respondents did not raise in their Motion to Dismiss
the issue of jurisdiction over their persons; they raised only
improper venue and litis pendentia. Hence, whatever defect
there was in the manner of service should be deemed
waived.17
Voluntary Appearance and Submission
Assuming arguendo that the service of summons was
defective, such flaw was cured and respondents are deemed
to have submitted themselves to the jurisdiction of the trial
court when they filed an Omnibus Motion to Admit the Motion
to Dismiss and Answer with Counterclaim, an Answer with

Counterclaim, a Motion to Inhibit, and a Motion for


Reconsideration and Plea to Reset Pretrial. The filing of
Motions seeking affirmative reliefto admit answer, for
additional time to file answer, for reconsideration of a default
judgment, and to lift order of default with motion for
reconsiderationare considered voluntary submission to the
jurisdiction of the court.18 Having invoked the trial courts
jurisdiction to secure affirmative relief, respondents cannot
after failing to obtain the relief prayed forrepudiate the
very same authority they have invoked.19
Second Issue:
Propriety of the Petition for Certiorari
Petitioner contends that the certiorari Petition filed by
respondents before the CA was improper, because other
remedies in the ordinary course of law were available to
them. Thus, he argues that the CA erred when it took
cognizance of and granted the Petition.
Well-settled is the rule that certiorari will lie only when a
court has acted without or in excess of jurisdiction or with
grave abuse of discretion.20 As a condition for the filing of a
petition for certiorari, Section 1 of Rule 65 of the Rules of
Court additionally requires that no appeal nor any plain,
speedy and adequate remedy in the ordinary course of law
must be available.21 It is axiomatic that the availability of
the right of appeal precludes recourse to the special civil
action for certiorari.22
Here, the trial courts judgment was a final Decision that
disposed of the case. It was therefore a fit subject of an
appeal.23 However, instead of appealing the Decision,
respondents filed a Petition for certiorari on September 11,
2001.
Be that as it may, a petition for certiorari may be treated as a
petition for review under Rule 45. Such move is in
accordance with the liberal spirit pervading the Rules of
Court and in the interest of substantial justice, especially (1)
if the petition was filed within the reglementary period for
filing a petition for review;24 (2) errors of judgment are
averred;25 and (3) there is sufficient reason to justify the

relaxation of the rules.26 Besides, it is axiomatic that the


nature of an action is determined by the allegations of the
complaint or petition and the character of the relief
sought.27 The Court explained:
x x x. It cannot x x x be claimed that this petition is being
used as a substitute for appeal after that remedy has been
lost through the fault of petitioner. Moreover, stripped of
allegations of grave abuse of discretion, the petition
actually avers errors of judgment rather than of jurisdiction,
which are the subject of a petition for review.28
The present case satisfies all the above requisites. The
Petition for certiorari before the CA was filed within the
reglementary period of appeal. A review of the records shows
that respondents filed their Petition on September 11, 200
four days after they had received the RTC Decision. Verily,
there were still 11 days to go before the lapse of the period
for filing an appeal. Aside from charging grave abuse of
discretion and lack of jurisdiction, they likewise assigned as
errors the order and the judgment of default as well as the
RTCs allegedly unconscionable and iniquitous award of
liquidated damages.29 We find the latter issue particularly
significant, considering that the trial court awarded
P1,500,000 as liquidated damages without the benefit of a
hearing and out of an obligation impugned by respondents
because of petitioners failure to pay.30 Hence, there are
enough reasons to treat the Petition for certiorari as a
petition for review.
In view of the foregoing, we rule that the Petition effectively
tolled the finality of the trial court Decision.31 Consequently,
the appellate court had jurisdiction to pass upon the assigned
errors. The question that remains is whether it was correct in
setting aside the Decision and in dismissing the case.
Trial Courts Default Orders Erroneous
A review of the assailed Decision reveals that the alleged
lack of jurisdiction of the trial court over the defendants
therein was the reason why the CA nullified the formers
default judgment and dismissed the case without prejudice.

However, we have ruled earlier that the lower court had


acquired jurisdiction over them. Given this fact, the CA erred
in dismissing the case; as a consequence, it failed to rule on
the propriety of the Order and the judgment of default. To
avoid circuitousness and further delay, the Court deems it
necessary to now rule on this issue.
As much as possible, suits should be decided on the merits
and not on technicalities.32 For this reason, courts have
repeatedly been admonished against default orders and
judgments that lay more emphasis on procedural niceties at
the expense of substantial justice.33 Not being based upon
the merits of the controversy, such issuances may indeed
amount to a considerable injustice resulting in serious
consequences on the part of the defendant. Thus, it is
necessary to examine carefully the grounds upon which
these orders and judgments are sought to be set aside.34
Respondents herein were declared in default by the trial
court on May 22, 2001, purportedly because of their delay in
filing an answer. Its unexpected volte face came six months
after it had ruled to admit their Answer on November 16,
2000, as follows:
That with respect to the Motion to Admit Answer, this Court
is not in favor of terminating this case on the basis of
technicality for failure to answer on time, hence, as ruled in
the case of Nantz v. Jugo and Cruz, 43 O.G. No. 11, p. 4620, it
was held:
Lapses in the literal observance of a rule of procedure will be
overlooked when they do not involve public policy, when they
arose from an honest mistake or unforeseen accident, when
they have not prejudiced the adverse party and have not
deprived the court of its authority. Conceived in the best
traditions of practical and moral justice and common sense,
the Rules of Court frown upon hairsplitting technicalities that
do not square with their liberal tendency and with the ends of
justice unless something in the nature of the factors just
stated intervene. x x x
WHEREFORE, x x x in the interest of justice, the Answer of
the [respondents] is hereby admitted.35

Indiana Aerospace University v. Commission on Higher


Education36 held that no practical purpose was served in
declaring the defendants in default when their Answer had
already been filedalbeit after the 15-day period, but before
they were declared as such. Applying that ruling to the
present case, we find that respondents were, therefore,
imprudently declared in default.
WHEREFORE, the Petition is hereby GRANTED IN PART, and
the Decision of the Court of Appeals MODIFIED. The trial
courts Order of Default dated May 22, 2001 and Judgment of
Default dated August 23, 2001 are ANNULLED, and the case
remanded to the trial court for further proceedings on the
merits. No costs.
SO ORDERED.
Puno (Chairman), Sandoval-Gutierrez and Carpio-Morales,
JJ., concur.
Corona, J., On leave.
Petition granted in part, judgment modified.
Note.Compliance with the rules regarding the service of
summons is as much an issue of due process as of
jurisdiction. (Ang Ping vs. Court of Appeals, 310 SCRA 343
[1999]) [Oaminal vs. Castillo, 413 SCRA 189(2003)]

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.
Civil procedure; Rules of procedure should not be used as
tool for denial of substantial justice.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.
Same; Default; When motion to lift order of default is under
both, contains the reasons for failure to answer and as well
as the facts constituting prospective defense, a formal
verification or separate affidavit of merit is not necessary.
When a motion to lift 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.
Same; Same; Jurisdiction; A motion to lift order of default on
ground summons was not served is in order and is in essence
an attack on jurisdiction of the court.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.
Same; Motions; Dismissal of action; Defendants are entitled
to 3-day prior notice of motion to drop them as parties.
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. Such is the correct construction of Section 4
of Rule 15.
Same; Counterclaim; When a counterclaim is compulsory:
Defendants counterclaim is compulsory, not only because
the same evidence to sustain it will also refute the cause or
causes of action alleged in plaintiffs complaint, 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).
Same; Motions to Dismiss Actions; A motion to dismiss an
action against non-defaulted defendants should not be
granted when such defendants and those declared in default
are all indispensable parties to the action.As the plaintiffs
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. x x x
Accordingly, upon these premises, x x x it is clear that all the
six defendants below, defaulted and non-defaulted, are
indispensable parties. x x x 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.
Same; Dismissal of Actions; The Rules of Court does not
comprehend whimsical dropping or adding of parties in a
complaint.The apparent idea below 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 choosethe parties he desires to sue, without
dictation or imposition by the court or the adverse party. x x
x But the truth is that nothing can be more incorrect. Section
11 of Rule 3 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. x x x 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 justjust to all the parties. x x x
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 justmeaning
to all concerned with its legal and factual effects.
Attorneys; Legal ethics; Counsel should not attempt to
befuddle issues of a case.Parties and counsel would be well
advised to avoid such attempts to befuddle the issues as
invariably they 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.
Civil procedure; Default: Being declared in default does not
imply an admission that plaintiffs cause of action is lawful.

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
plaintiffs causes of action find support in the law or that
plaintiff is entitled to the relief prayed for. Being declared in
default does not constitute a waiver of rights except that of
being heard and of presenting evidence in the trial court. x x
x In other words, a defaulted defendant is not actually thrown
out of court. While in a sense it may be said that by
defaulting he leaves himself at the mercy of the court, the
rules see to it that any judgment against him must be in
accordance with law.
Same; Evidence; Defaults; Reception of evidence by clerk of
court after declaration of defendants default is wrong in
principle and orientation and has no basis in any rule. It
should be discontinued.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 plaintiffs evidence when
the defendant is in default. Such a practice is wrong in
principle and orientation. It has no basis in any rule. x x 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.
Same; Same; Same; Trial court should leave enough
opportunity open for possible lifting of default order.It is
preferable to leave enough opportunity open for possible
lifting of the order of default before proceeding with the
reception of the plaintiffs evidence and the rendition of the
decision. x x x The gain in time and dispatched 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.
Same; Same; Same: Where a common cause of action is
averred against several defendants some of whom are
declared in default, the latter have a right to own the
defenses interposed by answering defendants and to expect
a result of the litigation totally common with them in kind
and amount.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 plaintiffs 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 courts 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. x x x 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 latters desistance, for in both contingencies, the
lack of sufficient legal basis must be the cause.
Same; Same; Same; Compromise agreement; Indispensable
parties; Where all defendants are indispensable parties, any
compromise the plaintiff wish to make should await the
courts judgment at which stage the plaintiff may treat the
matter of execution as he may please.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.
Same; Same; Same; Even if a defendant has been declared in
default he is entitled to notice of all further proceedings if he
files a motion to set aside the default order.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 in default,
provided he files a motion to set aside the order of default,
who has not filed such a motion to set aside must still be
served with all substantially amended or supplemental
pleadings.
Same; Same; Same; Pre-trial; Where a defendant was
declared in default during the pre-trial stage there is no need
for an oath or verification of merits of defenses in the motion
to reconsider default order.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. x x x
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 file an
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 petitioners motion for reconsideration was in substance
legally adequate, regardless of whether or not it was under
oath.
Same; Same; Same; Amendment of pleadings; Dropping of a
party in the complaint is substantial and entitles defaulted
defendant to notice thereof.In any event, the dropping of
the defendants Lim and Leonardo from plaintiffs amended
complaint was virtually a second amendment of plaintiffs
complaint. And there can be no doubt that such amendment
was substantial, x x x Accordingly, notice to petitioners of the
plaintiffs 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.
Appeals; Certiorari; A party may resort to remedy of certiorari
rather than appeal where proceedings in trial court has gone
far out of hand as to require prompt action.The proceedings
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.
Civil procedure; Pre-trial; Trial court should consider evidence
adduced at pre-trial in arriving at its judgment on the merits
of an action.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. x x x 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.
Civil law; Evidence; Primary evidence of a marriage is
marriage contract.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.
Partnership; A partner has no obligation to account to anyone
for properties acquired after dissolution of partnership in
absence of proof he violated trust of deceased partner during
existence of partnership.Defendants have no obligation to
account to anyone for such acquisitions (long after the
partnership had been automatically dissolved as a result of
the death of Po Chuan) in the absence of clear proof that
they had violated the trust of Po Chuan during the existence
of the partnership.
Same; Succession; No funds or property may be adjudicated
to her or representative of deceased partner without
liquidation of partnership being first terminated.No specific
amounts or properties may be adjudicated to the heir or legal
representative of the deceased partner without the
liquidation being first terminated.
PETITION for certiorari from an order of the Court of First
Instance of Cebu. Ramolete, J.
The facts are stated in the opinion of the Court.
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 plaintiffs 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) prohition 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 spousespetitioners 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 buildings 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) x x x; 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,
particularly 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 quitclaim 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 of 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 attorneys 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
includes 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 Lim 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
attorneys 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 have 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
Nuez, 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 19, 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 plaintiffs 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
thiswise:
O R D E R
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 respondents
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
defendants, 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 abovementioned 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 Ochays 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 above-quoted pertinent provision (Sec.
3, Rule 18) of the rules. It is not even a verification. (Sec. 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
Ochays 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 contentious 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
plaintiffs 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 exparte 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, plaintiffs motion also
quoted above did not pray for it.

Withal, respondent courts 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
respondents 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 defendants 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 the 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
thereof aforequoted, it arose out of or is necessarily
connected with the occurrence that is the subject matter of
the plaintiffs claim, (Section 4, Rule 9) namely, plaintiffs
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 plaintiffs 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 plaintiffs motion to dismiss, the


action shall not be dismissed against the defendants
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 opportunely 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
plaintiffs 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 nondefaulted 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. I, 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 ordainsit
eliminated those who by law should precisely be joined.
As may be 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 partys theory, is to answer for defendants liability.
Neither may the Court compel him to furnish the means by
which defendant may avoid or mitigate their liability. (Vano
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. x x x (Pages 62-63, Record.)
Noticeably, His Honor has employed the same equivocal
terminology as in plaintiffs 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 choosethe 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 plaintiffs 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 justjust 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
justmeaning 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
respondents 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 counsels 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 they 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 plaintiffs
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 plaintiffs 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 Ill. 328; Ken v.
Leopold, 21 Ill. A. 163; Chicago, etc. Electric R. Co. v.
Krempel, 116 Ill. 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 plaintiffs
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 plaintiffs 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 plaintiffs 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 plaintiffs 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 fromthe 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 others
make default.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 answers thus filed and render judgment
upon the evidence presented. The same procedure 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 fall 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 plaintiffs
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. Pea, 80 Phil. 488.)
Defaulting defendant may ask execution if judgment is in his
favor. (Castro v. Pea, supra.) (Moran, Rules of Court, Vol. 1,
pp. 538-539.).
In Castro vs. Pea, 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 complainants rightsor lack of themin the

controversy have to be the same, and not different, as


against all the defendants 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
plaintiffs 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 bo held also to have inured to the benefit of the
defaulting defendant Matanguihan. Indeed, 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
codefendants 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. Patanaos 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 plaintiffs 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 courts 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 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 or upon the latters 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
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. 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
plaintiffs 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 pretrial, 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 nondefaulted 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 petitioners 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 plaintiffs 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
plaintiffs 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 courts 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 Courts

inherent power of supervision over all kinds of judicial actions


of lower courts. Private respondents 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 nondefaulted 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 therefore 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 nondefaulted, 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 plaintiffs evidence. And as
regards the ex-parte reception of plaintiffs 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 courts 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 nondefaulted 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
certainthis 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 disdainstaking
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 codefendants 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 plaintiffs 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 counsels 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 flowed 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 respondents 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 Honors own statement of plaintiffs 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 were 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 Nuez
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;
x x x x x x
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; x x x. (Pp. 89-91,
Record.) 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
plaintiffs 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 pretrial 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 courts
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 pretrial.
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 nonproduction 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 Nuez, 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
Nuez, thereby making him the real party in interest here
and, therefore, naturally as biased as herself. Besides, in the
portion of the testimony of Nuez copied in Annex C of

petitioners 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, Nuez 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 Siok 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. Nino, 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
plaintiffs 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 I, Miss Tan Ki Eng Alias Tan Put, have
lived with Mr. Lim Po Chuan alias Tee Hoon 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 others 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 KIENG
Verified from the records.
JORGE TABAR
(Pp. 283-284, Record.)
Indeed, not only does this document prove that plaintiffs
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 Puts 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, plaintiffs 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 Chuans 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 Honors 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 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 Nuez 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 Nuez,
respondent court found very explicitly that, and We reiterate:

x x x x x x x;
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; x x x x (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, 40Phil. 796.)
There are other particulars which should have caused His
Honor to readily disbelieve plaintiffs pretensions. Nuez
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 Honors
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 Nuez
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 Chuans 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 L, 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
assessable 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 he 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 SSPre-trial, the reported total assets of the company amounted
to P2,328,460.27 as of December, 1965, and yet, Exhibit TTPre-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 companys goods available for sale

was P5,524,050.87, per Exhibit YY and YY-1-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 II-4, II-4-A, II-5 and II-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 courts 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 1/3
share 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 exparte proceedings against petitioners and the decision of
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 save
and except as herein indicated. Costs against private
respondent.
Makalintal, C.J., Fernando, Aquino and Concepcion Jr., JJ.,
concur.
Petition granted.
Notes.A motion under oath to set aside the courts order of
default stating among others, that the defendant purchased

the land in question by virtue of a deed of absolute sale duly


registered in the Register of Deeds, etc., is a substantial
compliance with Section 3, Rule 38, Rules of Court, and take
the place of an affidavit of merits. Indeed, such defense, if
true, will constitute a meritorious defense. (Quetulio vs.
Ganitano, 17 SCRA 447).
A party may not be held guilty of default for being late less
than two minutes in a newly set date for hearing. (Comeda
vs. Cajilog, 7 SCRA 777).
A judgment by default may be set aside where the defendant
incurred excusable negligence in overlooking the fact that
the month of October consists not of 30 days but of 31 days.
(Mata vs. Flores, 25 SCRA 876).
A default judgment does not pretend to be based on the
merits of the controversy. Its existence is justified by
expediency. It may, however, amount to a positive and
considerable injustice to the defendant. The possibility of
such serious consequences necessarily requires a careful
examination of the circumstances under which a default
order was issued. And when no real injury would result to the
interests of the plaintiff by the reopening of the case, the
only objection to such action would, therefore, be solely on a
technicality. On such an infirm foundation, it would be a
grievous error to sacrifice the substantial rights of a litigant.
For the rules should be liberally interpreted in order to
promote their objective in assisting the parties in obtaining
just, speedy and inexpensive determination of their cases.
(Amante vs. Sunga, 64 SCRA 193).
A defaulting defendant is not entitled to notice of the motion
to declare him in default. (Philippine British Co., Inc. vs. De
los Angeles, 63 SCRA 50).
It is, as a rule, irregular for a trial court to enter an order of
default while a motion to dismiss the case remains pending
and undisposed of. (Mapua vs. Mendoza, 45 Phil. 424; Omico
Mining and Industrial Corp. vs. Vallejos, 63 SCRA 298). [Lim
Tanhu vs. Ramolete, 66 SCRA 425(1975)]

REMINGTON INDUSTRIAL SALES CORPORATION, petitioner, vs.


THE COURT OF APPEALS and BRITISH STEEL (ASIA), LTD.,
respondents.
Actions; Pleadings and Practice; Amendment of Complaints; A
complaint can still be amended as a matter of right before an
answer has been filed, even if there is a pending proceeding
for its dismissal before the higher courtbefore the filing of
an answer, the plaintiff has the absolute right to amend the
complaint whether a new cause of action or change in theory
is introduced.The basic issue in this case is whether or not
the Court of Appeals, by granting the extraordinary writ of
certiorari, correctly ordered the dismissal of the complaint for
failure to state a cause of action, despite the fact that
petitioner exercised its right to amend the defective
complaint under Section 2, Rule 10 of the Rules of Court.
Stated differently, the query posed before us is: can a
complaint still be amended as a matter of right before an
answer has been filed, even if there was a pending
proceeding for its dismissal before the higher court? Section
2, Rule 10 of the Revised Rules of Court explicitly states that
a pleading may be amended as a matter of right before a
responsive pleading is served. This only means that prior to
the filing of an answer, the plaintiff has the absolute right to
amend the complaint whether a new cause of action or
change in theory is introduced. The reason for this rule is
implied in the subsequent Section 3 of Rule 10. Under this
provision, substantial amendment of the complaint is not
allowed without leave of court after an answer has been
served, because any material change in the allegations
contained in the complaint could prejudice the rights of the
defendant who has already set up his defense in the answer.
Same; Same; Same; It cannot be said that the defendants
rights are violated by changes made in the complaint if he
has yet to file an answer thereto.Conversely, it cannot be
said that the defendants rights have been violated by
changes made in the complaint if he has yet to file an answer
thereto. In such an event, the defendant has not presented

any defense that can be altered or affected by the


amendment of the complaint in accordance with Section 2 of
Rule 10. The defendant still retains the unqualified
opportunity to address the allegations against him by
properly setting up his defense in the answer. Considerable
leeway is thus given to the plaintiff to amend his complaint
once, as a matter of right, prior to the filing of an answer by
the defendant.
Same; Same; Same; The right granted to the plaintiff under
procedural law to amend the complaint before an answer has
been served is not precluded by the filing of a motion to
dismiss.The right granted to the plaintiff under procedural
law to amend the complaint before an answer has been
served is not precluded by the filing of a motion to dismiss or
any other proceeding contesting its sufficiency. Were we to
conclude otherwise, the right to amend a pleading under
Section 2, Rule 10 will be rendered nugatory and ineffectual,
since all that a defendant has to do to foreclose this remedial
right is to challenge the adequacy of the complaint before he
files an answer.
Same; Same; Same; The Court finds no practical advantage
in ordering the dismissal of the complaint and for the plaintiff
to re-file the same, when he can still clearly amend the
complaint as a matter of right.In this case, the remedy
espoused by the appellate court in its assailed judgment will
precisely result in multiple suits, involving the same set of
facts and to which the defendants would likely raise the same
or, at least, related defenses. Plainly stated, we find no
practical advantage in ordering the dismissal of the
complaint against respondent and for petitioner to re-file the
same, when the latter can still clearly amend the complaint
as a matter of right. The amendment of the complaint would
not prejudice respondents or delay the action, as this would,
in fact, simplify the case and expedite its disposition.
Same; Same; Same; Where some but not all the defendants
have answered, the plaintiff may still amend its complaint
once, as a matter of right, in respect to claims asserted solely
against the non-answering defendant, but not as to claims
asserted against the other defendants.The fact that the

other defendants below has filed their answers to the


complaint does not bar petitioners right to amend the
complaint as against respondent. Indeed, where some but
not all the defendants have answered, the plaintiff may still
amend its complaint once, as a matter of right, in respect to
claims asserted solely against the non-answering defendant,
but not as to claims asserted against the other defendants.
PETITION for review on certiorari of a decision of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Renato H. Collado for petitioner.
Romulo, Mabanta, Buenaventura, Sayoc & Delos Angeles
for respondent British Steel (Asia) Ltd.
YNARES-SANTIAGO, J.:
Before us is a petition for review under Rule 45 of the Rules
of Court assailing the decision of the Court of Appeals in CAG.R. SP No. 44529 dated February 24, 1998,1 which granted
the petition for certiorari filed by respondent British Steel
Asia Ltd. (British Steel) and ordered the dismissal of
petitioner
Remington
Industrial
Sales
Corporations
(Remington) complaint for sum of money and damages. Also
assailed in this petition is the resolution2 of the Court of
Appeals denying petitioners motion for reconsideration.
The facts of the case, as culled from the records, are as
follows:
On August 21, 1996, petitioner filed a complaint3 for sum of
money and damages arising from breach of contract,
docketed as Civil Case No. 96-79674, before the sala of Judge
Marino M. De la Cruz of the Regional Trial Court of Manila,
Branch 22. Impleaded as principal defendant therein was
Industrial Steels, Ltd. (ISL), with Ferro Trading GMBH (Ferro)
and respondent British Steel as alternative defendants.
ISL and respondent British Steel separately moved for the
dismissal of the complaint on the ground that it failed to
state a cause of action against them. On April 7, 1997, the
RTC denied the motions to dismiss,4 as well as the ensuing

motion for reconsideration.5 ISL then filed its answer to the


complaint.
On the other hand, respondent British Steel filed a petition
for certiorari and prohibition before the Court of Appeals,6
docketed as CA-G.R. SP No. 44529. Respondent claimed
therein that the complaint did not contain a single averment
that respondent committed any act or is guilty of any
omission in violation of petitioners legal rights. Apart from
the allegation in the complaints Jurisdictional Facts that:
1.05. Defendants British Steel (Asia) Ltd. and Ferro Trading
GMBH, while understood by the plaintiff as mere suppliers of
goods for defendant ISL, are impleaded as party defendants
pursuant to Section 13, Rule 3 of the Revised Rules of Court.7
no other reference was made to respondent that would
constitute a valid cause of action against it. Since petitioner
failed to plead any cause of action against respondent as
alternative defendant under Section 13, Rule 3,8 the trial
court should have ordered the dismissal of the complaint
insofar as respondent was concerned.
Meanwhile, petitioner sought to amend its complaint by
incorporating
therein
additional
factual
allegations
constitutive of its cause of action against respondent.
Pursuant to Section 2, Rule 109 of the Rules of Court,
petitioner maintained that it can amend the complaint as a
matter of right because respondent has not yet filed a
responsive pleading thereto.10
Subsequently, petitioner filed a Manifestation and Motion11
in CA-G.R. SP No. 44529 stating that it had filed a Motion to
Admit Amended Complaint together with said Amended
Complaint before the trial court. Hence, petitioner prayed
that the proceedings in the special civil action be suspended.
On January 29, 1998, the trial court ruled on petitioners
Motion to Admit Amended Complaint thus:
WHEREFORE, the Amended Complaint is NOTED and further
proceedings thereon and action on the other incidents as
aforementioned are hereby held in abeyance until final
resolution by the Honorable Court of Appeals (Special 6th
Division) of the petition for certiorari and prohibition of

petitioner (defendant British) and/or Manifestations and


Motions of therein private respondent, herein plaintiff.
SO ORDERED.12
Thereafter, on February 24, 1998, the Court of Appeals
rendered the assailed decision in CA-G.R. SP No. 44529 as
follows:
WHEREFORE, this Court grants the writ of certiorari and
orders the respondent judge to dismiss without prejudice the
Complaint in Civil Case No. 96-79674 against petitioner
British Steel (Asia) Ltd. Costs against private respondent.
SO ORDERED.13
In the same decision, the Court of Appeals addressed
petitioners prayer for suspension of proceedings in this wise:
The incident which transpired after the filing of the instant
petition for certiorari and prohibition are immaterial in the
resolution of this petition. What this Court is called upon to
resolve is whether the lower court committed grave abuse of
discretion when it denied petitioners motion to dismiss the
complaint against it. The admission or rejection by the lower
court of said amended complaint will not, insofar as this
Court is concerned, impinge upon the issue of whether or not
said court gravely abused its discretion in denying
petitioners motion to dismiss.14
Petitioner filed a motion for reconsideration of the appellate
courts decision, which was denied in a resolution dated April
28, 1998. Hence, this petition, anchored on the following
grounds:
-ITHE HON. COURT OF APPEALS ERRED IN ORDERING THE
DISMISSAL OF THE COMPLAINT AGAINST THE PRIVATE
RESPONDENT FOR LACK OF CAUSE OF ACTION UNDER THE
ORIGINAL COMPLAINT EVEN AS SAID COMPLAINT WAS
ALREADY AMENDED AS A MATTER OF RIGHT AND SUFFICIENT
CAUSES OF ACTION ARE AVERRED IN THE AMENDED
COMPLAINT, IN GROSS VIOLATION OF SEC. 2, RULE 10 OF
THE 1997 RULES OF CIVIL PROCEDURE.
-II-

THE HON. COURT OF APPEALS ERRED IN HOLDING THAT IF


THE PETITIONER WANTS TO PURSUE ITS CASE AGAINST THE
PRIVATE RESPONDENT, IT HAS TO REFILE THE COMPLAINT,
THUS PRE-EMPTING THE RIGHT OF THE LOWER COURT TO
RULE ON THE AMENDED COMPLAINT AND COMPELLING THE
PETITIONER TO LITIGATE ITS CAUSES OF ACTION AGAINST
THE PRIVATE RESPONDENT AS AN ALTERNATIVE DEFENDANT
IN A SEPARATE ACTION, THEREBY ABETTING MULTIPLICITY OF
SUITS.15
The basic issue in this case is whether or not the Court of
Appeals, by granting the extraordinary writ of certiorari,
correctly ordered the dismissal of the complaint for failure to
state a cause of action, despite the fact that petitioner
exercised its right to amend the defective complaint under
Section 2, Rule 10 of the Rules of Court. Stated differently,
the query posed before us is: can a complaint still be
amended as a matter of right before an answer has been
filed, even if there was a pending proceeding for its dismissal
before the higher court?
Section 2, Rule 1016 of the Revised Rules of Court explicitly
states that a pleading may be amended as a matter of right
before a responsive pleading is served. This only means that
prior to the filing of an answer, the plaintiff has the absolute
right to amend the complaint whether a new cause of action
or change in theory is introduced.17 The reason for this rule
is implied in the subsequent Section 3 of Rule 10.18 Under
this provision, substantial amendment of the complaint is not
allowed without leave of court after an answer has been
served, because any material change in the allegations
contained in the complaint could prejudice the rights of the
defendant who has already set up his defense in the answer.
Conversely, it cannot be said that the defendants rights
have been violated by changes made in the complaint if he
has yet to file an answer thereto. In such an event, the
defendant has not presented any defense that can be
altered19 or affected by the amendment of the complaint in
accordance with Section 2 of Rule 10. The defendant still
retains the unqualified opportunity to address the allegations

against him by properly setting up his defense in the answer.


Considerable leeway is thus given to the plaintiff to amend
his complaint once, as a matter of right, prior to the filing of
an answer by the defendant.
The right granted to the plaintiff under procedural law to
amend the complaint before an answer has been served is
not precluded by the filing of a motion to dismiss20 or any
other proceeding contesting its sufficiency. Were we to
conclude otherwise, the right to amend a pleading under
Section 2, Rule 10 will be rendered nugatory and ineffectual,
since all that a defendant has to do to foreclose this remedial
right is to challenge the adequacy of the complaint before he
files an answer.
Moreover, amendment of pleadings is favored and should be
liberally allowed in the furtherance of justice in order to
determine every case as far as possible on its merits without
regard to technicalities. This principle is generally recognized
to speed up trial and save party litigants from incurring
unnecessary expense, so that a full hearing on the merits of
every case may be had and multiplicity of suits avoided.21
In this case, the remedy espoused by the appellate court in
its assailed judgment will precisely result in multiple suits,
involving the same set of facts and to which the defendants
would likely raise the same or, at least, related defenses.
Plainly stated, we find no practical advantage in ordering the
dismissal of the complaint against respondent and for
petitioner to re-file the same, when the latter can still clearly
amend the complaint as a matter of right. The amendment of
the complaint would not prejudice respondents or delay the
action, as this would, in fact, simplify the case and expedite
its disposition.
The fact that the other defendants below has filed their
answers to the complaint does not bar petitioners right to
amend the complaint as against respondent. Indeed, where
some but not all the defendants have answered, the plaintiff
may still amend its complaint once, as a matter of right, in
respect to claims asserted solely against the non-answering
defendant, but not as to claims asserted against the other
defendants.22

Furthermore, we do not agree with respondents claim that it


will be prejudiced by the admission of the Amended
Complaint because it had spent time, money and effort to file
its petition before the appellate court.23 We cannot see how
the result could be any different for respondent, if petitioner
merely re-filed the complaint instead of being allowed to
amend it. As adverted to earlier, amendment would even
work to respondents advantage since it will undoubtedly
speed up the proceedings before the trial court.
Consequently, the amendment should be allowed in the case
at bar as a matter of right in accordance with the rules.
WHEREFORE, the petition is GRANTED. The assailed decision
and resolution of the Court of Appeals in CA-G.R. SP No.
44529 dated February 24, 1998 and April 28, 1998,
respectively, are REVERSED and SET ASIDE. The Regional
Trial Court of Manila, Branch 22 is further ordered to ADMIT
petitioners Amended Complaint in Civil Case No. 96-79674
and to conduct further proceedings in said case.
SO ORDERED.
Davide, Jr. (C.J.), Puno, Kapunan and Austria-Martinez, JJ.,
concur.
Petition granted, judgment and resolution reversed and set
aside. RTC-Manila, Br. 22 ordered to admit petitioners
amended complaint.
Notes.The new Section 3 of Rule 10 of the Rules of Court
relaxes further the rule on amendment of pleadingsrefusal
to allow amendments other than those which may be made
as a matter of right under Section 2 may be based only on
the ground that the motion was made with intent to delay.
(Heirs of Marcelino Pagobo vs. Court of Appeals, 280 SCRA
870 [1997])
The filing of an amended pleading does not retroact to the
date of the filing of the original, hence, the statute of
limitations runs until the submission of the amendment.
(Republic vs. Sandiganbayan, 293 SCRA 440 [1998])
An order granting or denying a motion to amend the
complaint on substantial matters is discretionary with the

court. (Zarate vs. RTC of Kalibo, Aklan (Branch 2), 316 SCRA
594 [1999])
Where some but not all the defendants have answered,
plaintiffs may amend their Complaint once, as a matter of
right, in respect to claims asserted solely against the nonanswering defendants, but not as to claims asserted against
the other defendants. (Siasoco vs. Court of Appeals, 303
SCRA 186 [1999]) [Remington Industrial Sales Corporation vs.
Court of Appeals, 382 SCRA 499(2002)]

METROPOLITAN BANK AND TRUST COMPANY, petitioner, vs.


THE PRESIDING JUDGE, REGIONAL TRIAL COURT, Manila
Branch 39, RAYCOR AIRCONTROL SYSTEM, INC. and COURT
OF APPEALS,** respondent
Remedial Law; Civil Procedure; Intervention, defined; A
person may, before or during a trial, be permitted by the
court, in its discretion,to intervene in an action when he is so
situated as to be adversely affected by a distribution or other
disposition of property or has a legal interest in the matter in
litigation.The intervenor in a pending case is entitled to be
heard like any other party. A claim in intervention that seeks
affirmative relief prevents a plaintiff from taking a voluntary
dismissal of the main action. Where a complaint in
intervention was filed before plaintiffs action had been
expressly dismissed, the intervenors complaint was not
subject to dismissal on the ground that no action was
pending, since dismissal of plaintiffs action did not affect the
rights of the intervenor or affect the dismissal of intervenors
complaint. An intervenors petition showing it to be entitled
to affirmative relief will be preserved and heard regardless of
the disposition of the principal action.
Same; Same; Amendments by leave of court; Leave of court
may be refused if it appears that the motion was made with
intent to delay or that the cause of action is substantially
altered.The courts should be liberal in allowing
amendments to pleadings to avoid multiplicity of suits and in
order that the real controversies between the parties are
presented, their rights determined and the case decided on
the merits without unnecessary delay. This liberality is
greatest in the early stages of a lawsuit, especially in this
case where the amendment to the complaint in intervention
was made before trial of the case thereby giving petitioner all
the time allowed by law to answer and to prepare for trial.
PETITION for certiorari to review the decision of the Court of
Appeals. Francisco, J.
The facts are stated in the opinion of the Court.

Balane, Barican, Cruz, Alampay Law Office for petitioner.


Bito, Lozada, Ortega & Castillo for private respondent.
REGALADO, J.:
Before the Court for review on certiorari is the decision of
respondent Court of Appeals in CA-G.R. SP No. 17341, dated
July 19, 1989,1 dismissing petitioners original action for
certiorari and mandamus which seeks to set aside the order
of the trial court dated June 2, 1988, allowing the
intervention suit therein to proceed, and its order of January
11, 1989, admitting the amended complaint in intervention.
The proceedings in the court below from which this appeal
arose, as found by respondent Court of Appeals, are as
follows:
Petitioner Metropolitan Bank and Trust Co. (Metropolitan) in
whose favor a deed of chattel mortgage was executed by
Good Earth Emporium, Inc. (GEE) over certain air
conditioning units installed in the GEE building, filed a
complaint for replevin against Uniwide Sales, Inc. (Uniwide,
for brevity) and the BPI Investment Corporation and several
other banks collectively called BPI-Consortium, for the
recovery of the possession of the air-conditioning units or in
the event they may not be recovered, for the defendants
which acquired the GEE building in an auction sale, (to) be
required, jointly and severally, to pay the plaintiff the unpaid
obligations on the units.
Per paragraph 3.11.3 of its complaint, plaintiff Metrobank
alleged that the air-conditioning units were installed on a
loan of P4,900,000.00 it extended to Good Earth Emporium &
Supermarket, Inc. in its building located at Rizal Avenue, Sta.
Cruz, Manila, after the land and building had been foreclosed
and purchased on June 3, 1983 at public auction by the
defendants, except Uniwide, and in order to secure
repayment of the loan, a deed of chattel mortgage was
constituted over the personal properties listed in the deed
which included the airconditioning units.
It also alleged in par. 3.11.2 of the complaint, that (T)he
loan proceeds were used by GEE to finance the acquisition of

airconditioning equipment from Reycor (sic) Air Control


System, Inc. (amounting to P4,250,000.00 and installation
costs of P650,000.00) under an Agreement of Sale dated 29
June 1984 (Annex A, Petition, id., pp. 23-24).
The defendants filed their Answer, Uniwide on July 25, 1986
(Annex B, Petition, id., pp. 32-48) and the defendants
(presumably the rest of the defendants), on July 14, 1986
(Annex C, Petition, id., pp. 39-49).
On July 17, 1986, Raycor Air Control Systems, Inc. filed a
motion for leave to intervene alleging it has a direct and
immediate interest on the subject matter of the litigation
such that it will either gain or lose by the direct legal
operation and effect of the judgment and attached the
Intervention Complaint (Annex D, Petition, id., pp. 49-52).
There was no opposition to the motion and the intervention
complaint was admitted by the lower court per its order
dated August 8, 1986. Metrobank on November 19, 1986,
filed its Answer To The Intervention Complaint (Annex E,
Petition, id., pp. 53-59).
On August 3, 1987, the lower court set the case for trial on
the merits on September 15, 1987 but before the date of the
trial, on September 7, 1987, plaintiff Metrobank and the
defendants Uniwide and BPI Consortium, filed a motion for
postponement of the scheduled hearing on September 15,
1987 and asked for thirty (30) days from September 15
within which to submit a compromise agreement. On March
15, 1988, plaintiff Metrobank and defendants BPI Consortium
filed a joint motion to dismiss the complaint and on March 18,
1988, the lower court issued the order dismissing the
complaint with prejudice (Annex D to Comment of Raycor Air
Control System, Inc., Rollo, p. 108).
On April 19, 1988, private respondent filed a motion for
reconsideration of the order dismissing the complaint with
prejudice, claiming it was not furnished with copy of the joint
motion for dismissal and that it received the order of
dismissal only on April 4, 1988. On June 2, 1988, the
respondent court issued the order granting the motion for
reconsideration filed by the intervenor (Annex I, Petition, id.,

p. 67) which order is now subject of present petition for


certiorari.
On August 2, 1988, private respondent filed a motion to
admit amended complaint (Annex F, Intervenors Comment,
id., p. 110) and attached the Amended Intervention
Complaint (Annex J, Petition, id., pp. 68-73) to the motion. To
this motion, plaintiff Metrobank filed an opposition (Annex K,
Petition, id., pp. 71-76) and after the intervenor had filed
their Reply (Annex L, Petition, id., pp. 77-81) and the plaintiff
a Rejoinder (Annex M, Petition, id., pp. 82-87), on January 11,
1989, the respondent court issued the order admitting the
amended complaint in intervention (Annex N, Petition, id., p.
88). This is the other order which is subject of the petition for
certiorari.
On February 9, 1989, plaintiff Metrobank filed a motion for
extension for 15 days or until February 24, 1988 within which
to file its answer to the amended complaint in intervention
and the intervenor on February 17, 1989 filed an opposition
to Metrobanks motion and at the same time moved that
Metrobank be declared in default on the amended complaint
in intervention. The respondent court granted Metrobanks
motion and on February 18, 1989, Metrobank filed its Answer
to
the
Amended
Complaint
in
Intervention
with
Counterclaim.2
On April 14, 1989, petitioner filed a petition for certiorari and
mandamus with respondent Court of Appeals contending that
the lower court committed a grave abuse of discretion
amounting to lack of jurisdiction in allowing, per its order of
June 2, 1988, the intervention suit to survive despite the
dismissal of the main action and also in admitting, per its
order of January 11, 1989, the amended complaint in
intervention.3
As earlier stated, the Court of Appeals found no merit in the
petition and dismissed the same on July 19, 1989. Petitioner
is now before us raising the same issues and arguments. We
agree with the Court of Appeals that the lower court was
innocent of any grave abuse of discretion in issuing the
orders complained of.

The contention of petitioner that the order of the lower court,


dated June 2, 1988, has the effect of allowing the
intervention suit to prosper despite the dismissal of the main
action obviously cannot be upheld.
There is here no final dismissal of the main case. The
aforementioned order of the lower court has the effect not
only of allowing the intervention suit to proceed but also of
vacating its previous order of dismissal. The reinstatement of
the case in order to try and determine the claims and rights
of the intervenor is proper. The joint motion of therein
plaintiff and the original defendants to dismiss the case,
without notice to and consent of the intervenor, has the
effect of putting to rest only the respective claims of the said
original parties interse, but the same cannot in any way
affect the claim of private respondent which was allowed by
the court to intervene without opposition from the original
parties. A resum of pertinent rulings on the matter would be
in order.
Intervention is defined as a proceeding in a suit or action by
which a third person is permitted by the court to make
himself a party, either joining plaintiff in claiming what is
sought by the complaint, or uniting with defendant in
resisting the claims of plaintiff, or demanding something
adversely to both of them; the act or proceeding by which a
third person becomes a party in a suit pending between
others; the admission, by leave of court, of a person not an
original party to pending legal proceedings, by which such
person becomes a party thereto for the protection of some
right of interest alleged by him to be affected by such
proceedings.4
Any person who has or claims an interest in the matter in
litigation, in the success of either of the parties to an action,
or against both, may intervene in such action, and when he
has become a party thereto it is error for the court to dismiss
the action, including the intervention suit on the basis of an
agreement between the original parties to the action. Any
settlement made by the plaintiff and the defendant is
necessarily ineffective unless the intervenor is a party to it.5

By the very definition of intervention, the intervenor is a


party to the action as the original parties and to make his
right effectual he must necessarily have the same power as
the original parties, subject to the authority of the court
reasonably to control the proceedings in the case.6
Having been permitted to become a party in order to better
protect his interests, an intervenor is entitled to have the
issues raised between him and the original parties tried and
determined.7 He had submitted himself and his cause of
action to the jurisdiction of the court and was entitled to
relief as though he were himself a party in the action.8
After the intervenor has appeared in the action, the plaintiff
has no absolute right to put the intervenor out of court by the
dismissal of the action. The parties to the original suit have
no power to waive or otherwise annul the substantial rights
of the intervenor. When an intervening petition has been
filed, a plaintiff may not dismiss the action in any respect to
the prejudice of the intervenor.9
It has even been held that the simple fact that the trial court
properly dismissed plaintiffs action does not require
dismissal of the action of the intervenor.10 An intervenor has
the right to claim the benefit of the original suit and to
prosecute it to judgment. The right cannot be defeated by
dismissal of the suit by the plaintiff after the filing of the
petition and notice thereof to the other parties. A person who
has an interest in the subject matter of the action has the
right, on his own motion, to intervene and become a party to
the suit, and even after the complaint has been dismissed,
may proceed to have any actual controversy established by
the pleadings determined in such action. The trial courts
dismissal of plaintiffs action does not require dismissal of the
action of the intervenor.11
The intervenor in a pending case is entitled to be heard like
any other party.12 A claim in intervention that seeks
affirmative relief prevents a plaintiff from taking a voluntary
dismissal of the main action.13 Where a complaint in
intervention was filed before plaintiffs action had been
expressly dismissed, the intervenors complaint was not
subject to dismissal on the ground that no action was

pending, since dismissal of plaintiffs action did not affect the


rights of the intervenor or affect the dismissal of intervenors
complaint.14 An intervenors petition showing it to be
entitled to affirmative relief will be preserved and heard
regardless of the disposition of the principal action.15
As we ruled in Camacho vs. Hon. Court of Appeals, et al.,16
the rationale whereof is clearly applicable to the present
controversy
There is no question that intervention is only collateral or
ancillary to the main action. Hence, it was previously ruled
that the final dismissal of the principal action results in the
dismissal of said ancillary action. The main action having
ceased to exist, there is no pending proceeding whereon the
intervention may be based. In the case at bar, however,
there was no such final or complete dismissal but rather an
approval of a compromise agreement which was embodied in
what was specifically designated as a Partial Decision
affecting only the interests of herein petitioner and the
defendant in said case but not those of her co-plaintiff
municipality and the intervenor. The clear intent of the court
below in making the partial decision is to make a reservation
to determine the rights of the intervenor and, presumably,
the plaintiff municipality. There may be nothing much left to
be done with respect to the main case but as far as the
proceedings in the trial court are concerned, the controversy
therein has not been fully settled and the disposition of the
case is definitely incomplete.
Moreover, to require private respondent to refile another
case for the settlement of its claim will result in unnecessary
delay and expenses and will entail multiplicity of suits and,
therefore, defeat the very purpose of intervention which is to
hear and determine at the same time all conflicting claims
which may be made on the subject matter in litigation, and
to expedite litigation and settle in one action and by a single
judgment the whole controversy among the persons
involved.17
On the propriety of the order dated January 11, 1988,
admitting private respondents amended complaint in
intervention, we sustain respondent Court of Appeals in

upholding the same. Incidentally, it will be recalled that


petitioner was granted the opportunity to file, as it did file, its
answer to the amended complaint in intervention and it even
interposed a counterclaim in the process.
Now, the granting of leave to file an amended pleading is a
matter particularly addressed to the sound discretion of the
trial court and that discretion is broad, subject only to the
limitations that the amendments should not substantially
change the cause of action or alter the theory of the case or
that it was made to delay the action.18 Once exercised, that
discretion will not be disturbed on appeal, except in case of
abuse thereof.19
In the case at bar, a reading of the amended complaint in
intervention shows that it merely supplements an incomplete
allegation of the cause of action stated in the original
complaint so as to submit the real matter in dispute.
Contrary to petitioners contention, it does not substantially
change intervenors cause of action or alter the theory of the
case, hence its allowance is in order.
As aptly stated by the Court of Appeals:
In both the Intervention Complaint and the Amended
Complaint in Intervention, the private respondent seeks the
payment to it of the amount of P150,000.00 which should
have been paid to it from out of the P650,000.00 which the
petitioner as plaintiff in CC 86-3618 had referred to in pars.
3.11.2 and 3.11.3 of its complaint as cost of installation of
the airconditioning units under the agreement of sale
(between plaintiff Metrobank and GEE Inc). dated June 29,
1984 and so basically, the Amended Complaint In
Intervention did not really detract or depart from that basic
claim.20
In determining whether a different cause of action is
introduced by amendments to the complaint, what is to be
ascertained is whether the defendant shall be required to
answer for a liability or legal obligation wholly different from
that which was stated in the original complaint. An
amendment will not be considered as stating a new cause of
action if the facts alleged in the amended complaint show

substantially the same wrong with respect to the same


transaction, or if what are alleged refer to the same matter
but are more fully and differently stated, or where averments
which were implied are made in expressed terms, and the
subject of the controversy or the liability sought to be
enforced remains the same.21
Thecourts should be liberal in allowing amendments to
pleadings to avoid multiplicity of suits and in order that the
real controversies between the parties are presented, their
rights determined and the case decided on the merits
without unnecessary delay.22 This liberality is greatest in the
early stages of a lawsuit,23 especially in this case where the
amendment to the complaint in intervention was made
before trial of the case thereby giving petitioner all the time
allowed by law to answer and to prepare for trial.
On the issue regarding the propriety of the intervention,
suffice it to state that petitioners failure to interpose a timely
objection when the motion for leave to intervene was filed by
private respondent bars the former from belatedly
questioning the validity of the same on appeal. In any event,
the trial court duly considered the circumstances and granted
the motion, which order was not seasonably questioned by
petitioner thus evincing its approval of the courts action.
WHEREFORE, finding no reversible error, the petition is
DENIED and the judgment of respondent Court of Appeals is
hereby AFFIRMED.
SO ORDERED.
Melencio-Herrera (Chairman) and Sarmiento, JJ., concur.
Paras, J., On leave.
Padilla, J., No part; former counsel of BPI Investment,
indirectly if not directly involved in the present case.
Petition denied. Judgment affirmed.
Note.Non-joiner of parties is not a ground for dismissal of
an action. Intervention should have been allowed for an
expeditious and complete determination of the controversy.
(Damasco vs. Damasco, 164 SCRA 200.) [Metropolitan Bank
and Trust Co. vs. Presiding Judge, RTC Manila, Br. 39, 189
SCRA 820(1990)]

WILFREDO P. VERZOSA and PILAR MARTINEZ, petitioners, vs.


COURT OF APPEALS, HON. NICODEMO FERRER, and FE GIRON
USON, respondents.
Remedial Law; Injunctions; Requisites before an injunctive
writ may be issued.An injunctive writ may be issued when
the following requisites are established: (1) The invasion of
the right is material and substantial; (2) The right of
complainant is clear and unmistakable; (3) There is an urgent
and permanent necessity for the writ to prevent serious
damage.
Same; Same; Private respondent had a clear and
unmistakable right to protect her title to and possession of
the mortgaged property by enjoining the foreclosure sale.
The undisputed owner of the property which was mortgaged
to Petitioner Verzosa was private respondent who, upon
learning of the scheduled foreclosure, immediately filed a
Complaint to annul the mortgage, praying that a restraining
order be issued to restrain such foreclosure. Private
respondent insisted that she had paid her P25,000 debt,
except for the remaining unpaid balance of P915.75 which
she was willing to consign to the court. In other words, she
had title to and possession of the property and she claimed
to have paid her obligation, except for the nominal unpaid
balance which she was willing to consign judicially. Hence,
she had a clear and unmistakable right to protect her title to
and possession of the mortgaged property by enjoining the
foreclosure sale.
Same; Same; The status quo is the last actual peaceful
uncontested situation which precedes a controversy, and its
preservation is the office of an injunctive writ.The status
quo is the last actual peaceful uncontested situation which
precedes a controversy, and its preservation is the office of
an injunctive writ.
Same; Same; Pleadings and Practice; Amendments; For
purposes of determining the commencement of a suit, the
original complaint is deemed abandoned and superseded by
the amended complaint only if the amended complaint

introduces a new or different cause of action or demand.In


Ruymann, the Court held that an amendment to a complaint
which introduces a new or different cause of action, making a
new or different demand, is equivalent to a fresh suit upon a
new cause of action, and the statute of limitations continues
to run until the amendment is filed. In the said case, a
complaint for injunction was amended to include a larger
tract of land which had not been included in the original suit.
The Court held that the suit will be deemed to have been
commenced upon the date of amendment, in determining
whether the defendant had acquired title by adverse
possession to the portion of the tract of land not included in
the original complaint (Montgomery v. Shaver, 40 Oregon
244). It is clear therein that the Complaint was amended to
include a new or different cause of action or demand; hence,
it was as if a new complaint was filed. It follows that when
the amended complaint does not introduce new issues,
causes of action, or demands, the suit is deemed to have
commenced on the date the original complaint was filed, not
on the date of the filing of the amended complaint. In other
words, for demands already included in the original
complaint, the suit is deemed to have commenced upon the
filing of such original complaint. In short, for purposes of
determining the commencement of a suit, the original
complaint is deemed abandoned and superseded by the
amended complaint only if the amended complaint
introduces a new or different cause of action or demand.
Same; Same; Same; Same; It is the actual filing in court that
controls and not the date of the formal admission of the
amended pleading.It has been held that an amendment
which merely supplements and amplifies the facts originally
alleged relates back to the date of the commencement of the
action and is not barred by the statute of limitations, the
period of which expires after service of the original complaint
but before service of amendment. It is the actual filing in
court that controls and not the date of the formal admission
of the amended pleading.
Same; Same; Same; The Court of Appeals was correct in
upholding the trial court that the status quo was the situation

of the parties at the time of the filing of the original


complaint.In the instant case, the Amended Complaint did
not introduce a new or different cause of action or demand.
The original complaint was amended only to rectify the lack
of verification and thereafter to implead Martinez, who had
purchased the contested property from Verzosa. In the same
vein, Waje and Paradise do not apply because the Amended
Complaints therein alleged new causes of action. Similarly
unavailing is petitioners contention that the injunctive writ
was applied retroactively and, hence, violative of Ruymann
and other subsequent cases. To repeat, Ruymann was
wrongly applied by petitioners. There being no new issues
introduced in the Amended Complaint herein, the present
suit is deemed to have commenced on the date of the filing
of the original Complaint. Hence, the CA was correct in
upholding the trial court that the status quo was the situation
of the parties at the time of the filing of the original
Complaint.
Same; Same; Generally consummated acts can no longer be
restrained by injunction.Where the acts have been
performed prior to the filing of the injunction suit, the general
rule is that consummated acts can no longer be restrained by
injunction. However, where the acts are performed after the
injunction suit is brought, a defendant may not as [a matter]
of right proceed to perform the acts sought to be restrained
and then be heard to assert in the suit that the injunction will
not lie because he has performed these acts before final
hearing has been had, but after the beginning of the action.
A defendant thus acts at his peril. It has been held that
[t]he general rule of law is that, where a defendant
completes, after the beginning of an action, the act thereby
sought to be restrained, and before the issue of any final
order or decree, the court has the power to, and may,
compel, by a mandatory injunction, the restoration of the
former condition of things and thereby prevent the giving of
an advantage by reason of the wrongful act. And where a
defendant does an act thus sought to be restrained, he
proceeds at his peril, and the court in which the action is

pending may compel a restoration of the former status or


grant to the plaintiff such relief as may be proper.
Same; Same; Even where an injunction has not been issued,
if the suit is one for injunction, the defendant, if he does the
thing sought to be enjoined does so at his peril.In this case,
an action was brought to enjoin Petitioner Verzosa from
proceeding with the mortgage sale, yet he proceeded to do
so while the action was still pending. Such conduct is
reprehensible. If one in the face of a pending suit for
injunction, does the thing sought to be enjoined, he cannot
thus outwit equity and the court, but must restore the status
quo. x x x Even where an injunction has not been issued, if
the suit is one for injunction, the defendant, if he does the
thing sought to be enjoined does so at his peril. Hence, in
proceeding with the mortgage sale and subsequently selling
the property to Pilar Martinez, Petitioner Verzosa was acting
at his peril.
PETITION for review on certiorari of a decision of the Court of
Appeals.
The facts are stated in the opinion of the Court.
R.S. Declaro, Jr. & Associates for petitioner.
Raul B. Villanueva for Pilar Martinez.
Renato G. de la Cruz for private respondent.
PANGANIBAN, J.:
What constitutes the status quo ante in the application of an
injunctive writ, in the event a complaint is subsequently
amended?
The Case
This is the main question raised in the present Petition for
Review seeking to set aside the consolidated January 31,
1994 Decision1 of the Court of Appeals2 in CA-GR SP No.
26626 and CA-GR SP No. 27300, which dismissed the
petitions in this wise:
Succinctly put, petitioners have failed to show any grave
abuse of discretion, or any act without or in excess of

jurisdiction, on the part of respondent judge in issuing the


assailed orders.
WHEREFORE, the instant petitions are hereby dismissed for
lack of merit.
Also assailed is the public respondents February 28, 1995
Resolution3 denying the Motion for Reconsideration.
Facts of the Case
The undisputed facts, as narrated by the Court of Appeals
(CA) and reiterated by petitioners, are as follows:4
Records reveal that Fe Giron Uson is the owner of a parcel of
land consisting of 19,955 square meters located at Baquioen,
Sual, Pangasinan, covered by O.C.T. No. 12783. She
mortgaged the land to Wilfredo Verzosa.
Fe Uson failed to pay her entire obligation to Verzosa,
prompting the latter to have the mortgage foreclosed. On
July 21, 1988, the Provincial Sheriff of Pangasinan set the
foreclosure sale on August 17, 1988 at 10:00 A.M.
To prevent the Office of the Provincial Sheriff from
proceeding with the foreclosure sale, Fe Uson, on August 12,
1988, filed with the Regional Trial Court, Branch 37, Lingayen,
Pangasinan, a complaint against Wilfredo Verzosa and the
Provincial Sheriff, docketed as Civil Case No. 16590, for
annulment of mortgage with prayer for the issuance of a writ
of preliminary injunction.
On August 22, 1988, defendant Verzosa filed a motion to
dismiss the complaint.
On June 8, 1989, the complaint was dismissed on the ground
that it was not personally verified by plaintiff Fe Uson.
On June 27, 1989, Fe Uson filed a motion for reconsideration
which was granted by the court.
On June 29, 1989, she filed her amended complaint which
bears the proper verification.
Meantime, Verzosa wrote the Provincial Sheriff to proceed
with the foreclosure of mortgage.
Whereupon, Fe Uson, through counsel, wrote the Provincial
Sheriff requesting him to discontinue the foreclosure sale in

deference to the said pending case and to the action to be


taken by the Honorable Presiding Judge of the Court.
On July 4, 1989, the foreclosure sale was conducted by the
sheriff. The property was sold to Verzosa being the highest
bidder. Thereafter, the Sheriffs Certificate of Sale was
approved by Executive Judge Antonio Belen and issued to
Verzosa.
On September 5, 1989, the trial court issued an order
admitting the amended complaint of Fe Uson.
At this point, Verzosa filed with the Court of Appeals CA-G.R.
SP No. 18898 for certiorari. He alleged that the said order,
admitting the amended complaint was issued with grave
abuse of discretion.
On June 20, 1990, the Sheriffs Certificate of Sale was
registered in the Registry of Deeds of Alaminos, Pangasinan.
On July 5, 1990, or after the expiration of the redemption
period of one year, the defendant Sheriff issued the Sheriffs
Final Deed of Sale. Thus, O.C.T. No. 12783 in Fe Usons name
was cancelled and in lieu thereof, T.C.T. No. 11087 was issued
in the name of Wilfredo Verzosa.
On July 12, 1990, Verzosa sold the land to Pilar Martinez. As
a result, Verzosas T.C.T. No. 11087 was cancelled and T.C.T.
No. 11107 was issued to Martinez.
Meantime, on October 16, 1990, or after one year from the
filing of Verzosas petition for certiorari with the Court of
Appeals, the said court dismissed the petition, thus
sustaining the validity of respondent courts order dated
September 5, 1989 admitting Fe Usons amended complaint.
On May 20, 1991, Fe Uson filed her second amended
complaint impleading as additional defendants the Register
of Deeds of Alaminos, Pangasinan and Pilar Martinez and
praying, among others, the annulment of the latters title
T.C.T. No. 11107.
On August 20, 1991, upon Usons application for preliminary
injunction embodied in her Second Amended Complaint
(which was opposed by Verzosa and Martinez), respondent
court issued an order directing the latter to cease and desist
from entering, making constructions and performing any act

of possession or ownership over the land in question covered


by O.C.T. No. 12783, upon posting by plaintiff Uson of a bond
of P10,000.00.
Defendant Martinez filed a motion for consideration which
was denied on September 18, 1991.
On October 30, 1991, after hearing and upon posting of a
bond in the amount of P10,000.00 by Uson, respondent Judge
issued an order directing defendants Verzosa and Martinez
and/or any and other persons acting under their command to
desist and cease from entering, intruding and making
constructions on the land covered by O.C.T. No. 12783.
On November 22, 1991, respondent judge, acting on
Verzosas motion for clarification of the order dated
September 18, 1991, issued an order to the effect that the
status quo being maintained is the possession of plaintiff Fe
Uson of the land and that such status quo does not refer to
defendant Pilar Martinez being the registered owner of T.C.T.
No. 11107.
It should be noted that the Complaint alleged that Private
Respondent Uson mortgaged the property to Verzosa for
P25,000, and that the remaining unpaid balance was
P915.75, an amount she was willing to consign to the trial
court.5
Petitioners challenged by certiorari the two orders of the trial
court. Because the CA dismissed their petition, petitioners
availed themselves of the present recourse.6
Public Respondents Ruling
In dismissing the petition for certiorari, the Court of Appeals
held that the last peaceable uncontested status that
preceded the controversy [was] that point x x x when private
respondent Fe Uson was the registered owner of the land in
dispute mortgaged to petitioner Verzosa. As owner of this
property, Fe Uson has every right to protect her rights as
such. Clearly, the issuance of the writ would certainly
preserve that status quo.7
In debunking petitioners theory that the status quo referred
to the period when Martinez had already purchased the

property from Verzosa, the Court of Appeals held that the


property was registered in her name two years after the start
of the controversy, or when private respondent filed her
complaint against Verzosa.8 Thus, the CA sustained the
following findings of the trial court:9
For as long as the instant case (Civil Case No. 16590)
remains pending, no act of the defendants subsequent to the
filing of this case can make TCT No. 11107 in the name of
defendant Pilar Martinez, and the alleged possession of the
latter of the property in question, valid and be considered the
status quo.
Issues
Petitioners raise the following issues for the consideration of
the Court:10
I The Court of Appeals erred in not taking into account or
dealing squarely with the nature, effects and proper
interpretation and/or application of the doctrine on
amendment of pleadings/complaints to the instant case.
II The Court of Appeals erred when it concurred with the
Respondent judge that the status quo should be reckoned at
the time of the filing of the original complaint.
III The Court of Appeals erred when it completely disregarded
the legal implications and effects of foreclosure, foreclosure
sale, expiration of the redemption period, the consolidation of
ownership to your petitioner and the sale to Pilar Martinez.
IV The Court of Appeals erred when it concurred with the
respondent judge in granting an injunction to restrain
consummated acts, and in forcing a transfer of possession
from Pilar Martinez to private respondent Fe Uson who has
not shown her right thereto.
The present controversy hinges on two questions. First, is
private respondent entitled to an injunctive writ? Second,
what is the status quo ante that the said writ seeks to
preserve?
The Courts Ruling
The petition is devoid of merit.
First Issue:

Issuance of the Injunctive Writ


Petitioners primarily allege that the injunctive writ was
wrongfully issued in favor of private respondent, as the latter
had a doubtful, unclear and unadjudicated right for recovery
of the property which had been mortgaged, foreclosed and
sold to a third party. We disagree.
An injunctive writ may be issued when the following
requisites are established:
1. The invasion of the right is material and substantial;
2. The right of complainant is clear and unmistakable;
3. There is an urgent and permanent necessity for the writ to
prevent serious damage.11
The foregoing requisites are present in this case. The
undisputed owner of the property which was mortgaged to
Petitioner Verzosa was private respondent who, upon learning
of the scheduled foreclosure, immediately filed a Complaint
to annul the mortgage, praying that a restraining order be
issued to restrain such foreclosure. Private respondent
insisted that she had paid her P25,000 debt, except for the
remaining unpaid balance of P915.75 which she was willing
to consign to the court. In other words, she had title to and
possession of the property and she claimed to have paid her
obligation, except for the nominal unpaid balance which she
was willing to consign judicially. Hence, she had a clear and
unmistakable right to protect her title to and possession of
the mortgaged property by enjoining the foreclosure sale.
Given the above factual allegations, it is clear that private
respondent was entitled to the injunctive writ.
Second Issue: Status Quo Ante
The status quo is the last actual peaceful uncontested
situation which precedes a controversy, and its preservation
is the office of an injunctive writ.12 Petitioners insist that the
status quo refers to the point when Pilar Martinez was
already the owner of the property, having purchased it from
Verzosa.
We cannot sustain the petitioners, for Martinez claim to the
property is precisely the bone of contention. Private
respondent, the original owner of the property, filed a

Complaint against Wilfredo Verzosa and the provincial sheriff


for the annulment of mortgage and the issuance of an
injunctive writ to prevent the foreclosure of the property and
the subsequent transfer of ownership. Although the
Complaint was subsequently amended, the controversy
began when the first Complaint was filed.
Nevertheless, Petitioner Verzosa and the sheriff proceeded
with the foreclosure before the filing of the Amended
Complaint. Worse, Verzosa sold the property to Martinez one
week later. Now, Verzosa and Martinez claim that the status
quo to be preserved refers to the time before the filing of the
second Complaint and after Martinez had acquired the
property from Verzosa.
Petitioners contend that the controversy started only when
the Amended Complaint was filed, because the previous
Complaints were expunged from the records. Petitioners
invoke Ruymann v. Director of Lands,13 in which the Court
ruled that the filing of an amended pleading does not
retroact to the date of the filing of the original. Citing other
jurisprudence, such as Waje v. Court of Appeals 14 and
Paradise v. Ng,15 petitioners contend that the original
pleading is deemed abandoned when it is amended.
The cited cases offer scant support to the thesis of
petitioners. In Ruymann, the Court held that an amendment
to a complaint which introduces a new or different cause of
action, making a new or different demand, is equivalent to a
fresh suit upon a new cause of action, and the statute of
limitations continues to run until the amendment is filed.16
In the said case, a complaint for injunction was amended to
include a larger tract of land which had not been included in
the original suit. The Court held that the suit will be deemed
to have been commenced upon the date of amendment, in
determining whether the defendant had acquired title by
adverse possession to the portion of the tract of land not
included in the original complaint (Montgomery v. Shaver, 40
Oregon 244).17 It is clear therein that the Complaint was
amended to include a new or different cause of action or
demand; hence, it was as if a new complaint was filed.

It follows that when the amended complaint does not


introduce new issues, causes of action, or demands, the suit
is deemed to have commenced on the date the original
complaint was filed, not on the date of the filing of the
amended complaint. In other words, for demands already
included in the original complaint, the suit is deemed to have
commenced upon the filing of such original complaint. In
short, for purposes of determining the commencement of a
suit, the original complaint is deemed abandoned and
superseded by the amended complaint only if the amended
complaint introduces a new or different cause of action or
demand.
Hence, it has been held that an amendment which merely
supplements and amplifies the facts originally alleged relates
back to the date of the commencement of the action and is
not barred by the statute of limitations, the period of which
expires after service of the original complaint but before
service of amendment.18 It is the actual filing in court that
controls and not the date of the formal admission of the
amended pleading.19 The Court in Republic v. Marsman 20
elucidated:
While in the procedural sense, especially in relation to the
possible necessity of and time for the filing of responsive and
other corresponding pleadings, an amended complaint is
deemed filed only as of the date of its admission, x x x, the
self-evident proposition [is] that for practical reasons and to
avoid the complications that may arise from undue delays in
the admission thereof, such an amended complaint must be
considered as filed, for the purpose of such a substantive
matter as prescription, on the date it is actually filed with the
court, regardless of when it is ultimately formally admitted by
the court. After all, the only purpose of requiring leave of and
formal admission by the court of an amended pleading after
issues have already been joined as to the original ones is to
prevent the injection of other issues which ought either to be
considered as barred already or made the subject of another
proceeding, if they are not anyway indispensable for the
resolution of the original ones and no unnecessary
multiplicity of suits would result; so, when the court

ultimately admits the amendment, the legal effect, for


substantive purposes, of such admission retroacts as a rule
to the date of its actual filing.
In the instant case, the Amended Complaint did not introduce
a new or different cause of action or demand. The original
Complaint was amended only to rectify the lack of
verification and thereafter to implead Martinez, who had
purchased the contested property from Verzosa.
In the same vein, Waje and Paradise do not apply because
the Amended Complaints therein alleged new causes of
action.
Similarly unavailing is petitioners contention that the
injunctive writ was applied retroactively and, hence, violative
of Ruymann and other subsequent cases. To repeat,
Ruymann was wrongly applied by petitioners. There being no
new issues introduced in the Amended Complaint herein, the
present suit is deemed to have commenced on the date of
the filing of the original Complaint. Hence, the CA was correct
in upholding the trial court that the status quo was the
situation of the parties at the time of the filing of the original
Complaint.
Finally, petitioners assert that Respondent Court violated the
well-entrenched doctrine that consummated acts can no
longer be restrained by injunction. As earlier noted, despite
the fact that Pilar Martinez already had title to and
possession of the disputed property, the CA affirmed the
order of the trial court enjoining her from entering, intruding
and making construction and/or performing any act of
ownership or possession and any activity over the land x x
x. Petitioners cite the following ruling in Reyes v. Harty:21
It is a universal principle of the law that an injunction will
not issue to restrain the performance of an act already done.
It is undisputed proof in this case, presented by the plaintiffs
themselves, that, at the time this [case] was tried, the
plaintiffs had been completely dispossessed, the defendant
being in full and complete possession of the lands in question
x x x.

Again, the case cited by petitioner is incongruous with the


factual milieu of the present controversy. In that case, the
party praying for an injunctive writ had been completely
dispossessed of the land in question prior to the
commencement of the action. In the case at bar, private
respondent was still the owner and was in possession of the
property at the time the original Complaint was filed. The
rule is that a court should not by means of preliminary
injunction transfer the property in litigation from the
possession of one party to another where the legal title is in
dispute and the party having possession asserts ownership
thereto.22 When private respondent filed the original
Complaint, she had title to and possession of the property
and was asserting ownership thereto.
Where the acts have been performed prior to the filing of the
injunction suit, the general rule is that consummated acts
can no longer be restrained by injunction. However, where
the acts are performed after the injunction suit is brought, a
defendant may not as [a matter] of right proceed to perform
the acts sought to be restrained and then be heard to assert
in the suit that the injunction will not lie because he has
performed these acts before final hearing has been had, but
after the beginning of the action. A defendant thus acts at his
peril.23 It has been held that [t]he general rule of law is
that, where a defendant completes, after the beginning of an
action, the act thereby sought to be restrained, and before
the issue of any final order or decree, the court has the
power to, and may, compel, by a mandatory injunction, the
restoration of the former condition of things and thereby
prevent the giving of an advantage by reason of the wrongful
act. And where a defendant does an act thus sought to be
restrained, he proceeds at his peril, and the court in which
the action is pending may compel a restoration of the former
status or grant to the plaintiff such relief as may be
proper.24
In this case, an action was brought to enjoin Petitioner
Verzosa from proceeding with the mortgage sale, yet he
proceeded to do so while the action was still pending. Such
conduct is reprehensible. If one in the face of a pending suit

for injunction, does the thing sought to be enjoined, he


cannot thus outwit equity and the court, but must restore the
status quo. x x x Even where an injunction has not been
issued, if the suit is one for injunction, the defendant, if he
does the thing sought to be enjoined does so at his peril.25
Hence, in proceeding with the mortgage sale and
subsequently selling the property to Pilar Martinez, Petitioner
Verzosa was acting at his peril.
Clearly, the Respondent Court did not err in sustaining the
Decision of the lower court that the status quo to be
maintained was the situation when title to and possession of
the property were still with Private Respondent Uson. The
precise ruling of the appellate court is aptly reproduced
hereunder:
When the present Civil Case No. 16590 was commenced on
August 12, 1988, the property in dispute was still covered by
Original Certificate of Title No. 12783, in the name of plaintiff
Fe Giron Uson, and there is no dispute that the possession of
the said property was still with the plaintiff. That is the status
quo sought to be maintained in the questioned preliminary
injunction. It is, therefore, incorrect for defendant Wilfredo P.
Verzosa to claim that the status quo refers to Transfer
Certificate of Title No. 11107 in the name of Pilar Martinez,
which is precisely what is sought to be annul[l]ed in the
present case, and that the possessor of the property is
defendant Pilar Martinez who may possibly have entered into
the property while the present case has long been pending,
and by virtue of the purported sale of the same to her by
defendant Verzosa, whose claim of ownership thereof is, in
turn, based on the sheriffs sale which is also the very subject
matter of the present case for annulment.26
WHEREFORE, the petition is DENIED for lack of merit and the
assailed Decision of the Court of Appeals is AFFIRMED.
SO ORDERED.
Davide, Jr. (Chairman), Bellosillo, Vitug and Quisumbing,
JJ., concur.
Petition denied, judgment affirmed.

Note.The office of the writ of injunction is to restrain the


wrongdoer, not to protect him. (Villanueva vs. Court of
Appeals, 259 SCRA 14 [1996]) [Verzosa vs. Court of Appeals,
299 SCRA 100(1998)]

Luis ENGUERRA, plaintiff and appellant, vs. ANTONIO


DOLOSA, defendant and appellee.
Pleading and practice; Computation of time.Rule 28 of the
Rules of Court adopts the exclude-the-first and include-thelast day method for computing any period of time.
Same; Motion to dismiss; When not pro forma; Effect on
period for filing answer.A motion to dismiss is not pro forma
where it expresses, not only the legal grounds for the motion,
but also the particular and concrete facts upon which said
grounds rely, and its presentation suspends the running of
the period for the filing of defendants answer.
Same; Splitting a cause of action.Where the alleged
violations spring from one and the same breach of the
contract of employment, then there is only one cause of
action. Hence only one suit should be filed.
APPEAL from an order of the Court of First Instance of
Sorsogon.
The facts are stated in the opinion of the Court.
Esteban Escalante, Jr. for plaintiff-appellant.
Ruben M. Paps for defendant-appellee.
CONCEPCION, C.J.:
Appeal, by plaintiff Luis Enguerra, from an order of dismissal
of the Court of First Instance of Sorsogon.
Plaintiff Enguerra was chief baker for the De Lux Bakery and
Grocery, in Sorsogon, Sorsogon, from June 18, 1959 to
October 8, 1961. On December 14, 1961, he filed, with the
municipal court of Sorsogon, Sorsogon, a complaint, against
defendant Antonio Dolosa, as owner of said establishment, to
recover the sum of P4,056.00, for unpaid overtime services
allegedly rendered during said period. The court having later
dismissed said complaint, Enguerra appealed to the Court of
First Instance of Sorsogon, where the case was docketed as
Civil Case No. 1800.

Soon thereafter, or on January 24, 1963, Enguerra filed, with


the same Court of First Instance, another complaint against
Dolosa, which was docketed as Civil Case No. 1804, to
recover the following:
1.
Termination Pay ...............................
P 392.74
2.
Underpayment of wages ....................
64.20
3.
Compensatory Damages, unearned
income from unjustified dismissal
6,363.22
4.
Compensatory Damages, unpaid
overtime ......................................
4,347.89
5.
Moral Damages ................................
5,000.00
Exemplary Damages .........................
2,500.00
Attorneys fees.................................
3,500.00
On motion of Dolosa, he was granted, on February 6, 1963,
an extension of 30 days, counted from to-day, to submit his
answer. On March 8, 1963, he filed, instead, a motion to
dismiss, upon the ground that said pending case No. 1800 is
an action between the same parties for the same cause of
action, and that the complaint in case No. 1804 violates the
rule against splitting a cause of action. Subsequently, or on
March 12, 1963, Enguerra sought to have Dolosa declared in
default, upon the ground that his motion to dismiss has been

filed one (1) day late, and that it was merely pro forma,
because of which it did not suspend the running of the period
to file his answer. The Court of First Instance granted the
motion to dismiss and denied the motion to declare Dolosa in
default. A reconsideration of the orders to this effect having
been denied, Enguerra interposed the present appeal,
directly to the Supreme Court, alleging that the lower court
had erred (a) in not declaring Dolosa in default; and (b) in
dismissing the complaint herein.
As regards the first alleged error, Enguerra maintains that the
extension of 30 days granted in the order of February 6,
1963, expired on March 7, 1963, because the order stated
that said period should be counted from today, which,
Enguerra maintains, should be understood to maintain from
February 6 to March 7, 1963. An identical theory was rejected
in Ulpiando vs. Court of Agrarian Relations1, in the following
language:
The petitioners raise procedural questions. On 2 August
1957 the respondents received a copy of the decision dated
22 July 1957 (See Annexes E & F). On 15 August they filed a
petition for extension of time to file motion for
reconsideration, dated 13 August, because of lack of
material time to read the voluminous transcript of
stenographic notes and for that reason they could not readily
formulate their arguments in support of the motion for
reconsideration (Annex F). On the same day, 15 August, the
Court entered an order granting the respondents fifteen (15)
days counted from today within which to file their motion for
reconsideration of the decision rendered on July 29, 1957
(should be 22) in the instant case. (Italics supplied.) On
August 30, the respondents mailed their motion for
reconsideration in the post office of Cuyapo, Nueva Ecija. The
petitioners claim that counting from 15 August, the day the
15-day period commenced to run, to 30 August, when the
respondents mailed their motion for reconsideration, 16 days
already had elapsed, and contend that the Court had already
lost jurisdiction of the case and could no longer reconsider its
decision dated 22 July.
xxx
xxx
xxx

Rule 28 of the Rules of Court provides:


In computing any period of time prescribed or allowed by
these rules, by order of court, or by any applicable statute,
the day of the act, event, or default after which the
designated period of time begins to run is not to be included.
The last day of the period so computed is to be included,
unless it is a Sunday or a legal holiday, in which event the
time shall run until the end of the next day which is neither a
Sunday nor a holiday.
This rule adopts the exclude-the-first and include-the-last day
method for computing any period of time. Therefore,
excluding the day when the order granting their petition for
extension of time to file motion for reconsideration was
entered by the Court (15 August) and including the day the
respondents mailed their motion for reconsideration (30
August), only 15 days had elapsed. Hence, the respondents
motion for reconsideration was filed within the extension of
time granted by the Court.
No reason had been advanced, and we find none, to depart
from this view, which is in line with the spirit and the letter of
our laws and the Rules of Court, and is, accordingly,
reiterated.
As regards the second procedural ground of the objection to
the motion to dismiss, it should be noted that a motion is
said to be pro forma when it is apparent therefrom that the
movant has not endeavored to make it reasonably persuasive
or convincing, his purpose being merely to gain time or to
delay the proceedings. In the case at bar, the motion
explicitly states that there is another action pending
between the same parties for the same cause, namely: Luis
Enguerra vs. Antonio DolosaCivil Case No. 1800, now
pending before this Honorable Court; and that the filing of
the above-entitled case is a violation of the rule against
splitting a cause of action.
Having thus expressed, not only the legal grounds for the
motion, but, also the particular and concrete facts upon
which said grounds relywith specification of the title and
number of the case on which the motion was based and of

the court before which the case is pending, coupled with the
other circumstances hereinafter adverted to and appearing in
the records of both casessaid motion, manifestly, is not pro
forma2 and its presentation suspended the running of the
period for the filing of de-fendants answer.
The next and most important question for determination is
whether or not Civil Case No. 1800 is for the same cause of
action as Civil Case No. 1804, both being admittedly between
the same parties. In this connection, it should be noted that
the basis of the complaints in both cases is the same,
namely: that Enguerras rights as Dolosas chief baker, from
June 18, 1959 to October 8, 1961, have been violated by the
latter. The alleged violations may have several aspects, such
as: 1) underpayment of wages; 2) nonpayment of overtime;
3) transfer, allegedly equivalent to unjustified dismissal, and,
hence, the claim for separation pay; 4) damages
(compensatory, moral and exemplary, and attorneys fees).
Yet, the cause of actionthe spring from which the right to
sue emanateswas only one and the same breach of their
contract of employment, without which none of the claims
made by plaintiff would have no leg to stand on.
The statutory provisions regarding termination pay, minimum
wage, overtime and damages are as much a part of said
contract of employment as the pertinent provisions of the
Civil Code on obligations and contracts, in general, and on
lease of services, in particular. The difference between
underpayment of wages on a given day and nonpayment of
overtime for work done on the same day, is notinsofar as
the cause of action therefore is concernedmaterially at
variance from that which exists between said underpayment
of wages for the day given and the similar underpayment of
wages for the next day. Indeed, if one month later, the
aggrieved laborer should decide to sue the employer for
breach of contract, it is obvious that the former cannot file a
complaint for some effects of such breach, and another
complaint for its other effects. He must include in the
complaint his claim for the underpayment for the
aforementioned two (2) days, both being overdue at the time
of the commencement of the action.3 Similarly, if

underpayment of the minimum wage for a given day or


month were coupled with failure or refusal to pay overtime,
for the same day or month, a complaint filed thereafter
should include both, underpayment of wages and overtime
pay. In other words, Courts should not sanction a complaint
for one, and another action for the other. Hence, in his own
complaint herein, plaintiff has, in fact, included his claims for
alleged underpayment of wages, overtime, compensatory,
moral, and exemplary damages, and attorneys fees, under
one cause of action.
He is in estoppel, therefore, to deny that the cause of action
asserted in both cases is one and the same. At any rate, it is
clear that the overtime claimed in the present case is the
very object of Case No. 1800. Moreover, it is well settled that
damages incidental to a cause of action cannot be made the
subject of a suit independent from the principal cause.4
WHEREFORE, the order appealed from should be, as it is
hereby, affirmed, with costs against plaintiff, Luis Enguerra. It
is so ordered
Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro,
Angeles and Fernando, JJ., concur.
Bengzon, J.P., J., is on leave.
Order affirmed. [Enguerra vs. Dolosa, 21 SCRA 241(1967)]

LAFARGE CEMENT PHILIPPINES, INC., (formerly Lafarge


Philippines, Inc.), LUZON CONTINENTAL LAND CORPORATION,
CONTINENTAL
OPERATING
CORPORATION
and
PHILIP
ROSEBERG,
petitioners,
vs.
CONTINENTAL
CEMENT
CORPORATION, GREGORY T. LIM and ANTHONY A. MARIANO,
respondents.
Actions; Counterclaims; Pleadings and Practice; Words and
Phrases; Counterclaims are defined as any claim which a
defending party may have against an opposing party.
Counterclaims are defined in Section 6 of Rule 6 of the Rules
of Civil Procedure as any claim which a defending party may
have against an opposing party. They are generally allowed
in order to avoid a multiplicity of suits and to facilitate the
disposition of the whole controversy in a single action, such
that the defendants demand may be adjudged by a
counterclaim rather than by an independent suit. The only
limitations to this principle are (1) that the court should have
jurisdiction over the subject matter of the counterclaim, and
(2) that it could acquire jurisdiction over third parties whose
presence is essential for its adjudication.
Same; Same; Same; A counterclaim is permissive if it does
not arise out of or is not necessarily connected with the
subject matter of the opposing partys claim.A
counterclaim may either be permissive or compulsory. It is
permissive if it does not arise out of or is not necessarily
connected with the subject matter of the opposing partys
claim. A permissive counterclaim is essentially an
independent claim that may be filed separately in another
case. A counterclaim is compulsory when its object arises
out of or is necessarily connected with the transaction or
occurrence constituting the subject matter of the opposing
partys claim and does not require for its adjudication the
presence of third parties of whom the court cannot acquire
jurisdiction.
Same; Same; Same; Compelling Test of Compulsoriness;
Criteria to Determine Whether a Counterclaim is Compulsory
or Permissive; The compelling test of compulsoriness

characterizes a counterclaim as compulsory if there should


exist a logical relationship between the main claim and the
counterclaim.Unlike permissive counterclaims, compulsory
counterclaims should be set up in the same action;
otherwise, they would be barred forever. NAMARCO v.
Federation of United Namarco Distributors laid down the
following criteria to determine whether a counterclaim is
compulsory or permissive: 1) Are issues of fact and law
raised by the claim and by the counterclaim largely the
same? 2) Would res judicata bar a subsequent suit on
defendants claim, absent the compulsory counterclaim rule?
3) Will substantially the same evidence support or refute
plaintiffs claim as well as defendants counterclaim? 4) Is
there any logical relation between the claim and the
counterclaim? A positive answer to all four questions would
indicate that the counterclaim is compulsory. Adopted in
Quintanilla v. CA and reiterated in Alday v. FGU Insurance
Corporation, the compelling test of compulsoriness
characterizes a counterclaim as compulsory if there should
exist a logical relationship between the main claim and the
counterclaim. There exists such a relationship when
conducting separate trials of the respective claims of the
parties would entail substantial duplication of time and effort
by the parties and the court; when the multiple claims
involve the same factual and legal issues; or when the claims
are offshoots of the same basic controversy between the
parties.
Same; Same; Same; Damages; A counterclaim for damages
allegedly suffered by the defendant in consequence of the
plaintiffs action constitute compulsory counterclaim.The
above allegations show that petitioners counterclaims for
damages were the result of respondents (Lim and Mariano)
act of filing the Complaint and securing the Writ of
Attachment in bad faith. Tiu Po v. Bautista involved the issue
of whether the counterclaim that sought moral, actual and
exemplary damages and attorneys fees against respondents
on account of their malicious and unfounded complaint was
compulsory. In that case, we held as follows: Petitioners
counterclaim for damages fulfills the necessary requisites of

a compulsory counterclaim. They are damages claimed to


have been suffered by petitioners as a consequence of the
action filed against them. They have to be pleaded in the
same action; otherwise, petitioners would be precluded by
the judgment from invoking the same in an independent
action. The pronouncement in Papa vs. Banaag (17 SCRA
1081) (1966) is in point: Compensatory, moral and
exemplary damages, allegedly suffered by the creditor in
consequence of the debtors action, are also compulsory
counterclaim barred by the dismissal of the debtors action.
They cannot be claimed in a subsequent action by the
creditor against the debtor.
Same; Same; Same; Parties; 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, i.e., 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, and jurisdiction over such
parties can be obtained.Among the issues raised in
Sapugay was whether Cardenas, who was not a party to the
original action, might nevertheless be impleaded in the
counterclaim. We disposed of this issue as follows: A
counterclaim is defined as any claim for money or other relief
which a defending party may have against an opposing party.
However, the general rule that a defendant cannot by a
counterclaim bring into the action any claim against persons
other than the plaintiff admits of an exception under Section
14, Rule 6 which provides that when the presence of parties
other than those to the original action is required for the
granting of complete relief in the determination of a
counterclaim or cross-claim, the court shall order them to be
brought in as defendants, if jurisdiction over them can be
obtained. The inclusion, therefore, of Cardenas in
petitioners counterclaim is sanctioned by the rules. The
prerogative of bringing in new parties to the action at any
stage before judgment is intended to accord complete relief
to all of them in a single action and to avert a duplicity and
even a multiplicity of suits thereby.

Same; Same; Same; Same; Corporation Law; Piercing the Veil


Corporate Fiction; Allegations of fraud and bad faith on the
part of certain corporate officers or stockholders may warrant
the piercing of the veil of corporate fiction so that the said
individual may not seek refuge therein, but may be held
individually and personally liable for his or her actions.The
inclusion of a corporate officer or stockholderCardenas in
Sapugay or Lim and Mariano in the instant caseis not
premised on the assumption that the plaintiff corporation
does not have the financial ability to answer for damages,
such that it has to share its liability with individual
defendants. Rather, such inclusion is based on the
allegations of fraud and bad faith on the part of the corporate
officer or stockholder. These allegations may warrant the
piercing of the veil of corporate fiction, so that the said
individual may not seek refuge therein, but may be held
individually and personally liable for his or her actions. In
Tramat Mercantile v. Court of Appeals, the Court held that
generally, it should only be the corporation that could
properly be held liable. However, circumstances may warrant
the inclusion of the personal liability of a corporate director,
trustee, or officer, if the said individual is found guilty of bad
faith or gross negligence in directing corporate affairs. Remo
Jr. v. IAC has stressed that while a corporation is an entity
separate and distinct from its stockholders, the corporate
fiction may be disregarded if used to defeat public
convenience, justify a wrong, protect fraud, or defend crime.
In these instances, the law will regard the corporation as an
association of persons, or in case of two corporations, will
merge them into one. Thus, there is no debate on whether,
in alleging bad faith on the part of Lim and Mariano the
counterclaims had in effect made them indispensable
parties thereto; based on the alleged facts, both are clearly
parties in interest to the counterclaim.
Same; Same; Same; Same; Words and Phrases; Suability and
liability are two distinct matters.Suability and liability are
two distinct matters. While the Court does rule that the
counterclaims against Respondent CCCs president and
manager may be properly filed, the determination of whether

both can in fact be held jointly and severally liable with


respondent corporation is entirely another issue that should
be ruled upon by the trial court.
Same; Same; Same; Same; While a compulsory counterclaim
may implead persons not parties to the original complaint,
the general rule that a defendant in a compulsory
counterclaim need not file any responsive pleadingas it is
deemed to have adopted the allegations in the complaint as
its answerdoes not apply; A new party impleaded by the
plaintiff in a compulsory counterclaim cannot be considered
to have automatically and unknowingly submitted to the
jurisdiction of the courtsummons must be served on them
for the court to obtain jurisdiction over them.However,
while a compulsory counterclaim may implead persons not
parties to the original complaint, the general rulea
defendant in a compulsory counterclaim need not file any
responsive pleading, as it is deemed to have adopted the
allegations in the complaint as its answerdoes not apply.
The filing of a responsive pleading is deemed a voluntary
submission to the jurisdiction of the court; a new party
impleaded by the plaintiff in a compulsory counterclaim
cannot be considered to have automatically and unknowingly
submitted to the jurisdiction of the court. A contrary ruling
would result in mischievous consequences whereby a party
may be indiscriminately impleaded as a defendant in a
compulsory counterclaim; and judgment rendered against it
without its knowledge, much less participation in the
proceedings, in blatant disregard of rudimentary due process
requirements. The correct procedure in instances such as this
is for the trial court, per Section 12 of Rule 6 of the Rules of
Court, to order [such impleaded parties] to be brought in as
defendants, if jurisdiction over them can be obtained, by
directing that summons be served on them. In this manner,
they can be properly appraised of and answer the charges
against them. Only upon service of summons can the trial
court obtain jurisdiction over them.
Obligations and Contracts; Joint and Solidary Obligations;
Obligations may be classified as either joint or solidary;
Petitioners usage of the term joint and solidary is

confusing and ambiguous. Obligations may be classified as


either joint or solidary. Joint or jointly or conjoint means
mancum or mancomunada or pro rata obligation; on the
other
hand,
solidary
obligations
may
be
used
interchangeably with joint and several or several. Thus,
petitioners usage of the term joint and solidary is
confusing and ambiguous.
Same; Same; Torts; Obligations arising from tort are, by their
nature, always solidary.The ambiguity in petitioners
counterclaims notwithstanding, respondents liability, if
proven, is solidary. This characterization finds basis in Article
1207 of the Civil Code, which provides that obligations are
generally considered joint, except when otherwise expressly
stated or when the law or the nature of the obligation
requires solidarity. However, obligations arising from tort are,
by their nature, always solidary. We have assiduously
maintained this legal principle as early as 1912 in Worcester
v. Ocampo, in which we held: x x x The difficulty in the
contention of the appellants is that they fail to recognize that
the basis of the present action is tort. They fail to recognize
the universal doctrine that each joint tort feasor is not only
individually liable for the tort in which he participates, but is
also jointly liable with his tort feasors. x x x It may be stated
as a general rule that joint tort feasors are all the persons
who command, instigate, promote, encourage, advise,
countenance, cooperate in, aid or abet the commission of a
tort, or who approve of it after it is done, if done for their
benefit. They are each liable as principals, to the same extent
and in the same manner as if they had performed the
wrongful act themselves. x x x Joint tort feasors are jointly
and severally liable for the tort which they commit. The
persons injured may sue all of them or any number less than
all. Each is liable for the whole damages caused by all, and
all together are jointly liable for the whole damage. It is no
defense for one sued alone, that the others who participated
in the wrongful act are not joined with him as defendants; nor
is it any excuse for him that his participation in the tort was
insignificant as compared to that of the others. x x x Joint
tort feasors are not liable pro rata. The damages can not be

apportioned among them, except among themselves. They


cannot insist upon an apportionment, for the purpose of each
paying an aliquot part. They are jointly and severally liable
for the whole amount. x x x
Same; Same; Same; The fact that the liability sought against
the corporation is for specific performance and tort, while
that sought against the individual respondents is based
solely on tort does not negate the solidary nature of their
liability for alleged tortuous acts.In a joint obligation,
each obligor answers only for a part of the whole liability; in a
solidary or joint and several obligation, the relationship
between the active and the passive subjects is so close that
each of them must comply with or demand the fulfillment of
the whole obligation. The fact that the liability sought against
the CCC is for specific performance and tort, while that
sought against the individual respondents is based solely on
tort does not negate the solidary nature of their liability for
tortuous acts alleged in the counterclaims. Article 1211 of
the Civil Code is explicit on this point: Solidarity may exist
although the creditors and the debtors may not be bound in
the same manner and by the same periods and conditions.
Same; Same; Same; In cases filed by the creditor, a solidary
debtor may invoke defenses arising from the nature of the
obligation, from circumstances personal to it, or even from
those personal to its co-debtors.The solidary character of
respondents alleged liability is precisely why credence
cannot be given to petitioners assertion. According to such
assertion, Respondent CCC cannot move to dismiss the
counterclaims on grounds that pertain solely to its individual
co-debtors. In cases filed by the creditor, a solidary debtor
may invoke defenses arising from the nature of the
obligation, from circumstances personal to it, or even from
those personal to its co-debtors. Article 1222 of the Civil
Code provides: A solidary debtor may, in actions filed by the
creditor, avail itself of all defenses which are derived from
the nature of the obligation and of those which are personal
to him, or pertain to his own share. With respect to those
which personally belong to the others, he may avail himself
thereof only as regards that part of the debt for which the

latter are responsible. (Emphasis supplied). The act of


Respondent CCC as a solidary debtorthat of filing a motion
to dismiss the counterclaim on grounds that pertain only to
its individual co-debtorsis therefore allowed.
Same;
Same;
Same;
Compulsory
Counterclaims;
Counterclaims that are only for damages and attorneys fees
and that arise from the filing of the complaint shall be
considered as special defenses and need not be answered.
However, a perusal of its Motion to Dismiss the counterclaims
shows that Respondent CCC filed it on behalf of Corespondents Lim and Mariano; it did not pray that the
counterclaim against it be dismissed. Be that as it may,
Respondent CCC cannot be declared in default. Jurisprudence
teaches that if the issues raised in the compulsory
counterclaim are so intertwined with the allegations in the
complaint, such issues are deemed automatically joined.
Counterclaims that are only for damages and attorneys fees
and that arise from the filing of the complaint shall be
considered as special defenses and need not be answered.
Same; Same; Same; A corporation has a legal personality
entirely separate and distinct from that of its officers and
cannot act for and on their behalf, without being so
authorized.While Respondent CCC can move to dismiss the
counterclaims against it by raising grounds that pertain to
individual defendants Lim and Mariano, it cannot file the
same Motion on their behalf for the simple reason that it
lacks the requisite authority to do so. A corporation has a
legal personality entirely separate and distinct from that of
its officers and cannot act for and on their behalf, without
being so authorized. Thus, unless expressly adopted by Lim
and Mariano, the Motion to Dismiss the compulsory
counterclaim filed by Respondent CCC has no force and effect
as to them.
PETITION for review on certiorari of the orders of the Regional
Trial Court of Quezon City, Br. 80.
The facts are stated in the opinion of the Court.
Sycip, Salazar, Hernandez and Gatmaitan for petitioners.

Pangilinan, Britanico, Sarmiento and Franco Law Offices


for respondent Continental Cement Corporation.
PANGANIBAN, J.:
May defendants in civil cases implead in their counterclaims
persons who were not parties to the original complaints? This
is the main question to be answered in this controversy.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules
of Court, seeking to nullify the May 22, 20022 and the
September 3, 2002 Orders3 of the Regional Trial Court (RTC)
of Quezon City (Branch 80) in Civil Case No. Q-00-41103. The
decretal portion of the first assailed Order reads:
WHEREFORE, in the light of the foregoing as earlier stated,
the plaintiffs motion to dismiss claims is granted.
Accordingly, the defendants claims against Mr. Lim and Mr.
Mariano captioned as their counterclaims are dismissed.4
The second challenged Order denied petitioners Motion for
Reconsideration.
The Facts
Briefly, the origins of the present controversy can be traced
to the Letter of Intent (LOI) executed by both parties on
August 11, 1998, whereby Petitioner Lafarge Cement
Philippines, Inc. (Lafarge)on behalf of its affiliates and other
qualified entities, including Petitioner Luzon Continental Land
Corporation (LCLC)agreed to purchase the cement business
of Respondent Continental Cement Corporation (CCC). On
October 21, 1998, both parties entered into a Sale and
Purchase Agreement (SPA). At the time of the foregoing
transactions, petitioners were well aware that CCC had a
case pending with the Supreme Court. The case was
docketed as G.R. No. 119712, entitled Asset Privatization
Trust (APT) v. Court of Appeals and Continental Cement
Corporation.
In anticipation of the liability that the High Tribunal might
adjudge against CCC, the parties, under Clause 2 (c) of the
SPA, allegedly agreed to retain from the purchase price a

portion of the contract price in the amount of


P117,020,846.84the equivalent of US$2,799,140. This
amount was to be deposited in an interest-bearing account in
the First National City Bank of New York (Citibank) for
payment to APT, the petitioner in G.R. No. 119712.
However, petitioners allegedly refused to apply the sum to
the payment to APT, despite the subsequent finality of the
Decision in G.R. No. 119712 in favor of the latter and the
repeated instructions of Respondent CCC. Fearful that
nonpayment to APT would result in the foreclosure, not just
of its properties covered by the SPA with Lafarge but of
several other properties as well, CCC filed before the
Regional Trial Court of Quezon City on June 20, 2000, a
Complaint with Application for Preliminary Attachment
against petitioners. Docketed as Civil Case No. Q-00-41103,
the Complaint prayed, among others, that petitioners be
directed to pay the APT Retained Amount referred to in
Clause 2 (c) of the SPA.
Petitioners moved to dismiss the Complaint on the ground
that it violated the prohibition on forum shopping.
Respondent CCC had allegedly made the same claim it was
raising in Civil Case No. Q-00-41103 in another action, which
involved the same parties and which was filed earlier before
the International Chamber of Commerce. After the trial court
denied the Motion to Dismiss in its November 14, 2000
Order, petitioners elevated the matter before the Court of
Appeals in CA-G.R. SP No. 68688.
In the meantime, to avoid being in default and without
prejudice to the outcome of their appeal, petitioners filed
their Answer and Compulsory Counterclaims ad Cautelam
before the trial court in Civil Case No. Q-00-41103. In their
Answer, they denied the allegations in the Complaint. They
prayedby way of compulsory counterclaims against
Respondent CCC, its majority stockholder and president
Gregory T. Lim, and its corporate secretary Anthony A.
Marianofor the sums of (a) P2,700,000 each as actual
damages, (b) P100,000,000 each as exemplary damages, (c)
P100,000,000 each as moral damages, and (d) P5,000,000
each as attorneys fees plus costs of suit.

Petitioners alleged that CCC, through Lim and Mariano, had


filed the baseless Complaint in Civil Case No. Q-00-41103
and procured the Writ of Attachment in bad faith. Relying on
this Courts pronouncement in Sapugay v. CA,5 petitioners
prayed that both Lim and Mariano be held jointly and
solidarily liable with Respondent CCC.
On behalf of Lim and Mariano who had yet to file any
responsive pleading, CCC moved to dismiss petitioners
compulsory counterclaims on grounds that essentially
constituted the very issues for resolution in the instant
Petition.
Ruling of the Trial Court
On May 22, 2002, the Regional Trial Court of Quezon City
(Branch 80) dismissed petitioners counterclaims for several
reasons, among which were the following: a) the
counterclaims against Respondents Lim and Mariano were
not compulsory; b) the ruling in Sapugay was not applicable;
and c) petitioners Answer with Counterclaims violated
procedural rules on the proper joinder of causes of action.6
Acting on the Motion for Reconsideration filed by petitioners,
the trial courtin an Amended Order dated September 3,
20027admitted some errors in its May 22, 2002 Order,
particularly in its pronouncement that their counterclaim had
been pleaded against Lim and Mariano only. However, the
RTC clarified that it was dismissing the counterclaim insofar
as it impleaded Respondents Lim and Mariano, even if it
included CCC.
Hence this Petition.8
Issues
In their Memorandum, petitioners raise the following issues
for our consideration:
[a] Whether or not the RTC gravely erred in refusing to rule
that Respondent CCC has no personality to move to dismiss
petitioners compulsory counterclaims on Respondents Lim
and Marianos behalf.
[b] Whether or not the RTC gravely erred in ruling that (i)
petitioners counterclaims against Respondents Lim and

Mariano are not compulsory; (ii) Sapugay v. Court of Appeals


is inapplicable here; and (iii) petitioners violated the rule on
joinder of causes of action.9
For clarity and coherence, the Court will resolve the foregoing
in reverse order.
The Courts Ruling
The Petition is meritorious.
First Issue:
Counterclaims and
Joinder of Causes of Action.
Petitioners Counterclaims Compulsory
Counterclaims are defined in Section 6 of Rule 6 of the Rules
of Civil Procedure as any claim which a defending party may
have against an opposing party. They are generally allowed
in order to avoid a multiplicity of suits and to facilitate the
disposition of the whole controversy in a single action, such
that the defendants demand may be adjudged by a
counterclaim rather than by an independent suit. The only
limitations to this principle are: (1) that the court should have
jurisdiction over the subject matter of the counterclaim, and
(2) that it could acquire jurisdiction over third parties whose
presence is essential for its adjudication.10
A counterclaim may either be permissive or compulsory. It is
permissive if it does not arise out of or is not necessarily
connected with the subject matter of the opposing partys
claim.11 A permissive counterclaim is essentially an
independent claim that may be filed separately in another
case.
A counterclaim is compulsory when its object arises out of or
is necessarily connected with the transaction or occurrence
constituting the subject matter of the opposing partys claim
and does not require for its adjudication the presence of third
parties of whom the court cannot acquire jurisdiction.12
Unlike permissive counterclaims, compulsory counterclaims
should be set up in the same action; otherwise, they would
be barred forever. NAMARCO v. Federation of United Namarco
Distributors13 laid down the following criteria to determine
whether a counterclaim is compulsory or permissive: 1) Are

issues of fact and law raised by the claim and by the


counterclaim largely the same? 2) Would res judicata bar a
subsequent suit on defendants claim, absent the compulsory
counterclaim rule? 3) Will substantially the same evidence
support or refute plaintiffs claim as well as defendants
counterclaim? 4) Is there any logical relation between the
claim and the counterclaim? A positive answer to all four
questions would indicate that the counterclaim is compulsory.
Adopted in Quintanilla v. CA 14 and reiterated in Alday v. FGU
Insurance
Corporation,15
the
compelling
test
of
compulsoriness characterizes a counterclaim as compulsory
if there should exist a logical relationship between the main
claim and the counterclaim. There exists such a relationship
when conducting separate trials of the respective claims of
the parties would entail substantial duplication of time and
effort by the parties and the court; when the multiple claims
involve the same factual and legal issues; or when the claims
are offshoots of the same basic controversy between the
parties.
We shall now examine the nature of petitioners
counterclaims against respondents with the use of the
foregoing parameters.
Petitioners base their counterclaim on the following
allegations:
Gregory T. Lim and Anthony A. Mariano were the persons
responsible for making the bad faith decisions for, and
causing plaintiff to file this baseless suit and to procure an
unwarranted writ of attachment, notwithstanding their
knowledge that plaintiff has no right to bring it or to secure
the writ. In taking such bad faith actions, Gregory T. Lim was
motivated by his personal interests as one of the owners of
plaintiff while Anthony A. Mariano was motivated by his
sense of personal loyalty to Gregory T. Lim, for which reason
he disregarded the fact that plaintiff is without any valid
cause.
Consequently, both Gregory T. Lim and Anthony A. Mariano
are the plaintiffs co-joint tortfeasors in the commission of the
acts complained of in this answer and in the compulsory

counterclaims pleaded below. As such they should be held


jointly and solidarily liable as plaintiffs co-defendants to
those compulsory counterclaims pursuant to the Supreme
Courts decision in Sapugay v. Mobil.
xxx
xxx
xxx
The plaintiffs, Gregory T. Lim and Anthony A. Marianos bad
faith filing of this baseless case has compelled the
defendants to engage the services of counsel for a fee and to
incur costs of litigation, in amounts to be proved at trial, but
in no case less than P5 million for each of them and for which
plaintiff Gregory T. Lim and Anthony A. Mariano should be
held jointly and solidarily liable.
The plaintiffs, Gregory T. Lims and Anthony A. Marianos
actions have damaged the reputations of the defendants and
they should be held jointly and solidarily liable to them for
moral damages of P100 million each.
In order to serve as an example for the public good and to
deter similar baseless, bad faith litigation, the plaintiff,
Gregory T. Lim and Anthony A. Mariano should be held jointly
and solidarily liable to the defendants for exemplary
damages of P100 million each.16
The above allegations show that petitioners counterclaims
for damages were the result of respondents (Lim and
Mariano) act of filing the Complaint and securing the Writ of
Attachment in bad faith. Tiu Po v. Bautista17 involved the
issue of whether the counterclaim that sought moral, actual
and exemplary damages and attorneys fees against
respondents on account of their malicious and unfounded
complaint was compulsory. In that case, we held as follows:
Petitioners counterclaim for damages fulfills the necessary
requisites of a compulsory counterclaim. They are damages
claimed to have been suffered by petitioners as a
consequence of the action filed against them. They have to
be pleaded in the same action; otherwise, petitioners would
be precluded by the judgment from invoking the same in an
independent action. The pronouncement in Papa vs. Banaag
(17 SCRA 1081) (1966) is in point:

Compensatory, moral and exemplary damages, allegedly


suffered by the creditor in consequence of the debtors
action, are also compulsory counterclaim barred by the
dismissal of the debtors action. They cannot be claimed in a
subsequent action by the creditor against the debtor.
Aside from the fact that petitioners counterclaim for
damages cannot be the subject of an independent action, it
is the same evidence that sustains petitioners counterclaim
that will refute private respondents own claim for damages.
This is an additional factor that characterizes petitioners
counterclaim as compulsory.18
Moreover, using the compelling test of compulsoriness, we
find that, clearly, the recovery of petitioners counterclaims is
contingent upon the case filed by respondents; thus,
conducting separate trials thereon will result in a substantial
duplication of the time and effort of the court and the parties.
Since the counterclaim for damages is compulsory, it must
be set up in the same action; otherwise, it would be barred
forever. If it is filed concurrently with the main action but in a
different proceeding, it would be abated on the ground of litis
pendentia; if filed subsequently, it would meet the same fate
on the ground of res judicata.19
Sapugay v. Court of Appeals
Applicable to the Case at Bar
Sapugay v. Court of Appeals finds application in the present
case. In Sapugay, Respondent Mobil Philippines filed before
the trial court of Pasig an action for replevin against Spouses
Marino and Lina Joel Sapugay. The Complaint arose from the
supposed failure of the couple to keep their end of their
Dealership Agreement. In their Answer with Counterclaim,
petitioners alleged that after incurring expenses in
anticipation of the Dealership Agreement, they requested the
plaintiff to allow them to get gas, but that it had refused. It
claimed that they still had to post a surety bond which,
initially fixed at P200,000, was later raised to P700,000.
The spouses exerted all efforts to secure a bond, but the
bonding companies required a copy of the Dealership
Agreement, which respondent continued to withhold from

them. Later, petitioners discovered that respondent and its


manager, Ricardo P. Cardenas, had intended all along to
award the dealership to Island Air Product Corporation.
In their Answer, petitioners impleaded in the counterclaim
Mobil Philippines and its managerRicardo P. Cardenasas
defendants. They prayed that judgment be rendered, holding
both jointly and severally liable for pre-operation expenses,
rental, storage, guarding fees, and unrealized profit including
damages. After both Mobil and Cardenas failed to respond to
their Answer to the Counterclaim, petitioners filed a Motion
to Declare Plaintiff and its Manager Ricardo P. Cardenas in
Default on Defendants Counterclaim.
Among the issues raised in Sapugay was whether Cardenas,
who was not a party to the original action, might
nevertheless be impleaded in the counterclaim. We disposed
of this issue as follows:
A counterclaim is defined as any claim for money or other
relief which a defending party may have against an opposing
party. However, the general rule that a defendant cannot by
a counterclaim bring into the action any claim against
persons other than the plaintiff admits of an exception under
Section 14, Rule 6 which provides that when the presence of
parties other than those to the original action is required for
the granting of complete relief in the determination of a
counterclaim or cross-claim, the court shall order them to be
brought in as defendants, if jurisdiction over them can be
obtained. The inclusion, therefore, of Cardenas in
petitioners counterclaim is sanctioned by the rules.20
The prerogative of bringing in new parties to the action at
any stage before judgment is intended to accord complete
relief to all of them in a single action and to avert a duplicity
and even a multiplicity of suits thereby.
In insisting on the inapplicability of Sapugay, respondents
argue that new parties cannot be included in a counterclaim,
except when no complete relief can be had. They add that
[i]n the present case, Messrs. Lim and Mariano are not
necessary for petitioners to obtain complete relief from
Respondent CCC as plaintiff in the lower court. This is

because Respondent CCC as a corporation with a separate


[legal personality] has the juridical capacity to indemnify
petitioners even without Messrs. Lim and Mariano.21
We disagree. The inclusion of a corporate officer or
stockholderCardenas in Sapugay or Lim and Mariano in the
instant caseis not premised on the assumption that the
plaintiff corporation does not have the financial ability to
answer for damages, such that it has to share its liability with
individual defendants. Rather, such inclusion is based on the
allegations of fraud and bad faith on the part of the corporate
officer or stockholder. These allegations may warrant the
piercing of the veil of corporate fiction, so that the said
individual may not seek refuge therein, but may be held
individually and personally liable for his or her actions.
In Tramat Mercantile v. Court of Appeals,22 the Court held
that generally, it should only be the corporation that could
properly be held liable. However, circumstances may warrant
the inclusion of the personal liability of a corporate director,
trustee, or officer, if the said individual is found guilty of bad
faith or gross negligence in directing corporate affairs.
Remo, Jr. v. IAC 23 has stressed that while a corporation is an
entity separate and distinct from its stockholders, the
corporate fiction may be disregarded if used to defeat public
convenience, justify a wrong, protect fraud, or defend crime.
In these instances, the law will regard the corporation as an
association of persons, or in case of two corporations, will
merge them into one. Thus, there is no debate on whether,
in alleging bad faith on the part of Lim and Mariano the
counterclaims had in effect made them indispensable
parties thereto; based on the alleged facts, both are clearly
parties in interest to the counterclaim.24
Respondents further assert that Messrs. Lim and Mariano
cannot be held personally liable [because their assailed acts]
are within the powers granted to them by the proper board
resolutions; therefore, it is not a personal decision but rather
that of the corporation as represented by its board of
directors.25 The foregoing assertion, however, is a matter of
defense that should be threshed out during the trial; whether

or not fraud is extant under the circumstances is an issue


that must be established by convincing evidence.26
Suability and liability are two distinct matters. While the
Court does rule that the counterclaims against Respondent
CCCs president and manager may be properly filed, the
determination of whether both can in fact be held jointly and
severally liable with respondent corporation is entirely
another issue that should be ruled upon by the trial court.
However, while a compulsory counterclaim may implead
persons not parties to the original complaint, the general rule
a defendant in a compulsory counterclaim need not file any
responsive pleading, as it is deemed to have adopted the
allegations in the complaint as its answerdoes not apply.
The filing of a responsive pleading is deemed a voluntary
submission to the jurisdiction of the court; a new party
impleaded by the plaintiff in a compulsory counterclaim
cannot be considered to have automatically and unknowingly
submitted to the jurisdiction of the court. A contrary ruling
would result in mischievous consequences whereby a party
may be indiscriminately impleaded as a defendant in a
compulsory counterclaim; and judgment rendered against it
without its knowledge, much less participation in the
proceedings, in blatant disregard of rudimentary due process
requirements.
The correct procedure in instances such as this is for the trial
court, per Section 12 of Rule 6 of the Rules of Court, to order
[such impleaded parties] to be brought in as defendants, if
jurisdiction over them can be obtained, by directing that
summons be served on them. In this manner, they can be
properly appraised of and answer the charges against them.
Only upon service of summons can the trial court obtain
jurisdiction over them.
In Sapugay, Cardenas was furnished a copy of the Answer
with Counterclaim, but he did not file any responsive
pleading to the counterclaim leveled against him.
Nevertheless, the Court gave due consideration to certain
factual circumstances, particularly the trial courts treatment
of the Complaint as the Answer of Cardenas to the
compulsory counter-claim and of his seeming acquiescence

thereto, as evidenced by his failure to make any objection


despite his active participation in the proceedings. It was
held thus:
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 Mobils
complaint should be considered as the answer to petitioners
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
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 the 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.27
Such factual circumstances are unavailing in the instant
case. The records do not show that Respondents Lim and
Mariano are either aware of the counterclaims filed against
them, or that they have actively participated in the
proceedings involving them. Further, in dismissing the
counterclaims against the individual respondents, the court a
quounlike in Sapugaycannot be said to have treated
Respondent CCCs Motion to Dismiss as having been filed on
their behalf.

Rules on Permissive Joinder of Causes of Action or Parties Not


Applicable
Respondent CCC contends that petitioners counterclaims
violated the rule on joinder of causes of action. It argues that
while the original Complaint was a suit for specific
performance based on a contract, the counterclaim for
damages was based on the tortuous acts of respondents.28
In its Motion to Dismiss, CCC cites Section 5 of Rule 2 and
Section 6 of Rule 3 of the Rules of Civil Procedure, which we
quote:
Section 5. Joinder of causes of action.A party may in one
pleading assert, in the alternative or otherwise, as many
causes of action as he may have against an opposing party,
subject to the following conditions:
(a) The party joining the causes of action shall comply with
the rules on joinder of parties; x x x
Section 6. Permissive joinder of parties.All persons in whom
or against whom any right to relief in respect to or arising out
of the same transaction or series of transactions is alleged to
exist whether jointly, severally, or in the alternative, may,
except as otherwise provided in these Rules, join as plaintiffs
or be joined as defendants in one complaint, where any
question of law or fact common to all such plaintiffs or to all
such defendants may arise in the action; but the court may
make such orders as may be just to prevent any plaintiff or
defendant from being embarrassed or put to expense in
connection with any proceedings in which he may have no
interest.
The foregoing procedural rules are founded on practicality
and convenience. They are meant to discourage duplicity and
multiplicity of suits. This objective is negated by insistingas
the court a quo has donethat the compulsory counterclaim
for damages be dismissed, only to have it possibly re-filed in
a separate proceeding. More important, as we have stated
earlier, Respondents Lim and Mariano are real parties in
interest to the compulsory counterclaim; it is imperative that
they be joined therein. Section 7 of Rule 3 provides:

Compulsory joinder of indispensable parties.Parties in


interest without whom no final determination can be had of
an action shall be joined either as plaintiffs or defendants.
Moreover, in joining Lim and Mariano in the compulsory
counterclaim, petitioners are being consistent with the
solidary nature of the liability alleged therein.
Second Issue:
CCCs Personality to Move to Dismiss
the Compulsory Counterclaims
Characterizing their counterclaim for damages against
Respondents CCC, Lim and Mariano as joint and solidary,
petitioners prayed:
WHEREFORE, it is respectfully prayed that after trial
judgment be rendered:
1. Dismissing the complaint in its entirety;
2. Ordering the plaintiff, Gregory T. Lim and Anthony A.
Mariano jointly and solidarily to pay defendant actual
damages in the sum of at least P2,700,000.00;
3. Ordering the plaintiff, Gregory T. Lim and Anthony A,
Mariano jointly and solidarily to pay the defendants LPI, LCLC,
COC and Roseberg:
a. Exemplary damages of P100 million each;
b. Moral damages of P100 million each; and
c. Attorneys fees and costs of suit of at least P5 million
each.
Other reliefs just and equitable are likewise prayed for.29
Obligations may be classified as either joint or solidary.
Joint or jointly or conjoint means mancum or
mancomunada or pro rata obligation; on the other hand,
solidary obligations may be used interchangeably with
joint and several or several. Thus, petitioners usage of
the term joint and solidary is confusing and ambiguous.
The ambiguity in petitioners counterclaims notwithstanding,
respondents
liability,
if
proven,
is
solidary.
This
characterization finds basis in Article 1207 of the Civil Code,
which provides that obligations are generally considered
joint, except when otherwise expressly stated or when the

law or the nature of the obligation requires solidarity.


However, obligations arising from tort are, by their nature,
always solidary. We have assiduously maintained this legal
principle as early as 1912 in Worcester v. Ocampo,30 in
which we held:
x x x The difficulty in the contention of the appellants is that
they fail to recognize that the basis of the present action is
tort. They fail to recognize the universal doctrine that each
joint tort feasor is not only individually liable for the tort in
which he participates, but is also jointly liable with his tort
feasors. x x x
It may be stated as a general rule that joint tort feasors are
all the persons who command, instigate, promote,
encourage, advise, countenance, cooperate in, aid or abet
the commission of a tort, or who approve of it after it is done,
if done for their benefit. They are each liable as principals, to
the same extent and in the same manner as if they had
performed the wrongful act themselves. x x x
Joint tort feasors are jointly and severally liable for the tort
which they commit. The persons injured may sue all of them
or any number less than all. Each is liable for the whole
damages caused by all, and all together are jointly liable for
the whole damage. It is no defense for one sued alone, that
the others who participated in the wrongful act are not joined
with him as defendants; nor is it any excuse for him that his
participation in the tort was insignificant as compared to that
of the others. x x x
Joint tort feasors are not liable pro rata. The damages can
not be apportioned among them, except among themselves.
They cannot insist upon an apportionment, for the purpose of
each paying an aliquot part. They are jointly and severally
liable for the whole amount. x x x
A payment in full for the damage done, by one of the joint
tort feasors, of course satisfies any claim which might exist
against the others. There can be but satisfaction. The release
of one of the joint tort feasors by agreement generally
operates to discharge all. x x x

Of course the court during trial may find that some of the
alleged tort feasors are liable and that others are not liable.
The courts may release some for lack of evidence while
condemning others of the alleged tort feasors. And this is
true even though they are charged jointly and severally.
In a joint obligation, each obligor answers only for a part of
the whole liability; in a solidary or joint and several
obligation, the relationship between the active and the
passive subjects is so close that each of them must comply
with or demand the fulfillment of the whole obligation.31 The
fact that the liability sought against the CCC is for specific
performance and tort, while that sought against the
individual respondents is based solely on tort does not
negate the solidary nature of their liability for tortuous acts
alleged in the counterclaims. Article 1211 of the Civil Code is
explicit on this point:
Solidarity may exist although the creditors and the debtors
may not be bound in the same manner and by the same
periods and conditions.
The solidary character of respondents alleged liability is
precisely why credence cannot be given to petitioners
assertion. According to such assertion, Respondent CCC
cannot move to dismiss the counterclaims on grounds that
pertain solely to its individual co-debtors.32 In cases filed by
the creditor, a solidary debtor may invoke defenses arising
from the nature of the obligation, from circumstances
personal to it, or even from those personal to its co-debtors.
Article 1222 of the Civil Code provides:
A solidary debtor may, in actions filed by the creditor, avail
itself of all defenses which are derived from the nature of the
obligation and of those which are personal to him, or pertain
to his own share. With respect to those which personally
belong to the others, he may avail himself thereof only as
regards that part of the debt for which the latter are
responsible. (Emphasis supplied).
The act of Respondent CCC as a solidary debtorthat of filing
a motion to dismiss the counterclaim on grounds that pertain
only to its individual co-debtorsis therefore allowed.

However, a perusal of its Motion to Dismiss the counterclaims


shows that Respondent CCC filed it on behalf of
Corespondents Lim and Mariano; it did not pray that the
counterclaim against it be dismissed. Be that as it may,
Respondent CCC cannot be declared in default. Jurisprudence
teaches that if the issues raised in the compulsory
counterclaim are so intertwined with the allegations in the
complaint, such issues are deemed automatically joined.33
Counterclaims that are only for damages and attorneys fees
and that arise from the filing of the complaint shall be
considered as special defenses and need not be answered.34
CCCs Motion to Dismiss the Counterclaim on Behalf of
Respondents Lim and Mariano Not Allowed
While Respondent CCC can move to dismiss the
counterclaims against it by raising grounds that pertain to
individual defendants Lim and Mariano, it cannot file the
same Motion on their behalf for the simple reason that it
lacks the requisite authority to do so. A corporation has a
legal personality entirely separate and distinct from that of
its officers and cannot act for and on their behalf, without
being so authorized. Thus, unless expressly adopted by Lim
and Mariano, the
Motion to Dismiss the compulsory counterclaim filed by
Respondent CCC has no force and effect as to them.
In summary, we make the following pronouncements:
1. The counterclaims against Respondents CCC, Gregory T.
Lim and Anthony A. Mariano are compulsory.
2. The counterclaims may properly implead Respondents
Gregory T. Lim and Anthony A. Mariano, even if both were not
parties in the original Complaint.
3. Respondent CCC or any of the three solidary debtors (CCC,
Lim or Mariano) may include, in a Motion to Dismiss,
defenses available to their co-defendants; nevertheless, the
same Motion cannot be deemed to have been filed on behalf
of the said co-defendants.
4. Summons must be served on Respondents Lim and
Mariano before the trial court can obtain jurisdiction over
them.

WHEREFORE, the Petition is GRANTED and the assailed


Orders REVERSED. The court of origin is hereby ORDERED to
take cognizance of the counterclaims pleaded in petitioners
Answer with Compulsory Counterclaims and to cause the
service of summons on Respondents Gregory T. Lim and
Anthony A. Mariano. No costs.
SO ORDERED.
Sandoval-Gutierrez, Carpio-Morales and Garcia, JJ., concur.
Corona, J., On Leave.
Petition granted, court of origin ordered to take cognizance of
counterclaims and to issue summons to respondents Gregory
T. Lim and Anthony A. Mariano.
Notes.A compulsory counterclaim is one which arises out of
or is necessarily connected with the transaction or
occurrence that is the subject matter of the opposing partys
claim.
The second paragraph of Section 5 of Rule 62 of the 1997
Rules of Civil Procedure, which provides that the parties in an
interpleader action may file counterclaims, cross-claims, third
party complaints and responsive pleading thereto, as
provided by these Rules, was added to expressly authorize
the additional pleadings and claims enumerated therein, in
the interest of a complete adjudication of the controversy
and its incidents. (Arreza vs. Diaz, Jr., 364 SCRA 88 [2001])
[Lafarge Cement Philippines, Inc. vs. Continental Cement
Corporation, 443 SCRA 522(2004)]

ASSOCIATED BANK, petitioner, vs. HON. COURT OF APPEALS,


HON. MARINA L. BUZON, as Presiding Judge of RTC, Quezon
City, MM, Br. 91, VISITACION SERRA FLORES RTC, Quezon
City, MM, Br. 91, MA. ASUNCION FLORES, PHILIPPINE
COMMERCIAL INTERNATIONAL BANK, FAR EAST BANK &
TRUST CO., SECURITY BANK & TRUST CO. and CITYTRUST
BANKING CORPORATION, respondents.
Banks and Banking; Courts; As a consequence of
participation, a party cannot invoke the jurisdiction of the
courts over disputes and controversies which fall under the
Philippine Clearing House Corporation (PCHC) Rules and
Regulations without first going through the arbitration
processes laid out by the body.Under the rules and
regulations of the Philippine Clearing House Corporation
(PCHC), the mere act of participation of the parties
concerned in its operations in effect amounts to a
manifestation of agreement by the parties to abide by its
rules and regulations. As a consequence of such
participation, a party cannot invoke the jurisdiction of the
courts over disputes and controversies which fall under the
PCHC Rules and Regulations without first going through the
arbitration processes laid out by the body. Since claims
relating to the regularity of checks cleared by banking
institutions are among those claims which should first be
submitted for resolution by the PCHCs Arbitration
Committee, petitioner Associated Bank, having voluntarily
bound itself to abide by such rules and regulations, is
estopped from seeking relief from the Regional Trial Court on
the coattails of a private claim and in the guise of a third
party complaint without first having obtained a decision
adverse to its claim from the said body. It cannot bypass the
arbitration process on the basis of its averment that its third
party complaint is inextricably linked to the original
complaint in the Regional Trial Court.
Same; Same; Appeals; While the PCHC Rules and Regulations
allow appeal to the Regional Trial Courts only on questions of
law, this does not preclude our lower courts from dealing with

questions of fact already decided by the PCHC arbitration


when warranted and appropriate.Pursuant to its function
involving the clearing of checks and other clearing items, the
PCHC has adopted rules and regulations designed to provide
member banks with a procedure whereby disputes involving
the clearance of checks and other negotiable instruments
undergo a process of arbitration prior to submission to the
courts below. This procedure not only ensures a uniformity of
rulings relating to factual disputes involving checks and other
negotiable instruments but also provides a mechanism for
settling minor disputes among participating and member
banks which would otherwise go directly to the trial courts.
While the PCHC Rules and Regulations allow appeal to the
Regional Trial Courts only on questions of law, this does not
preclude our lower courts from dealing with questions of fact
already decided by the PCHC arbitration when warranted and
appropriate.
Same; Same; Same; A participant subject to the Clearing
House Rules and Regulations of the PCHC may go on appeal
to any of the Regional Trial Courts in the National Capital
Region where the head office of any of the parties is located
only after a decision or award has been rendered by the
arbitration committee or arbitrator on questions of law.Not
only do the parties manifest by mere participation their
consent to these rules, but such participation is deemed
(their) written and subscribed consent to the binding effect of
arbitration agreements under the PCHC rules. Moreover, a
participant subject to the Clearing House Rules and
Regulations of the PCHC may go on appeal to any of the
Regional Trial Courts in the National Capital Region where the
head office of any of the parties is located only after a
decision or award has been rendered by the arbitration
committee or arbitrator on questions of law.
Same; Same; Same; Petitioner Associated Bank by its
voluntary participation and its consent to the arbitration rules
cannot go directly to the Regional Trial Court when it finds it
convenient to do so.Clearly therefore, petitioner Associated
Bank, by its voluntary participation and its consent to the
arbitration rules cannot go directly to the Regional Trial Court

when it finds it convenient to do so. The jurisdiction of the


PCHC under the rules and regulations is clear, undeniable
and is particularly applicable to all the parties in the third
party complaint under their obligation to first seek redress of
their disputes and grievances with the PCHC before going to
the trial court.
Civil Procedure; Third Party Complaints; Third party com
plaint is a mere procedural device which under the Rules of
Court is allowed only with the courts permission.Finally,
the contention that the third party complaint should not have
been dismissed for being a necessary and inseparable
offshoot of the main case over which the court a quo had
already exercised jurisdiction misses the fundamental point
about such pleading. A third party complaint is a mere
procedural device which under the Rules of Court is allowed
only with the courts permission. It is an action actually
independent of, separate and distinct from the plaintiffs
complaint (s)uch that, were it not for the Rules of Court, it
would be necessary to file the action separately from the
original complaint by the defendant against the third party.
PETITION for review on certiorari of a decision of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Soluta, Leonidas, Marifosque, Balce, Santiago & Aguila
Law Office for petitioner.
Recto Law Office for respondent Flores.
Balgos and Perez Law Office for respondent PCIB.
Dumaraos, Oracion, Panganiban & Associates for
respondent FEBTC.
Cauton, Banares, Carpio, Ishiwata and Associates for
respondent SBTC.
Gonzaga, Soneja and Gale Law Offices for respondent
Citytrust.
KAPUNAN, J.:

This is a petition for review on certiorari seeking the reversal


of the decision of the Court of Appeals on November 18,
1992 affirming in toto the Order of the Regional Trial Court of
Quezon City, Branch 91 dismissing the petitioners third-party
complaint against private respondent banks for lack of
jurisdiction.
The facts of the case, as found by both the trial court and the
Court of Appeals are undisputed:
In a complaint for Violation of the Negotiable Instrument
Law and Damages, plaintiffs1 seek the recovery of the
amount of P900,913.60 which defendant bank2 charged
against their current account by virtue of the sixteen (16)
checks drawn by them despite the apparent alterations
therein with respect to the name of the payee, that is, the
name Filipinas Shell was erased and substituted with Ever
Trading and DBL Trading by their supervisor Jeremias
Cabrera, without their knowledge and consent.
Answering the complaint, defendant bank claimed that the
subject checks appeared to have been regularly issued and
free from any irregularity which would excite or arouse any
suspicion or warrant their dishonor when the same were
negotiated and honored by it; that it observed and exercised
the required diligence, care and the prescribed standard
verification procedures before finally accepting and honoring
the subject checks and that the proximate cause of plaintiffs
loss, if any, was their own laxity, negligence and lack of
control, due care and diligence in the conduct of their
business affairs.
With leave of court, defendant bank filed a Third-Party
Complaint against Philippine Commercial International Bank,
Far East Bank & Trust Company, Security Bank and Trust
Company
and
Citytrust
Banking
Corporation
for
reimbursement, contribution, indemnity from said third-party
defendants for being the collecting banks of the subject
checks and by virtue of their bank guarantee for all checks
sent for clearing to the Philippine Clearing House Corporation
(PCHC), as provided for in Section 17, PCHC Clearing House
Rules and Regulations.

In its Answer to the Third-Party Complaint, Citytrust Banking


Corporation averred that the subject checks appeared to be
complete and regular on their face with no indication that an
original payees name was erased and superimposed with
another; that plaintiffs fault and negligence in failing to
examine their monthly bank statements, together with the
returned checks and their own check stubs, put them under
estoppel and cannot recover the proceeds of the checks
against it, an innocent third-party, and plaintiff must suffer
the loss as their negligence was the proximate cause thereof;
and that third party plaintiff is barred from recovering from it
based on the provisions of Sections 20 and 21 of the
Philippine Clearing Rules and Regulations.
Philippine Commercial International Bank alleged that the
subject check was complete and regular on its face and was
paid by it only upon presentment to the drawee bank for
clearing who, upon examination thereof, found the same to
be complete and regular on its face; that it was only after
said check was cleared by third-party plaintiff for payment
that it allowed the payee to withdraw the proceeds of the
check from its account; that the cause of action of the thirdparty plaintiff is barred by estoppel and/or laches for its
failure to return the check to it within the period provided for
under Clearing House Rules and Regulations; that this Court
has no jurisdiction over the suit as it and third-party plaintiff
are members of the Philippine Clearing House and bound by
the Rules and Regulations thereof providing for arbitration.
A Motion To Dismiss was filed by Security Bank and Trust
Company on the grounds that third-party plaintiff failed to
resort to arbitration as provided for in Section 36 of the
Clearing House Rules and Regulations of the Philippine
Clearing House Corporation, and that it was released from
any liability with the acceptance by third-party plaintiff of the
subject check.
The record does not show of any Answer to the Third-Party
Complaint having been filed by Far East Bank & Trust
Company, although a Reply To FEBTC Answer was filed by
third-party plaintiff.

On the other hand, third-party plaintiff maintains that this


Court has jurisdiction over the suit as the provisions of the
Clearing House Rules and Regulations are applicable only if
the suit or action is between participating member banks,
whereas the plaintiffs are private persons and the third-party
complaint between participating member banks is only a
consequence of the original action initiated by the
plaintiffs.3
The trial court dismissed the third-party complaint for lack of
jurisdiction citing Section 36 of the Clearing House Rules and
Regulations of the PCHC providing for settlement of disputes
and controversies involving any check or item cleared
through the body with the PCHC. It ruledciting the
Arbitration Rules of Procedurethat the decision or award of
the PCHC through its arbitration committee/arbitrator is
appealable only on questions of law to any of the Regional
Trial Courts in the National Capital Region where the head
office of any of the parties is located.4
On the plaintiffs contention that jurisdiction vests with the
court only if the suit or action is between participating
member banks without the involvement of private parties the
trial court held:
The third-party complaint concerning a dispute or
controversy among clearing participants involving the subject
checks cleared through PCHC is actually independent of,
separate and distinct from the plaintiffs complaint. x x x
xxx
As the plaintiffs are not parties to the third party complaint,
the provisions of the clearing house rules and regulations on
arbitration are, therefore, applicable to Third-Party plaintiff
and third party defendant. Consequently this court has no
jurisdiction over the third party complaint.5
After the trial court denied plaintiffs Motion for
Reconsideration,6 petitioner appealed to the Court of Appeals
which promulgated the challenged decision on November 18,
1992 dismissing the petition for lack of merit.

Undaunted, petitioner is now before this Court seeking a


review of respondent courts decision on a lone assignment
of error:
RESPONDENT COURT OF APPEALS ERRED IN HOLDING THAT
PETITIONER DRAWEE BANKS THIRD PARTY COMPLAINT
AGAINST PRIVATE RESPONDENT COLLECTING BANKS FALL
WITHIN THE JURISDICTION OF THE PCHC AND NOT THE
REGULAR COURT.
We find no merit in the petition.
The Clearing House Rules and Regulations on Arbitration of
the Philippine Clearing House Corporation are clearly
applicable to petitioner and private respondents, third party
plaintiff and defendants, respectively, in the court below.
Petitioner Associated Banks third party complaint in the trial
court was one for reimbursement, contribution and indemnity
against the Philip-pine Commercial and Industrial Bank
(PCIB), the Far East Bank and Trust, Co. (FEBTC), Security
Bank and Trust Co. (SBTC), and the CityTrust Banking
Corporation (CTBC), in connection with petitioners having
honored sixteen checks which said respondent banks
supposedly endorsed to the former for collection in 1989.
Under the rules and regulations of the Philippine Clearing
House Corporation (PCHC), the mere act of participation of
the parties concerned in its operations in effect amounts to a
manifestation of agreement by the parties to abide by its
rules and regulations.7 As a consequence of such
participation, a party cannot invoke the jurisdiction of the
courts over disputes and controversies which fall under the
PCHC Rules and Regulations without first going through the
arbitration processes laid out by the body. Since claims
relating to the regularity of checks cleared by banking
institutions are among those claims which should first be
submitted for resolution by the PCHCs Arbitration
Committee, petitioner Associated Bank, having voluntarily
bound itself to abide by such rules and regulations, is
estopped from seeking relief from the Regional Trial Court on
the coattails of a private claim and in the guise of a third
party complaint without first having obtained a decision
adverse to its claim from the said body. It cannot bypass the

arbitration process on the basis of its averment that its third


party complaint is inextricably linked to the original
complaint in the Regional Trial Court.
Under its Articles of Incorporation, the PCHC provides an
effective, convenient, efficient, economical and relevant
exchange and facilitate service limited to check processing
and sorting by way of assisting member banks, entities in
clearing checks and other clearing items as defined and
existing in future Central Bank of the Philippines Circulars,
memoranda, circular letters rules and regulations and
policies in pursuance of Section 107 of RA 265. Pursuant to
its function involving the clearing of checks and other
clearing items, the PCHC has adopted rules and regulations
designed to provide member banks with a procedure
whereby disputes involving the clearance of checks and other
negotiable instruments undergo a process of arbitration prior
to submission to the courts below. This procedure not only
ensures a uniformity of rulings relating to factual disputes
involving checks and other negotiable instruments but also
provides a mechanism for settling minor disputes among
participating and member banks which would otherwise go
directly to the trial courts. While the PCHC Rules and
Regulations allow appeal to the Regional Trial Courts only on
questions of law, this does not preclude our lower courts from
dealing with questions of fact already decided by the PCHC
arbitration when warranted and appropriate.
In Banco de Oro Savings and Mortgage Banks vs. Equitable
Banking Corporation8 this Court had the occasion to rule on
the validity of these rules as well as the jurisdiction of the
PCHC as a forum for resolving disputes and controversies
involving checks and other clearing items when it held that
the participation of two banks . . . in the Clearing Operations
of the PCHC (was) a manifestation of its submission to its
jurisdiction.9
The applicable PCHC provisions on the question of jurisdiction
provide:
Sec. 3AGREEMENT TO THESE RULES

It is the general agreement and understanding, that any


participant in the PCHC MICR clearing operations, by the
mere act of participation, thereby manifests its agreement to
these Rules and Regulations, and its subsequent
amendments.
xxx
Sec. 36ARBITRATION
36.1 Any dispute or controversy between two or more
clearing participants involving any check/item cleared thru
PCHC shall be submitted to the Arbitration Committee, upon
written complaint of any involved participant by filing the
same with the PCHC serving the same upon the other party
or parties, who shall within fifteen (15) days after receipt
thereof, file with the Arbitration Committee its written answer
to such written complaint and also within the same period
serve the same upon the complaining participant. This period
of fifteen (15) days may be extended by the Committee not
more than once for another period of fifteen (15) days, but
upon agreement in writing of the complaining party, said
extension may be for such period as the latter may agree to.
Section 36.6 is even more emphatic:
36.6 The fact that a bank participates in the clearing
operations of PCHC shall be deemed its written and
subscribed consent to the binding effect of this arbitration
agreement as if it had done so in accordance with Section 4
of the Republic Act No. 876 otherwise known as the
Arbitration Law.
Thus, not only do the parties manifest by mere participation
their consent to these rules, but such participation is deemed
(their) written and subscribed consent to the binding effect of
arbitration agreements under the PCHC rules. Moreover, a
participant subject to the Clearing House Rules and
Regulations of the PCHC may go on appeal to any of the
Regional Trial Courts in the National Capital Region where the
head office of any of the parties is located only after a
decision or award has been rendered by the arbitration
committee or arbitrator on questions of law.10

Clearly therefore, petitioner Associated Bank, by its voluntary


participation and its consent to the arbitration rules cannot
go directly to the Regional Trial Court when it finds it
convenient to do so. The jurisdiction of the PCHC under the
rules and regulations is clear, undeniable and is particularly
applicable to all the parties in the third party complaint under
their obligation to first seek redress of their disputes and
grievances with the PCHC before going to the trial court.
Finally, the contention that the third party complaint should
not have been dismissed for being a necessary and
inseparable offshoot of the main case over which the court a
quo had already exercised jurisdiction misses the
fundamental point about such pleading. A third party
complaint is a mere procedural device which under the Rules
of Court is allowed only with the courts permission. It is an
action actually independent of, separate and distinct from
the plaintiffs complaint (s)uch that, were it not for the Rules
of Court, it would be necessary to file the action separately
from the original complaint by the defendant against the
third party.11
IN VIEW OF THE FOREGOING, the petition is DENIED for lack
of merit. With costs against petitioner.
SO ORDERED.
Cruz (Chairman), Davide, Jr. and Bellosillo, JJ., concur.
Quiason, J., No part, being former counsel of one of
responBRITISH TRADERSINSURANCE CO., LTD., petitioner,
COMMISSIONER OF INTERNAL REVENUE, respondent.

vs.

Taxation; Income Tax; Cessions of reinsurance premiums


subject to withholding tax.Reinsurance premiums on
insurances located in the Philippines ceded by the Philippine
office of a foreign insurance company to foreign reinsurers
not doing business in the Philippines pursuant to reinsurance
treaties negotiated and executed abroad are subject to
withholding tax as income from sources within the Philippines
under Section 53 of the Tax Code.

Same; Same; Taxability of foreign corporations income;


Depends on locus of activity.Taxability of a foreign
corporations income depends upon the locus of the activity,
property or service giving rise thereto. Where the reinsurance
premiums were income to foreign reinsurers from
reinsurance transactions or activities performed in the
Philippines, the situs of the source of the reinsurance
premiums is the Philippines. The place of contract is not a
sole criterion that conclusively determines the situs of the
reinsurance premiums. Neither should the place of business
of the foreign reinsurers be made the norm. Place of activity,
not place of business, is controlling.
Same; Same; Estoppel; State not estopped by mistake of its
agents.The State is not estopped from collecting taxes, by
the mistakes and errors of its agents.
Same; Court of Tax Appeals; Court of Tax Appeals may not be
made to perform functions of Bureau of Internal Revenue.
The Court of Tax Appeals has to limit itself to whatever
papers, or documents that may be presented before it as
evidence in accordance with the rules of procedure. It may
not be made to perform the proper and initial task of the
Commissioner of Internal Revenue, which would have
resulted from the admission of a supplemental petition for
review amounting to a reopening of the case and reception of
supporting evidence of income tax returns.
Remedial Law; Pleadings and Practice; Admission of
supplemental pleading discretionary.The admission or nonadmission of a supplemental pleading lies in the sound
discretion of the court before which its admission is sought.
APPEAL from a decision of the Court of Tax Appeals.

Solicitor General for respondent.


BENGZON, J.P., J.:

British Traders Insurance Co., Ltd., a Hongkong corporation


engaged in business in the Philippines, Union Insurance
Society of Canton, Ltd. and North Pacific Insurance Company,
Ltd., calling themselves the Union Companies, entered into
worldwide reinsurance treaties with various foreign insurance
companies whereby they agreed to cede a portion of the
premiums in insurance they had originally underwritten in
consideration for assumption by the reinsurers of liability on
an equivalent portion of the risks originally insured. Said
treaties were negotiated and signed by the parties concerned
outside the Philippines. Payment of claims and premiums
were stipulated to be made in London but the Union
Companies were required to keep registers wherein they
entered all risks ceded to the reinsurers. Entry in such
registers constituted a cession and was binding on the
reinsurers.
The aforesaid treaties considered the liability of the
reinsurers coterminous with the liability of the Union
Companies under the original insurances. Adjustments,
settlements or compromises which may be made by the
Union Companies for loss were binding on the reinsurers.
By virtue of such reinsurance treaties, the Philippine office of
British Traders* Insurance Co., Ltd. ceded to foreign
reinsurers not doing business in the Philippines the following
reinsurance premiums corresponding to insurances originally
underwritten in the Philippines:
1954 .............................................................................

The facts are stated in the opinion of the Court.


Sycip, Salazar, Lima & Associates and A. S. Monson & F. C.
de Guzman for petitioner.

P244,480.35
1955 ................................................................................
243,636.19

British Traders Insurance Co., Ltd. did not include in its gross
income the above amounts when it filed its income tax
returns for 1954 and 1955 and withheld no income tax
thereon. So, the Commissioner of Internal Revenue issued
against it the following assessment for withholding tax under
Sections 53 and 54 of the Tax Code.
1954
Premiums ceded ...................................
P244,480.35
Tax due thereon at 24% ................................
58,675.00
25% surcharge ............................................
14,668.75
Compromise for non-filing of return ......................
P 800.00
Total amount due ......................................
P 73,643.75
1955
Premiums ceded .............................................
P243,636.19
Tax due thereon at 24% ................................
58,473.00
25% surcharge ............................................
14,618.25
Compromise for non-filing of return .....................
300.00
Total amount due ..........................................

P 73,391.25
British Traders Insurance Co., Ltd. protested the
assessments, reasoning that the cessions of reinsurance
premiums were not subject to withholding tax. After its
protest was denied by the Commissioner of Internal Revenue,
it appealed to the Court of Tax Appeals. On January 30, 1962,
the Tax Court rendered judgment sustaining the
assessments, thus:
WHEREFORE, in view of the foregoing considerations,
petitioner British Traders Insurance Co., Ltd., is hereby
ordered to pay the Commissioner of Internal Revenue the
total amount of P117,148.00 as withholding income tax for
the years 1954 and 1955, within thirty (30) days from the
date this decision becomes final.
If any amount of the tax is not paid within the time
prescribed above, there shall be collected a surcharge of 5%
of the tax unpaid, plus interest at the rate of 1% a month
from the date of delinquency to the date of payment,
provided that the maximum amount that may be collected as
interest shall not exceed the amount corresponding to a
period of three (3) years. With costs against the petitioner.
Subsequently, on March 1, 1962, British Traders Insurance
Co., Ltd., for and in behalf of its non-resident foreign
reinsurers, filed income tax returns for the years 1954 and
1955, declaring therein the aforesaid reinsurance premiums,
and thereupon paid the corresponding income tax for 1954 in
the amount of P6,212.50. No tax was due for 1955 per the
corresponding return.
On March 6, 1962, before the decision of the Court of Tax
Appeals would become final, British Traders Insurance Co.,
Ltd. attempted to file a supplemental petition for review,
alleging therein the filing of the income tax returns for 1954
and 1955 and praying for relief from payment of withholding
taxes as provided for in Section 53(e) of the Tax Code. The
Tax Court did not give due course to it on the ground that the
supplemental petition for review would entirely change the

theory of the original petition, eventually reopen the case


and delay or protract the proceedings.
British Traders Insurance Co., Ltd. has appealed, raising two
issues:
(1) Does the Tax Code subject to income and/or withholding
tax reinsurance premiums ceded to nonresident foreign
insurance companies pursuant to treaties negotiated and
executed abroad?
(2) Did the Court of Tax Appeals commit reversible error in
denying leave to file a supplemental petition for review?
Petitioner would wish to stress that the reinsurance
premiums in question are not taxable because they do not
constitute income from sources within the Philippines. To
support its view, petitioner points out that the reinsurance
treaties were executed outside the Philippines; that
performance under the reinsurance treaties was to take place
outside the Philippines; that the foreign reinsurers were not
engaged in business in the Philippines and had no offices or
representatives here; and the reinsurance premiums are not
included in Section 37 of the Tax Code enumerating gross
income from sources within the Philippines.
From the reinsurance treaties, however, it is clear that the
reinsurance transactions and/or activities in question were to
be performed in the Philippines. Specifically these are: the
entry in the registry of risks ceded; computation of retention;
determination of the amount ceded; remittance of
reinsurance
premium;
adjustment,
settlement,
or
compromise of indemnity for loss due from reinsurers; and,
payment of applicable taxes to ceded premiums. A strong
indication is thereby given that the undertaking to indemnify
the insured for loss on insurances located in the Philippines,
was to be actually performed in Philippine soil. Such
reinsurance treaties, moreover, provided that entry of risks
ceded to reinsurers in a register to be kept by British Traders
Insurance Co., Ltd. constitutes a cession binding on the
reinsurers. Petitioner, in compliance with such clause in the

reinsurance treaties, kept a register in Manila and entered


therein all the risks ceded to its reinsurers during 1954 and
1955, thereby localizing in the Philippines the actual cession
and their acceptance by the reinsurers.
Section 24 of the Tax Code taxes foreign corporations on their
income from sources within the Philippines. The word
sources has been interpreted to mean activity, property or
service out of which the income rose.1 Accordingly, taxability
of a foreign corporations income depends upon the locus of
the activity, property or service giving rise thereto. The
reinsurance premiums in question were income to
petitioners foreign reinsurers from the reinsurance
transactions or activities, which, as mentioned above, were
performed in the Philippines. Perforce, the situs of the source
of the reinsurance premiums is the Philippines, within the
taxing provision of Section 24. Stated otherwise, the flow of
wealth proceeded from, and occurred within, Philippine
territory, enjoying therein the protection accorded by our
Government. Such flow of wealth should, in consideration for
the protection, share the burden of supporting the
Government.
The reinsurance treaties between petitioner and its foreign
reinsurers were indeed negotiated and signed abroad. The
place of contract, however, is not a sole criterion that
conclusively determines the situs of the reinsurance
premiums: For, otherwise, it would be relatively easy for
foreign corporations to celebrate a contract abroad, for
instance in Mexico, where there appears to be no income tax,
and thus evade payment of tax on income flowing to them
from the Philippines.
Neither should the place of business of the foreign reinsurers
be made the norm for applying Section 24 of the Tax Code.
For the income tax law does not require as a condition sine
qua non the conduct of business in the Philippines in order
that foreign corporations may thereunder be taxed on their
income. It is sufficient that such income is derived from an
activity within the Philippines. Place of activity, not place of

business, is controlling. Since an activity may consist of only


a single transaction whereas business implies a continuity of
transactions,2 it follows that the source of an income can be
an activity performed outside ones place of business.
Precisely, our legislators adopted the administrative device in
Sections 53 and 54withholding of the corresponding
income tax at the source of the incometo insure collection
of whatever tax may be due on income earned in the
Philippines by those who are not doing business in the
Philippines and have no office or agent here. The fact that a
foreign corporation does not engage in business here and has
no local office or agent is the very reason why its income is
subject to withholding tax.3
Although reinsurance premiums are not expressly mentioned
in Section 37 of the Tax Code enumerating types of income
that should be treated as coming from sources within the
Philippines, this does not render it only less such as income.
Section 37 is obviously not an all-inclusive enumeration, for it
only directs that the types of income mentioned therein be
treated as income from sources within the Philippines, but
does not state that no other kind of income be likewise so
considered.
As to the question whether or not reinsurance premiums
ceded to foreign reinsurers not doing business in the
Philippines are subject to withholding tax under Sections 53
and 54, suffice it to say that we have already decided this in
the affirmative in Howden vs. Commissioner of Internal
Revenue, L-19392, April 14, 1965.
Petitioner further contends that since it relied on the rulings
of the Commissioner of Internal Revenue in not withholding
the tax on the reinsurance premiums in question, it may not
anymore be compelled to pay the withholding tax thereon,
invoking the second paragraph of Section 200 of the Income
Tax Regulations, which states:
In case of doubt, a withholding agent may always protect
himself by withholding the tax due, and promptly causing a
query to be addressed to the Commissioner of Internal

Revenue for the determination of whether or not the income


paid to an individual is not subject to withholding. In case the
Commissioner of Internal Revenue decides that the income
paid to an individual is not subject to withholding, the
withholding agent may thereupon remit the amount of tax
withheld.
There is no showing that petitioner actually withheld the tax
on the reinsurance premiums in question and subsequently
inquired from the Commissioner of Internal Revenue whether
or not such premiums were subject to withholding. Petitioner
therefore may not invoke the protection accorded by Section
200, for failure to show compliance with the requirements set
forth therein. Furthermore, its reliance on the previous rulings
of the Commissioner of Internal Revenue would not relieve if
from its duty to pay the withholding tax due on the
reinsurance premiums, for the State is not estopped from
collecting taxes by the mistakes and errors of its agents.4
Petitioner maintains finally, that the Tax Court erred in
denying admission of its supplemental petition for review.
The record shows that the burden of petitioners
supplemental petition was that petitioner had filed income
tax returns for 1954 and 1955, and paid the income tax due,
after the Tax Court rendered its decision; and that said
decision, not yet final and executory, should accordingly
recognize the absence of further need of withholding tax.
For the Court of Tax Appeals to have admitted the aforesaid
supplemental petition would have meant reopening the case
and receiving such evidence as balance sheets, statements
of profit and loss, books of accounts, receipts, invoices,
schedules of income and disbursements, etc., in support of
the income tax returns. The Tax Court would only have been
made to perform the proper and initial task of the
Commissioner of Internal Revenuethe examination,
verification and audit of petitioners income tax returns after
their filing which lawfully belongs to the Commissioner of
Internal Revenue who has the necessary facilities and
personnel to conduct the same. He has at his disposal

fieldmen whom he can send to the offices of the taxpayer to


examine all its books, records, and papers. Whereas, the
Court of Tax Appeals has to limit itself to whatever papers or
documents that may be presented before it as evidence in
accordance with the rules of procedure.
Petitioner, moreover, by the supplemental petition for review
in reality sought nullification of the Tax Courts judgment
holding it liable for withholding tax, by simply and
conveniently changing its theory and alleging therein
payment of the income tax due on the reinsurance
premiums, thus allegedly eliminating the reason and purpose
for the withholding of such tax. Admission of the
supplemental petition at the stage when it was filed would
have been opening the door for a party litigant to wait until
the court has rendered its opinion on a case and then, to best
suit his purposes, change his stand on the point that had
been submitted for resolution of the court. Justice requires
that such speculation by a party should not be sanctioned by
our courts. Neither can the courts countenance a situation
where a party, through the use of a supplemental pleading,
puts two agencies of the Government, such as the Court of
Tax Appeals and the Bureau of Internal Revenue in
contradictory positions for the benefit of the taxpayer and to
the prejudice of the Government. Under the supplemental
petition the Court of Tax Appeals would have been called
upon to decide the propriety of the tax paid as reported in
the late income tax returns. Eventually, it would have the
effect of tying the hands of the Bureau of Internal Revenue,
preventing it from verifying the returns and ultimately foiling
collection of deficiency tax, if there be any.
We see no reason, therefore, to alter the course taken by the
Tax Court in this regard.5 The admission or non-admission of
a supplemental pleading lies in the sound discretion of the
court before which its admission is sought. The Rules of Court
states that on motion of a party the court may, upon
reasonable notice and upon such terms as are just, permit
him to serve a supplemental pleading.6 The admission of a
supplemental pleading, therefore, is not a matter of right.

Finally, supplemental pleadings, as the name implies, are


meant to supply deficiencies in aid of an original pleading,
not to entirely substitute the latter.
WHEREFORE, the decision appealed from is hereby affirmed
with costs against petitioner. It is so ordered.
Bengzon, C.J., Bautista Angelo, Concepcion, Reyes, J.B.L.,
Barrera, Paredes, Dizon, Regala, Makalintal and Zaldivar, JJ.,
concur.
Decision affirmed.
Notes.Prior to the amendment of section 24 of the Tax Code
by Rep. Act 1855, life insurance companies are required to
include premium receipts in their gross taxable income.
However, after the amendment, premiums received by life
insurance companies were eliminated from the category of
income and only investment income is taxed, thus placing
insurance companies in the Philippines on a basis similar to
that enjoyed by them in the United States and in other
countries.
The word premiums appearing in sub-par. 1(b) of sec. 24 of
the Tax Code does not include reinsurance premiums.
Effective June 22, 1963, when Rep. Act 3825 took effect, all
reinsurance premiums received by every foreign corporation
not engaged in trade or business within the Philippines, are,
therefore, no longer subject to income tax. (See [British
Traders Insurance Co., Ltd. vs. Commissioner of Internal
Revenue, 13 SCRA 719(1965)]

MARCIANO
LAMCO,
petitioner,
vs.
COMPENSATION COMMISSION and ALVARO
ENTERPRISES, respondents.

WORKMENS
J. BARRETO

Labor Law; Workmens Compensation; Jurisdiction; Notice of


appeal; Failure to file notice of appeal with WCC does not
affect jurisdiction of Supreme Court; Filing of notice of appeal
no longer compulsory; Reasons.First, with respect to
petitioners failure to file a notice of appeal with the
Commission before filing this Petition for Review, the Court,
in Vargas v. Philippine American Embroideries, Inc. (34 SCRA
680), has ruled that the filing of the notice of appeal is no
longer compulsory, for the following reasons, namely; (a) The
previous provision of the old Rules of Court (Rule 44) to the
effect that the filing of the notice of appeal is a condition
precedent to the perfection of the appeal, is now eliminated
in the new Rules of Court (Rule 43); (b) The notice serves no
other purpose than to inform the Commission that the losing
party desires to contest its ruling in the proper appellate
court; the adverse private party litigant is not entitled to the
notice, hence, insofar as the real parties in interest are
concerned, the notice of appeal is something they can totally
ignore; and (c) The further provision in the Rules of Court that
a copy of the petition for certiorari shall be served upon the
Commission and upon the adverse party, and the proof of
service attached to the original of the petition for the
Supreme Court, renders the notice of appeal a superfluity.
Same; Same; Same; Pleadings; Petitioners failure to file with
the Supreme Court properly verified petition not a fatal
defect as to affect courts jurisdiction over the petitioner;
Rules of Court liberally construed.Second, the petitioners
failure to file a properly verified petition is not such a fatal
defect which would affect the Courts jurisdiction to take
cognizance of such petition. The Rules of Court itself (Rule 1,
Sec. 2) prescribes a general directive that the rules of court
be liberally construed or interpreted in order to promote their
objective and to assist the parties in obtaining just, speedy

and inexpensive determination of their cases. In other words,


these rules should not be interpreted to sacrifice substantial
right of litigant in the sophisticated altar of technicalities with
impairment of the sacred principles of justice.
Same; Same; Same; Same; Failure of petitioner to file petition
with the Supreme Court within extended time granted him
not a jurisdictional defect which will ipso facto cause
dismissal of petition; Discretionary on the Supreme Court to
allow filing of pleadings after the time fixed by the Rules;
Strict observance of provisions of Rules of Court not applied
in Workmens Compensation case; Case at bar.Neither is
petitioners failure to file the petition within the extended
time granted by the Court a jurisdictional defect which will
ipso facto cause the petitions dismissal. Rule 11, section 7
allows the filing of a pleading after the time fixed by these
rules depending on the courts discretion. Thus, it is within
the ambit of the Courts authority to act on the petition
despite its being filed out of time, especially so where good
reasons for the delay had been interposed by petitioner.
Considering this to be a workmens compensation case, it is
the Courts considered view that there is reason not to insist
on strict observance of the provisions of the Rules.
Appropriately applicable are the words of Chief Justice Moran,
Rules of Pleadings are intended to secure a method by
which the issues may be properly laid before the court. When
these issues are already clear before the court, the deficiency
in the observance of the rules should not be given undue
importance. What is important is that the case be decided
upon the merits and that it should not be allowed to go off on
procedural points.
Same; Same; Presumpion of compensability in favor of
claimant; In compensation cases, where death or injury is
shown to have supervened in the course of employment,
claimant need not establish causal connection between his
injury and employment.The physicians report states the
petitioners hypertension was probably aggravated by the
employment as the patent (was) under constant pressure
and tension. This finding by the attending physician does

not make petitioners illness less compensable for the Court


has been consistent in its rulings that in compensation cases
where death or injury is shown to have supervened in the
course of employment, the claimant need not establish that
the cause of injury was directly brought about by the
employment or directly aggravated by the nature of the
employment. To do so would be to ignore the presumption of
compensability clearly established in Section 43 (1) of the
Workmens Compensation Act (No. 3428) as amended by
Republic Act 772. It is sufficient to show that the employment
contributed, even in small degree, to the development of the
disease. It is not even necessary for a claimant to carry the
burden of proof to establish his case to the point of
demonstration. In fact, the Court has applied the
presumption of compensability in a case where the cause of
death supervening in the course of employment was
unknown. x x x.

in Item 15 After the period of temporary total disability, may


the workman resume his former occupation right away?, the
physician answered Yes; and lastly in Item 20 Has the
injury or sickness resulted in permanent total disability for
labor?, the physician answered not applicable. On the
other hand, petitioner maintains that the refusal of
respondent firm to accept him when he presented himself for
resumption of his work, is an implied admission of his
permanent and total disability for work. Peti-tioners position
finds support in Our ruling in Marcelino v. Seven Up Bottling
Company of the Philippines and WCC, (47 SCRA 43), under
similar facts We found the petitioner therein totally and
permanently disabled.

Same; Same; Controversion; Effect of employers failure to


controvert claim.We are also mindful of the fact that
respondent firm failed to file its notice of controversion within
the time prescribed by law. On this score alone, the
respondent firm is deemed to have admitted the
compensability of the claim, its reasonableness and validity,
such failure amounting to a waiver of its right to controvert
and renunciation of all defenses.

The facts are stated in the opinion of the Court.

Same; Same; Disability from work of employee; Refusal of


respondent firm to accept employee from resuming work
constitutes an implied admission of employees permanent
and
total
disability
from
work.Considering
the
compensability of the claim, We are now faced with the issue
of whether petitioner is entitled to only temporary total
disability benefits or to the permanent total disability
benefits awarded to him by the Acting Referee. Respondent
firm insists before Us that petitioner is not permanently nor
totally disabled for work as supported by the Physicians
Report. He points out that in Item 24 Has the injury caused
the workman temporary total disability for labor, of what
length of time?, the physician answered Yes, for 41 days,;

PETITION for review of the decision of the Workmens


Compensation Commission.

Mariano Lamco in his own behalf.


Juan R. Moreno for private respondent.
GUERRERO, J.:

Petition for review of the Decision of the respondent


Workmens Compensation Commission dated January 22,
1976 dismissing petitioners claim for disability benefits
previously allowed by Acting Referee Gregorio C. Calasan of
Regional Office No. 4, Manila, in his Decision of October 28,
1975.
Petitioner Marciano Lamco was employed by respondent firm
Alvaro J. Barreto Enterprises on April 16, 1974 as its furniture
designer-production supervisor with a monthly salary of
P800.00. Working six (6) days a week, he took charge of
designing the furniture, of supervising the purchase of the
correct raw materials, of making and keeping the inventory
of said purchases and of other supplies, with the over-all task

of achieving good production of quality-controlled finished


products.
On December 5, 1974, petitioner suffered a stroke and was
rushed to the Jose Reyes Memorial Hospital for emergency
treatment. Later, he was transferred to the University of
Santo Tomas Hospital where he was confined from December
7, 1974 to January 25, 1975. The attached Physicians Report
shows the following diagnosis: Cerebral Infarction, Right;
with the following General Remarks: Sudden onset of left
hemiparesis (paralysis) with slight slurring of speech, without
loss of consciousness, without seizure on December 5, 1974.
Found out to be hypertensive and treated as such and
underwent physiotherapy.
When recovered, petitioner sought to resume working with
the respondent firm but was refused on the ground that the
pressure of his work and position might induce a recurrence
of his illness.
On March 7, 1975, petitioner filed his claim for compensation
benefits against respondent firm before the Workmens
Compensation Section, Regional Office No. 4 in Manila. In an
Employers Report filed on May 13, 1975, respondent firm
denied liability on the claim, alleging lack of employeremployee relationship at the time petitioner suffered his
stroke on December 5, 1974. It was insisted that petitioner
resigned from his work effective November 9, 1974 pursuant
to his letter of resignation dated October 30, 1974.
In a decision dated October 28, 1975, the Acting Referee
allowed petitioners claim for compensation but denied
reimbursement of medical expenses, petitioner not having
shown any receipt nor proof therefor. The dispositive portion
thereof states:
WHEREFORE, decision is hereby rendered in favor of the
claimant and respondent is directed to pay;
1. To the claimant, thru this Office, the sum of SIX THOUSAND
(P6,000.00) PESOS as compensation pursuant to Sections 14
and 15 of the Act;

2. To Atty. Pedro Rivera, counsel for claimant, the sum of


THREE HUNDRED (P300.00) PESOS as attorneys fee
pursuant to Section 31 of the Act; and
3. To this Office, the sum of SIXTY-ONE (P61.00) PESOS as
decision (SIC) fee pursuant to Section 55 of the Act.
Respondent firms motion for reconsideration having been
denied, the case was elevated to the respondent Commission
for review. On January 22, 1976, the Commission rendered
the appealed decision, the dispositive portion of which
states:
ACCORDINGLY, the decision rendered on October 28, 1975 is
hereby REVERSED and the claim is dismissed for lack of
employer-employee relationship.
On April 23, 1976 or two days after the expiration of the
extension of time granted to petitioner within which he may
file his petition for review, petitioner filed before this Court
the present petition, lacking however the proper verification
for not being subscribed and sworn to before a notary public.
By resolution dated July 16, 1976, the Court proceeded to
treat the petition as a special civil action.
Initially presented for resolution is the jurisdictional issue of
whether the petitioner Marciano Lamco has properly
perfected his appeal to this Court, not having filed any notice
of appeal with the Commission, nor a properly verified
petition for review before the expiration of the extension of
time granted by the Court for the filing thereof.
First, with respect to petitioners failure to file a notice of
appeal with the Commission before filing this Petition for
Review, the Court, in Vargas v. Philippine American
Embroideries, Inc. (34 SCRA 680), has ruled that the filing of
the notice of appeal is no longer compulsory, for the
following reasons, namely: (a) The previous provision of the
old Rules of Court (Rule 44) to the effect that the filing of the
notice of appeal is a condition precedent to the perfection of
the appeal, is now eliminated in the new Rules of Court (Rule
43); (b) The notice serves no other purpose than to inform

the Commission that the losing party desires to contest its


ruling in the proper appellate court; the adverse private party
litigant is not entitled to the notice, hence, insofar as the real
parties in interest are concerned, the notice of appeal is
something they can totally ignore; and (c) The further
provision in the Rules of Court that a copy of the petition for
certiorari shall be served upon the Commission and upon the
adverse party, and the proof of service attached to the
original of the petition for the Supreme Court, renders the
notice of appeal a superfluity.
Second, the petitioners failure to file a properly verified
petition is not such a fatal defect which would affect the
Courts jurisdiction to take cognizance of such petition. The
Rules of Court itself (Rule 1, Sec. 2) prescribes a general
directive that the rules of court be liberally construed or
interpreted in order to promote their objective and to assist
the parties in obtaining just, speedy and inexpensive
determination of their cases. In other words, these rules
should not be interpreted to sacrifice substantial rights of a
litigant in the sophisticated altar of technicalities with
impairment of the sacred principles of justice.1 Thus, in
Quimpo v. Dela Victoria (46 SCRA 139), the Court held that
the requirement regarding proper verification is not
jurisdictional, but merely formal, citing the case of Villasanta
v. Bautista, 36 SCRA 160, where the Court therein stated that
absence of verification is not fatally defective in meritorious
cases.
Neither is petitioners failure to file the petition within the
extended time granted by the Court a jurisdictional defect
which will ipso facto cause the petitions dismissal. Rule 11,
section 7 allows the filing of a pleading after the time fixed
by these rules depending on the courts discretion. Thus, it is
within the ambit of the Courts authority to act on the
petition despite its being filed out of time, especially so
where good reasons for the delay had been interposed by
petitioner.

Considering this to be workmens compensation case, it is


the Courts considered view that there is reason not to insist
on strict observance of the provisions of the Rules.
Appropriately applicable are the words of Chief Justice Moran,
Rules of pleadings are intended to secure a method by
which the issues may be properly laid before the court. When
these issues are already clear before the court, the deficiency
in the observance of the roles should not be given undue
importance. What is important is that the case be decided
upon the merits and that it should not be allowed to off on
procedural points. (Moran, Comments on the Rules of Court,
Vol. I, pp. 300-301, 1970 ed., citing Co Tiamco v. Diaz, et al.,
75 Phil. 672).
On the merits of the case, petitioner seeks the reversal of the
Commissions decision on two grounds: (1) it erred in its
finding of lack of employer-employee relationship since his
resignation was not accepted by the respondent firm as he
continued working therein until the time of his stroke on
December 5, 1974; and (2) that the dismissal of his claim is
without basis in fact and in law.
The Court finds the petition meritorious.
That petitioners letter of resignation was not acted upon and
that he continued working with respondent firm until
December 5, 1974 is amply substantiated by documentary
evidences: (1) Annex B, xerox copy of the Social Security
and Medicare Contributions Payment Return filed by
Employer A. J. Barreto Enterprises for the period covering
half of April, 1974 up to the whole month of November
1974; (2) Annex C, xerox copy of the Sickness Notification
SSS form, Part III of which was to be filled in by the employer,
duly accomplished by Alvaro Barreto as Company Executive;
(3) Annex D, xerox copy of an SSS voucher made payable
to A. J. Barreto Enterprises reimbursing him the amount of
P360.00 advanced by such firm in payment of sickness
benefits accruing to employee Marciano Lamco, Jr. for his
compensable confinement from 12-07-74 to 01-05-75
(December 7, 1974 to January 5, 1975).

The sole basis upon which the controversion was anchored


having been rebutted by petitioners documentary evidences,
We now resolve the compensability of the claim, proceeding
on this established fact: that petitioners stroke due to
hypertension supervened in the course of employment.
The physicians report states that petitioners hypertension
was probably aggravated by the employment as the
patient (was) under constant pressure and tension. This
finding by the attending physician does not make petitioners
illness less compensable for the Court has been consistent in
its rulings2 that in compensation cases where death or injury
is shown to have supervened in the course of employment,
the claimant need not establish that the cause of injury was
directly brought about by the employment or directly
aggravated by the nature of the employment. To do so would
be to ignore the presumption of compensability clearly
established in Section 43 (1) of the Workmens Compensation
Act (No. 3428) as amended by Republic Act 772. It is
sufficient to show that the employment contributed, even in
a small degree, to the development of the disease. It is not
even necessary for a claimant to carry the burden of proof to
establish his case to the point of demonstration. In fact, the
Court has applied the presumption of compensability in a
case3 where the cause of death supervening in the course of
employment was unknown, rationalizing in this wise, thus:
In other words, in the absence of proof that the injury or
death supervening in the course of employment has arisen
because of the nature of the same, the death or injury is, by
law, compensable unless the employer clearly establishes
that it was not caused or aggravated by such employment or
work. Mere absence of evidence that the mishap was
traceable to the employment does not suffice to reject the
claim; there must be credible evidence that it was not so
traceable.
We are also mindful of the fact that respondent firm failed to
file its notice of controversion within the time prescribed by
law. On this score alone, the respondent firm is deemed to

have admitted the compensability of the claim, its


reasonableness and validity, such failure amounting to a
waiver of its right to controvert and renunciation of all
defenses.4
Considering the compensability of the claim, We are now
faced with the issue of whether petitioner is entitled to only
temporary total disability benefits or to the permanent total
disability benefits awarded to him by the Acting Referee.
Respondent firm insists before Us that petitioner is not
permanently nor totally disabled for work as supported by
the Physicians Report. He points out that in Item 24 Has the
injury caused the workman temporary total disability for
labor, for what length of time?, the physician answered Yes,
for 41 days.; in Item 15 After the period of temporary total
disability, may the workman resume his former occupation
right away?, the physician answered Yes; and lastly in Item
20 Has the injury or sickness resulted in permanent total
disability for labor?, the physician answered not
applicable.
On the other hand, petitioner maintains that the refusal of
respondent firm to accept him when he presented himself for
resumption of his work, is an implied admission of his
permanent and total disability for work. Petitioners position
finds support in Our ruling in Marcelino v. Seven Up Bottling
Company of the Philippines and WCC, (47 SCRA 43), where
under similar facts We found the petitioner therein totally and
permanently disabled thus
We believe that the Workmens Compensation Commission
is in error when it declared that the petitioner was not
entitled to compensation for permanent total disability,
simply because the petitioner had not suffered from paralysis
or other fatal complication due to his ailment of
hypertension. The Workmens Compensation Commission has
overlooked the vital circumstance that after his discharge
from the hospital, the petitioner had on many occasions
presented himself before the respondent Company and
requested that he be allowed to return to work in the

company, but everytime he presented himself he was


refused admission to work upon the ground that his illness
might recur. This simply shows that as far as respondent
company was concerned the petitioner was incapacitated or
disabled to perform any substantial amount of labor in the
line of work where he was formerly engaged, or in any other
kind of work which he could be assigned.
WHEREFORE, the decision of the respondent Commission
dated January 22, 1976 is reversed, and judgment is hereby
rendered reinstating the Acting Referees decision dated
October 28, 1975.
SO ORDERED.
Teehankee (Chairman), Muoz Palma and Fernandez JJ.,
concur.
Makasiar, J., concurs in a separate opinion.

JOSE BARITUA and JB LINE, petitioners, vs. NIMFA DIVINA


MERCADER in her capacity and as guardian of DARWIN,
GIOVANNI, RODEL and DENNIS, all surnamed MERCADER;
LEONIDA Vda. de MERCADER on her behalf and on behalf of
her minor child MARY JOY MERCADER; SHIRLEY MERCADER
DELA CRUZ; MARIA THERESA MERCADER-GARCIA; DANILO
MERCADER; JOSE DANTE MERCADER; and JOSEFINA
MERCADER, respondents.
Actions; Courts; Jurisdiction; Generally, the jurisdiction of a
court is determined by the statute in force at the
commencement of the action, unless such statute provides
for its retroactive application.Generally, the jurisdiction of a
court is determined by the statute in force at the
commencement of the action, unless such statute provides
for its retroactive application. Once the jurisdiction of a court
attaches, it continues until the case is finally terminated. The
trial court cannot be ousted therefrom by subsequent
happenings or events, although of a character that would
have prevented jurisdiction from attaching in the first
instance.
Same; Docket Fees; The Manchester ruling, which became
final in 1987, has no retroactive application and cannot be
invoked in the subject Complaint filed in 1984.The
Manchester ruling, which became final in 1987, has no
retroactive application and cannot be invoked in the subject
Complaint filed in 1984. The Court explicitly declared: To put
a stop to this irregularity, henceforth all complaints, petitions,
answers and other similar pleadings should specify the
amount of damages being prayed for not only in the body of
the pleading but also in the prayer, and said damages shall
be considered in the assessment of the filing fees in any
case. Any pleading that fails to comply with this requirement
shall not be accepted nor admitted, or shall otherwise be
expunged from the record. (emphasis supplied)
Same; Pleadings and Practice; Motions for Bill of Particulars;
A motion for bill of particulars becomes moot and academic
where, prior to its filing, the defendant has already filed his

answer and several other pleadings.We are not impressed.


It must be noted that petitioners counsel manifested in open
court his desire to file a motion for a bill of particulars.
The RTC gave him ten days from March 12, 1985 within which
to do so. He, however, filed the aforesaid motion only on April
2, 1985 or eleven days past the deadline set by the trial
court. Moreover, such motion was already moot and
academic because, prior to its filing, petitioners had already
filed their answer and several other pleadings to the
amended Complaint. Section 1, Rule 12 of the Rules of Court,
provides: Section 1. When applied for; purpose.Before
responding to a pleading, a party may move for a more
definite statement or for a bill of particulars of any matter
which is not averred with sufficient definiteness or
particularity to enable him properly to prepare his responsive
pleading. If the pleading is a reply, the motion must be filed
within ten (10) days from service thereof. Such motion shall
point out the defects complained of, the paragraphs wherein
they are contained, and the details desired. (emphasis
supplied)
Witnesses; Judges cannot be expected to rely on the
testimonies of every witnessin ascertaining the facts, they
determine who are credible and who are not.First, judges
cannot be expected to rely on the testimonies of every
witness. In ascertaining the facts, they determine who are
credible and who are not. In doing so, they consider all the
evidence before them. In other words, the mere fact that
Judge Noynay based his decision on the testimonies of
respondents witnesses does not necessarily mean that he
did not consider those of petitioners. Second, we find no
sufficient showing that Judge Operario was overzealous in
questioning the witnesses. His questions merely sought to
clarify their testimonies. In all, we reject petitioners
contention that their right to adduce evidence was violated.
Common Carriers; By the nature of its business and for
reasons of public policy, a common carrier is bound to carry
passengers safely as far as human care and foresight can
provide.We agree with the findings of both courts that

petitioners failed to observe extraordinary diligence that


fateful morning. It must be noted that a common carrier, by
the nature of its business and for reasons of public policy, is
bound to carry passengers safely as far as human care and
foresight can provide. It is supposed to do so by using the
utmost diligence of very cautious persons, with due regard
for all the circumstances. In case of death or injuries to
passengers, it is presumed to have been at fault or to have
acted negligently, unless it proves that it observed
extraordinary diligence as prescribed in Articles 1733 and
1755 of the Civil Code.
Evidence; It is a well-settled rule that the trial courts factual
findings, when affirmed by the appellate court, are conclusive
and binding, if they are not tainted with arbitrariness or
oversight of some fact or circumstance of significance and
influence.We therefore believe that there is no reason to
overturn the assailed CA Decision, which affirmed that of the
RTC. It is a well-settled rule that the trial courts factual
findings, when affirmed by the appellate court, are conclusive
and binding, if they are not tainted with arbitrariness or
oversight of some fact or circumstance of significance and
influence. As clearly discussed above, petitioners have not
presented sufficient ground to warrant a deviation from this
rule.
PETITION for review on certiorari of a decision of the Court of
Appeals.
The facts are stated in the opinion of the Court.
Domingo Lucenario for petitioners.
Mercader & Associates Law Offices for
respondents.
PANGANIBAN, J.:

private

The Manchester ruling requiring the payment of docket and


other fees as a condition for the acquisition of jurisdiction has
no retroactive effect and applies only to cases filed after its
finality.
The Case

Before us is a Petition for Review under Rule 45 of the Rules


of Court, assailing the April 17, 1998 Decision1 and the
October 28, 1998 Resolution2 of the Court of Appeals (CA) in
CA-GR CV No. 40772. The decretal portion of said Decision
reads as follows:
WHEREFORE, upon all the foregoing premises considered,
the DECISION appealed from is AFFIRMED with the
MODIFICATION that the loss of earnings of the late
Dominador Mercader is reduced to P798,000.00.3
The assailed Resolution denied petitioners Motion for
Reconsideration.
The Court of Appeals sustained the Decision of the Regional
Trial Court (RTC) of Laoang, Northern Samar (Branch 21).
Except for the modification of the loss of earnings, it affirmed
all the monetary damages granted by the trial court to
respondents. The decretal portion of the assailed RTC
Decision reads as follows:4
WHEREFORE, on preponderance of evidence, judgment is for
[herein respondents] and against [herein petitioners],
ordering the latter to pay the former:
(a) As compensatory damages for the death of Dominador
MercaderP50,000.00;
(b) For the loss of earnings of the late Dominador Mercader
P1,660,000.00, more or less, based on the average life span
of 75 years from the time of his death who earned a net
income of P5,000.00 monthly out of his business;
(c) Actual damages of P30,000.00 receipted purchases of
goods in Manila; P5,750.00 for the first class coffin and a 15day wake services evidenced by a receipt marked Exh. D;
[P]850.00 for the 50 x 60 headstone, receipt marked Exh. E
and P1,590.00Deed of Absolute Sale of a burial lot, marked
Exh. F;
(d) 25% of whatever amount is collected by [respondents]
from [petitioners] but no less than P50,000.00 plus P1,000.00
per hearing by way of attorneys fees;
(e) As moral damagesP50,000.00;
(f) As exemplary damagesP30,000.00; and
(g) To pay the costs.

The Facts
The antecedents of the case are succinctly summarized by
the Court of Appeals in this wise:
The original complaint was filed against JB Lines, Inc.
[Petitioner JB Lines, Inc.] filed a motion to dismiss complaint,
to strike out false-impertinent matters therefrom, and/or for
bill of particulars on the primary grounds that [respondents]
failed to implead Jose Baritua as an indispensable party and
that the cause of action is a suit against a wrong and nonexistent party. [Respondents] filed and opposition to the said
motion and an amended complaint.
In an Order dated December 11, 1984 the trial court denied
the aforesaid motion and admitted the amended complaint of
[respondents] impleading Jose Baritua and alleged the
following:
(10) The late Dominador Mercader is a [b]usinessman mainly
engaged in the buy and sell of dry goods in Laoang, N.
Samar. He buys his goods from Manila and bringt[s] them to
Laoang, Northern Samar for sale at his store located in the
said locality;
(11) Sometime on March 16, 1983, the late Dominador
Mercader boarded [petitioners] bus No. 142 with Plate No.
484 EU at [petitioners] Manila Station/terminal, bound for
Brgy. Rawis, Laoang Northern Samar as a paying passenger;
(12) At that time, Dominador Mercader had with him as his
baggage, assorted goods (i.e. long pants, short pants,
dusters, etc.) which he likewise loaded in [petitioners] bus;
(13) The late Dominador Mercader was not able to reach his
destination considering that on March 17, 1983 at Bailey
(Bugco) Bridge, Barangay Roxas, Mondragon, Northern
Samar, while he was on board [petitioners] bus no. 142 with
Plate No. 484 EU, the said bus fell into the river as a result of
which the late Dominador Mercader died. x x x.
(14) The accident happened because [petitioners] driver
negligently and recklessly operated the bus at a fast speed in
wanton disregard of traffic rules and regulations and the
prevailing conditions then existing that caused [the] bus to
fall into the river.

[Respondents] then filed a motion to declare [petitioners] in


default which motion was opposed by [petitioners].
[Respondents] withdrew the said motion prompting the trial
court to cancel the scheduled hearing of the said motion to
declare [petitioners] in default in an Order dated January 23,
1985.
In its answer, [petitioners] denied specifically all the
material allegations in the complaint and alleged the
following:
2. The alleged person of Dominador Mercader did not board
bus 142 at [petitioners] Manila station/terminal x x x as a
(supposed paying passenger). There is even no statement in
the complaint that Dominador Mercader (if it were true that
he was a passenger of bus 142 at the [petitioners] Manila
station/terminal) was issued any passenger-freight ticket
conformably with law and practice. It is a fact of public
knowledge that, in compliance with existing rules and laws,
[Petitioner] Baritua, as a public utility operator, issues, thru
his conductors, in appropriate situations, to a true passenger,
the familiar and known passenger and freight ticket which
reads in part:
NOTICE
Baggage carried at owners risk x x x liability on prepaid
freight otherwise declared.
xxx
xxx
xxx
Whole Fare Paid P_________________
Declared value_______________x x x.
Description of Freight _________________
Signature of Owner.
3. It is also a fact of public knowledge that [Petitioner]
Baritua does not have any Manila station/terminal, because
what he has is a Pasay city station.
4. [Petitioner] Baritua had no prior knowledge that, on of
about March 17, 1983, and/or previous thereto, the Bugko

Bailey Bridge (across Catarman-Laoang road) in Barangay


Roxas, Mondragon, Northern Samar, was in virtual
dilapidated] and dangerous condition, in a state of decay and
disrepair, thus calling for the concerned government and
public officials performance of their coordinative and joint
duties and responsibilities, to repair, improve and maintain
that bridge, in good and reasonably safe condition, but, far
from performing or complying with said subject duties and
responsibilities, the adverted officials concerned, without just
cause, not only failed and neglected to cause such needed
repair, improvement and maintenance of the Bugko Bailey
Bridge, on or prior to March 17, 1983, but also failed, and
neglected to either close the Bugko Bridge to public use and
travel, and/or to put appropriate warning and cautionary
signs, for repair, improvement, maintenance, and safety
purposes. So that, as a proximate and direct consequence of
the aggregate officials nonfeasance, bad faith, negligence,
serious inefficiency, and callous indifference to public safety,
that Bugko Bridge collapsed inward and caved in ruin, on that
March 17, 1983, while Barituas bus 142 was cautiously and
prudently passing and travelling across the said bridge, as a
result of which the bus fell into the river and sea waters,
despite the exercise and compliance by Baritua and his driver
of their duties in the matter of their requisite degree of
diligence, caution and prudence, Baritua also exercised and
complied with the requisite duty of diligence, care, and
prudence in the selection and supervision over his driver,
contrary to the baseless imputation in paragraphs 14 and 20
of the original and amended complaints. Moreover, Baritua
and his driver did not violate any traffic rule and regulation,
contrary to plaintiffs insinuation.
5. Furthermore, [Petitioner] Baritua and his driver have no
causative connection with the alleged death of Dominador
Mercader who, according to a reliable source, was already
seriously suffering from a lingering illness even prior to his
alleged demise. Baritua also learned lately, and so it is herein
alleged that Dominador Mercader contributed considerably,
to, and/or provided the proximate and direct cause of his own
death, hence, he himself is to be blamed for whatever may

have happened to him or for whatever may have been


sustained by his supposed heirs, vis--vis the suit against the
wrong party.
6. Baritua and his driver, as earlier stated, did not commit
any actionable breach of contract with the alleged
Dominador Mercader or the latters supposed heirs.
7. There is no factual nor any legal basis for plaintiffs
proffered claims for damages.
II. AFFIRMATIVE DEFENSES
8. Based on the preceding averments, plaintiffs have neither
a cause nor a right of action against [Petitioner] Baritua and
his driver.
8.1. The allegation that supposedly the x x x [plaintiffs are
the compulsory heirs of the late DOMINADOR MERCADER x x
x (par. 8, complaint) is too vague and too broad, as the
subject allegation is a bare and pure conclusionary averment
unaccompanied by the requisite statement of ultimate facts
constitutive of a cause or right of action.
8.2. Even assuming arguendo, without however conceding,
plaintiffs statement of a cause of action, the complaint is
nonetheless replete with false and impertinent matters which
fit the rule on striking out pleadings or parts thereof. To
mention only a glaring few:
8.2.a. The allegation on exemplary damages x x x is
impertinent and immaterial in the complaint against a
supposed employer. For, even theoretically assuming,
without however admitting a negligent act-omission on the
part of a driver, nevertheless, in such a hypothetical
situation, the causative negligence, if any there was, is
personal to the wrongdoer, i.e., the employee-driver, to the
exclusion of the employer.
8.2.b. The allegation on supposed minimum life of 75 years
and on Tie expects to earn no less than P1,680,000.00 x x x
is false, a pure hyperbole, and bereft of factual and legal
basis. Besides, what jurisprudential rule refers to is only net
earning. The law abhors a claim, akin to plaintiffs allegation,
which is manifestly speculative, as it may not exist at all.

Furthermore, the questioned allegation in the plaintiffs


original and amended complaints is not preceded by the
requisite statement of definitive facts, nor of any specific
fact, which could possibly afford a rational basis for a
reasonable expectation of supposed earning that could be
lost, or impaired.
8.2.c. Likewise, the allegations that allegedly x x x the late
Dominador Mercader boarded x x x Bus No. 142 x x x and
that supposedly the latter had a baggage x x x containing
drygoods x x x in which case [petitioners have] to pay the
value thereof in such amount as may be proven by
[respondents] in court during the trial x x x, apart from being
false, are offensive to the rule on concise statement of
ultimate facts. The assailed allegations also contravene
Interim Rule 11, (i)f any demand is for damages in a civil
action the amount thereof must be specifically alleged In
consequence of this averment, [respondents] have not yet
paid the correct docket fee, for which reason, [respondents]
case may be dismissed on that ground alone.
8.3 In violation also of the same Interim Rule 11, regarding
the requisite definitive amount of claim, the allegation on the
supposed funeral expense x x x does not also indicate any
specific amount. So with the averment on supposed moral
damage which may not be warranted because of absence of
allegation of fraud or bad faith, if any, there was, apart from
want of causative connection with the defendant.
8.4 The allegation in paragraph 15 of the original and
amended complaint is also a pure conclusionary averment,
without a factual premise.
9. [Petitioner] JB LINE, impleaded in the amended complaint,
is merely a business name and sole proprietorship of
defendant Baritua. As such, JB Line is not a juridical person,
nor an entity authorized by law to sue and be sued, hence, it
cannot legally be a party to any action. With this averment,
correlated with that in paragraphs 4-5 hereof, [respondents]
amended complaint is essentially a suit against a wrong
party.5

The RTC, after due trial, rendered the aforesaid assailed


Decision.
Ruling of the Court of Appeals
As earlier stated, the Court of Appeals affirmed the trial
courts award of monetary damages in favor of respondents,
except the amount of Dominador Mercaders lost earnings,
which it reduced to P798,000. It held that petitioners failed to
rebut the presumption that in the event a passenger died or
was injured, the carrier had acted negligently. Petitioners, it
added, presented no sufficient proof that they had exercised
extraordinary diligence.
Hence, this Petition.6
The Issues
In their Memorandum, petitioners submit the following issues
for our consideration:
I
Did the honorable Court of Appeals (CA) gravely abuse its
discretion when it allowed to pass sub silencio the trial
courts failure to rule frontally on petitioners plea for a bill of
particulars, and ignored the nature of respondents prayer in
the complaint pleading for an award of
a) P12,000.00representing the death compensation;
b) An amount to be proven in court, representing actual
damages;
c)P1,660,000.00 or more as may be proven during the trial,
by way of loss of earnings;
d) An amount to be proven in court as and by way of funeral
expenses;
e) An amount to be proven during the trial, representing
moral damages;
f) An amount to be determined by this Honorable Court,
representing exemplary damages;
g)An amount equivalent to 25% of whatever amount the
plaintiffs would be able to collect from the defendant but in
no case less than P50,000.00 plus an additional amount of
P1,000.00 per hearing as and by way of Attorneys fees;

II
Did the CA also ignore the fact that the trial court was not
paid the correct amount of the docket and other lawful fees;
hence, without jurisdiction over the original and amended
complaints or over the subject matter of the case;
III
Did the CA likewise arbitrarily disregard petitioners
constitutional right to procedural due process and fairness
when it ignored and thrust aside their right to present
evidence and to expect that their evidence will be duly
considered and appreciated; and
IV
In awarding excessive and extravagant damages, did the CA
and the trial court adhere to the rule that their assailed
decision must state clearly and distinctly the facts and the
laws on which they are based?
Distilling the alleged errors cited above, petitioners raise two
main issues for our consideration: (1) whether the CA erred in
holding that the RTC had jurisdiction over the subject matter
of the case, and (2) whether the CA disregarded petitioners
procedural rights.
The Courts Ruling
The Petition is devoid of merit.
First Issue:
Jurisdiction
Petitioners contend that since the correct amounts of docket
and other lawful fees were not paid by respondents, then the
trial court did not acquire jurisdiction over the subject matter
of the case.
The Court, in Manchester Development Corporation v. CA,8
held that [t]he court acquires jurisdiction over any case only
upon the payment of the prescribed docket fee. An
amendment of the complaint or similar pleading will not
thereby vest jurisdiction in the court, much less the payment

of the docket fee based on the amounts sought in the


amended pleading, x x x.
Generally, the jurisdiction of a court is determined by the
statute in force at the commencement of the action,9 unless
such statute provides for its retroactive application.10 Once
the jurisdiction of a court attaches, it continues until the case
is finally terminated.11 The trial court cannot be ousted
therefrom by subsequent happenings or events, although of
a character that would have prevented jurisdiction from
attaching in the first instance.12
The Manchester ruling, which became final in 1987, has no
retroactive application and cannot be invoked in the subject
Complaint filed in 1984. The Court explicitly declared:
To put a stop to this irregularity, henceforth all complaints,
petitions, answers and other similar pleadings should specify
the amount of damages being prayed for not only in the body
of the pleading but also in the prayer, and said damages
shall be considered in the assessment of the filing fees in any
case. Any pleading that fails to comply with this requirement
shall not he accepted nor admitted, or shall otherwise he
expunged from the record.13 (emphasis supplied)
Second Issue:
Petitioners Procedural Rights
Motion for a Bill of Particulars
Petitioners argue that the Court of Appeals erred when it
passed sub silencio on the trial Courts failure to rule frontally
on their plea for a bill of particulars.
We are not impressed. It must be noted that petitioners
counsel manifested in open court his desire to file a motion
for a bill of particulars. The RTC gave him ten days from
March 12, 1985 within which to do so.14 He, however, filed
the aforesaid motion only on April 2, 1985 or eleven days
past the deadline set by the trial court.15 Moreover, such
motion was already moot and academic because, prior to its
filing, petitioners had already filed their answer and several
other pleadings to the amended Complaint. Section 1, Rule
12 of the Rules of Court, provides:

Section 1. When applied for; purpose.Before responding to


a pleading, a party may move for a more definite statement
or for a bill of particulars of any matter which is not averred
with sufficient definiteness or particularity to enable him
properly to prepare his responsive pleading. If the pleading is
a reply, the motion must be filed within ten (10) days from
service thereof. Such motion shall point out the defects
complained of, the paragraphs wherein they are contained,
and the details desired.16 (emphasis supplied)
Petitioners Right to Adduce Evidence
Petitioners also argue that their right to present evidence
was violated by the CA, because it did not consider their
contention that the trial judges who heard the case were
biasfed and impartial. Petitioners contend, as they did before
the CA, that Judge Tomas B. Noynay based his Decision on
certain chosen partial testimonies of [respondents]
witnesses x x x. They further maintain that Judge Fortunato
Operario, who initially handled the case, questioned some
witnesses in an overzealous manner and assum[ed] the dual
role of magistrate and advocate.17
These arguments are not meritorious. First, judges cannot be
expected to rely on the testimonies of every witness. In
ascertaining the facts, they determine who are credible and
who are not. In doing so, they consider all the evidence
before them. In other words, the mere fact that Judge Noynay
based his decision on the testimonies of respondents
witnesses does not necessarily mean that he did not consider
those of petitioners. Second, we find no sufficient showing
that Judge Operario was overzealous in questioning the
witnesses. His questions merely sought to clarify their
testimonies. In all, we reject petitioners contention that their
right to adduce evidence was violated.
Alleged Failure to State Clearly the Facts and the Law
We are not convinced by petitioners contention, either, that
both the trial and the appellate courts failed to state clearly
and distinctly the facts and the law involved in the case. As
can be gleaned from their Decisions, both courts clearly laid

down their bases for awarding monetary damages to


respondents.
Both the RTC and the CA found that a contract of carriage
existed between petitioners and Dominador Mercader when
he boarded Bus No. 142 in Pasay City on March 16, 1983.
Petitioners failed to transport him to his destination, because
the bus fell into a river while traversing the Bugko Bailey
Bridge. Although he survived the fall, he later died of
asphyxia secondary to drowning.
We agree with the findings of both courts that petitioners
failed to observe extraordinary diligence18 that fateful
morning. It must be noted that a common carrier, by the
nature of its business and for reasons of public policy, is
bound to carry passengers safely as far as human care and
foresight can provide. It is supposed to do so by using the
utmost diligence of very cautious persons, with due regard
for all the circumstances.19 In case of death or injuries to
passengers, it is presumed to have been at fault or to have
acted negligently, unless it proves that it observed
extraordinary diligence as prescribed in Articles 1733 and
175520 of the Civil Code.
We sustain the ruling of the CA that petitioners failed to
prove that they had observed extraordinary diligence.
First, petitioners did not present evidence on the skill or
expertise of the driver of Bus No. 142 or the condition of that
vehicle at the time of the incident.
Second, the bus was overloaded at the time. In fact, several
individuals were standing when the incident occurred.21
Third, the bus was overspeeding. Its conductor testified that
it had overtaken several buses before it reached the Bugko
Bailey Bridge.22 Moreover, prior to crossing the bridge, it had
accelerated and maintained its speed towards the bridge.23
We therefore believe that there is no reason to overturn the
assailed CA Decision, which affirmed that of the RTC. It is a
well-settled rule that the trial courts factual findings, when
affirmed by the appellate court, are conclusive and binding, if
they are not tainted with arbitrariness or oversight of some
fact or circumstance of significance and influence.24 As

clearly discussed above, petitioners have not presented


sufficient ground to warrant a deviation from this rule.
Finally, we cannot fault the appellate court in its computation
of the damages and lost earnings, since it effectively
computed only net earnings in accordance with existing
jurisprudence.25
WHEREFORE, the Petition is hereby DENIED, and the assailed
Decision AFFIRMED. Costs against petitioners.
SO ORDERED.
Melo (Chairman), Vitug, Gonzaga-Reyes and SandovalGutierrez, JJ., concur.
Petition denied, judgment affirmed.
Notes.While common carriers are required to observe
extraordinary diligence and are presumed at fault, no such
presumption applies to private carriers. (Planters Products,
Inc. vs. Court of Appeals, 226 SCRA 476 [1993])
The contract of air carnage generates a relation attended
with a public duty and any discourteous conduct on the part
of the carriers employees toward a passenger gives the
latter an action for damages against the carrier. (Korean
Airlines Co., Ltd. vs. Court of Appeals, 234 SCRA 717 [1994])
In breach of contract of carriage, moral damages may be
recovered when it results in the death of a passenger.
(Sulpicio Lines, Inc. vs. Court of Appeals, 246 SCRA 376
[1995]) [Baritua vs. Mercader, 350 SCRA 86(2001)]